Is the Tariff Negotiation Between Canada and the US Going Well?

The ongoing tariff negotiations between Canada and the United States have entered a tense and uncertain phase as of August 2025.

Despite active diplomatic engagement, key developments including tariff hikes, unresolved grievances, and geopolitical disputes suggest a deteriorating path toward a comprehensive trade resolution. 

The situation has broad implications not only for the two nations involved but also for the global economy and North American trade integration.

While both governments claim to be negotiating in good faith, recent moves most notably a sharp increase in U.S. tariffs on Canadian goods suggest a hardening of positions rather than progress. 

The path forward now appears less focused on eliminating tariffs entirely and more on defining which sectors will bear the burden of protectionist trade policies.

Tariff Hike Signals Breakdown in Progress

Trump Increases Tariffs on Canadian Exports

On August 1, 2025, U.S. President Donald Trump raised tariffs on Canadian exports from 25% to 35%, citing Canada's alleged lack of cooperation on border security and the fight against illegal drug trafficking, particularly fentanyl. 

The U.S. administration has framed these tariffs not only as economic leverage but also as a matter of national security and sovereignty.

This decision came despite active talks and mounting pressure from industry groups in both countries to de-escalate. The increase immediately impacted sectors already under stress, leading to cost increases and logistical bottlenecks.

Canadian Response Reflects Frustration

Prime Minister Mark Carney responded by expressing disappointment while reaffirming Canada’s commitment to the Canada-United States-Mexico Agreement (CUSMA). 

However, he was clear in his assessment that a completely tariff-free trade arrangement is becoming increasingly unlikely. Instead, he emphasized that the current negotiations are centered on limiting the damage, rather than restoring previous terms.

Read Also: Trump Tariffs Face Key Court Test Ahead of Critical Deadline

Factors Complicating Negotiations

Security and Border Control Disputes

A central condition for tariff relief, according to U.S. officials, is Canada’s enhanced cooperation in border enforcement. The fentanyl epidemic in the United States has intensified political scrutiny of cross-border drug flows, with Washington urging Ottawa to impose stricter controls and invest in joint security operations.

Dairy Protectionism and Digital Services Tax

Another longstanding tension lies in Canada's protection of its dairy industry through supply management. The U.S. argues that these policies create an unfair trade environment.

Similarly, Canada's digital services tax, which disproportionately affects U.S. tech firms like Amazon, Meta, and Google, has triggered resistance. 

Although Ottawa has temporarily suspended the tax to signal goodwill, the pause has not fundamentally shifted the U.S. stance.

Read Also: US–Indonesia Tariff Deal: Was It a Fair Trade?

Sovereignty and Treaty Tensions

The negotiations have spilled into non-tariff issues as well. President Trump has questioned historic treaties such as the 1908 Boundary Waters Treaty and other shared resource agreements, including water usage in the Great Lakes region. These questions of sovereignty further complicate an already volatile dialogue.

Defense Spending and Military Cooperation

The United States is also pressuring Canada to increase military expenditures and commitments under NORAD and NATO. 

Although not directly tied to trade, these demands form part of a broader package of expectations from the Trump administration, influencing the pace and tone of negotiations.

Read Also: Trump Imposes New Tariff on Brazil! Here Are the Details

Sectoral Impacts and Business Pressure

Key Industries Under Tariff Stress

The bilateral tariff war has disproportionately impacted key Canadian sectors such as:

• Steel and Aluminum: U.S. tariffs were increased to 50%, prompting immediate retaliatory measures from Canada.

• Automotive: With deeply integrated supply chains, car manufacturers on both sides of the border have reported delays and rising costs.

• Lumber and Agriculture: New tariffs have disrupted timber exports and added complexity to the agri-food trade.

Business Calls for Relief

Canada exports approximately 75% of its goods to the U.S., making the economic stakes extraordinarily high. Canadian business groups, including chambers of commerce and trade unions, have called for at least a partial tariff reprieve. Meanwhile, U.S. companies that depend on Canadian inputs are also lobbying for exemptions.

Cross-border supply chains, especially in the automotive and aerospace sectors, are highly interdependent. Prolonged tariff regimes could lead companies to rethink their manufacturing locations, potentially shifting jobs and capital elsewhere.

Read Also: Trump Announces US–EU Trade Agreement: Here Are the Details

What’s Next? A Tariff-Free Deal Unlikely in 2025

Despite continuing negotiations, both Canadian and U.S. officials now suggest that some tariffs are likely to remain in place for the foreseeable future. The conversation has moved from complete elimination to targeted restructuring: limiting the scope, reducing tariff intensity in critical areas, and establishing long-term sectoral agreements.

Prime Minister Carney recently stated there is a "potential landing zone" for a fair deal, but warned that any agreement rushed under pressure would be politically and economically damaging. Likewise, U.S. Trade Representative officials admit a short-term solution is unlikely, and are focusing on "incremental progress" rather than sweeping resolutions.

In this evolving context, CUSMA remains intact, but its credibility and effectiveness are being tested. A managed tariff regime where only essential sectors gain exemptions may become the new normal for Canada-U.S. trade.

Read Also: Is There Another Tariff Agreement from China and the US?

FAQ

What triggered the latest tariff increase between the U.S. and Canada?

President Trump raised tariffs from 25% to 35% on August 1, 2025, citing Canada’s insufficient enforcement on border security and fentanyl trafficking.

Are Canada and the U.S. still part of CUSMA?

Yes, both countries remain committed to the CUSMA agreement, but current tensions challenge its goal of tariff-free North American trade.

Which Canadian industries are most affected by the tariffs?

The steel, aluminum, automotive, and lumber sectors are among the hardest hit due to reciprocal tariff increases and supply chain disruptions.

What are Canada’s main negotiation priorities?

Canada seeks to protect national industries and jobs, ensure sovereignty, and limit the spread and severity of sector-specific tariffs.

Is a tariff-free deal likely in 2025?

Not likely. The negotiations are focused on reducing the burden and scope of tariffs rather than eliminating them altogether.

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