Trump increases tariff on Canada to 35% from 25%, cites fentanyl ahead of August 1 deadline

Economic Times

3 days ago

US President Donald Trump has signed an executive order raising tariffs on Canadian goods from 25% to 35% for all items outside the USMCA agreement. Canada, which relies heavily on the U.S. market, is expected to respond with countermeasures. Trump has also set new tariffs on 68 other nations and extended negotiations with Mexico. The White House has tied Canada's new rate partly to fentanyl concerns, sparking further friction between Ottawa and Washington as broader trade tensions continue to mount.
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Blaming Canada for fentanyl and "retaliation"
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Carney reached out but no talks happened
Canada's response remains divided
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A vulnerable trading partner
Wider global impact: 68 countries affected
Mexico granted a 90-day breather
USMCA under strain as Trump signals shift
Multiple deals in motion
US President Donald Trump signed an executive order late on Thursday raising tariffs on Canadian goods not covered under the U.S.-Mexico-Canada Agreement (USMCA) from 25% to 35%, the White House confirmed.A separate 40% levy will apply to goods that are re-routed through third countries in an effort to dodge the new tariffs, according to a White House fact sheet.The measure came just hours before Trump's self-imposed deadline for nations to strike new trade deals with the United States.The White House has partly linked the decision to what it described as Canada's "continued inaction and retaliation", referencing concerns about fentanyl trafficking. Although Ottawa maintains that only a tiny fraction of the drug entering the U.S. originates from Canadian territory, officials say they've already taken steps to tighten border security.Trump, however, sees it differently. 'Well, they have to pay a fair rate – that's all. It's very simple. They have been charging very, very high tariffs to our farmers, some over 200% and they've been treating our farmers very badly,' he said when asked about the new measures.Canadian Prime Minister Mark Carney reportedly reached out before the tariff hike took effect, but no conversation took place.'We haven't spoken to Canada today. He's (Carney) called and we'll, we'll see,' Trump told reporters at the White House just hours before the new rates were made public.Carney's office did not respond to media requests. On Wednesday, he said that while trade talks with Washington had been 'constructive,' a final deal by the deadline was unlikely.He added that a complete rollback of U.S. tariffs was not on the table.With no clear agreement in place, pressure is mounting inside Canada. Carney must coordinate with ten provinces, each pulling in different directions. Some want a strong counter-response, others a more measured approach.Premier Doug Ford of Ontario, Canada's industrial powerhouse and the province most exposed to U.S. trade disruption, pushed hard for retaliation. 'Canada shouldn't settle for anything less than the right deal. Now is not the time to roll over. We need to stand our ground,' he said in a post on X.Ford has called for a 50% counter-tariff on U.S. steel and aluminium imports.Carney, speaking in June, warned that if no deal was reached by the August 1 deadline, Canada would likely impose new levies on American steel and aluminium.Canada ships around three-quarters of its exports to the U.S. The country's manufacturing-heavy export sector, including cars, steel, and aluminium, stands to be hit hardest.Roughly 90% of Canadian exports to the U.S. in May qualified under the USMCA, according to government data. But those that don't comply now face steep new tariffs.The figures also show a significant shift: the share of Canadian exports heading to the U.S. dropped by 10 percentage points over the last year, falling to 68%. Analysts say the shift reflects a push to diversify, as some companies seek new markets to avoid the uncertainty of U.S. policy.Despite the tension, economists believe the Canadian economy will avoid a recession, citing unexpected resilience and trade adaptation.Trump's order didn't just target Canada. New tariffs were imposed on 68 nations and the European Union, with a baseline rate of 10% for unlisted countries.Taiwan will now face a 20% tariff, Pakistan 19%, and Lesotho — initially threatened with a 50% levy — will now see a 15% rate. The same 15% tariff applies to imports from Israel, Iceland, Ghana, Ecuador, Fiji and Guyana.A senior U.S. official, speaking anonymously, said the rates were based on each country's trade imbalance with the U.S. and their regional economic weight.Earlier Thursday, Trump held a phone call with Mexican President Claudia Sheinbaum. Following the conversation, he agreed to a 90-day negotiation window, averting a planned tariff increase to 30%.During this period, Mexico will continue to pay the existing 25% duty on non-USMCA goods.'We avoided the tariff increase announced for tomorrow and we got 90 days to build a long-term agreement through dialogue,' Sheinbaum wrote on X.Trump described the call as 'very successful,' saying the leaders had 'got to know each other better.' He said that under the arrangement, U.S.-bound Mexican imports of copper, aluminium and steel will face tariffs of up to 50%. Cars will be taxed at 25%.He also claimed Mexico had agreed to eliminate its 'non-tariff trade barriers' without offering details.Some goods continue to be protected under the USMCA, the three-way deal Trump negotiated during his first term. But he now appears to have cooled on the agreement.The deal is up for renegotiation next year. Trump, in recent comments, indicated frustration with both Mexico and Canada, accusing them of taking advantage of the U.S. on trade.U.S. Census Bureau data shows the trade imbalance with Mexico reached $171.5 billion last year, up sharply from $63.3 billion in 2016, the year before Trump took office.The flurry of tariff activity on Thursday capped days of deal-making. Trump said, 'We have made a few deals today that are excellent deals for the country,' though he declined to name the nations involved.New agreements have reportedly been reached with the European Union, Japan, Indonesia, the Philippines, South Korea, Cambodia and Thailand. Commerce Secretary Howard Lutnick told Fox News that the deals with Cambodia and Thailand came after both countries agreed to halt a border conflict.European Union officials were still working on the framework for taxing imported vehicles. Meanwhile, Switzerland and Norway were said to still be awaiting clarity on their own rates.Trump's current tariff strategy has evolved quickly. Back in April, a previous round of tariff announcements triggered a stock market slide and recession fears. To contain the fallout, Trump introduced a 90-day negotiating period, but as deadlines passed without enough deals, the White House ramped up pressure again.The unpredictability has rattled markets and governments. While Trump sees tariffs as leverage, economists warn that the costs will eventually filter down to U.S. consumers and businesses. For now, the pressure has shifted to America's biggest trading partners — and they'll need to decide how to respond.(With inputs from Reuters)