In a sharp escalation of trade tensions, President Donald Trump has announced a 35% tariff on select Canadian imports, effective August 1, tightening pressure on Canada over issues ranging from fentanyl trafficking to retaliatory trade measures. Crucially, goods compliant with the United States–Mexico–Canada Agreement (USMCA) are exempted—at least for now.
Trump’s move targets products he claims are part of Canada’s inadequate response to the fentanyl crisis flooding into the U.S. He also cites longstanding Canadian barriers, particularly in dairy and agricultural sectors—some carrying “400%” duties as he alleged, hurting U.S. producers.
In a letter to Canadian Prime Minister Mark Carney shared publicly on Truth Social, Trump warned that tariff rates could rise further or be adjusted downward depending on Ottawa’s actions. He also pledged to penalize any “transshipment” efforts intended to avoid the new levies.
U.S. officials clarified that the 35% tariff applies only to non-USMCA-compliant goods, preserving preferential treatment for those that adhere to the trilateral agreement. This means most automotive parts and other USMCA-certified items remain tariff-free—but non-compliant sectors such as certain foods, potash, and energy may face the full burden.
The distinction provides Canada’s businesses with a temporary buffer, but uncertainty looms—particularly around goods whose compliance status is under review.
Financial markets responded swiftly: U.S. stock futures and Treasury yields slipped on worries over trade escalation. The Canadian dollar also dropped to a two-week low, reflecting investor anxiety .
Canadian exporters in non-USMCA sectors are bracing for disruption. Ottawa is considering retaliatory measures and invoking rule-based solutions under WTO frameworks and NAFTA-era mechanisms. Prime Minister Carney has indicated ongoing efforts to mitigate both the fentanyl flow and tariff fallout before the July 21 economic and security pact deadline.
The tariff threats form part of a broader U.S. strategy: Trump has issued similar warnings to over 20 countries, with proposals ranging from 15%–20% tariffs, including a temporary 50% levy on Brazilian goods. Several countries are now scrambling to negotiate carve-outs or exemptions to avoid steep duties.
The prevailing argument in Washington: these trade measures are aimed at correcting “unsustainable trade imbalances” that pose economic and national security risks .
“Carving out USMCA-compliant goods softens the blow but leaves too much uncertainty,” notes Alicia Fernandez, trade economist at NorthStar Insights. “We’re likely headed toward tit-for-tat tariffs and escalating legal dispute.”
Trump’s 35% tariff threat on Canadian goods—while sparing USMCA-compliant items—signifies a targeted yet volatile escalation in the U.S.–Canada trade relationship. With critical deadlines approaching and retaliatory steps underway, this confrontation may reshape North American trade policy well beyond August.
