Significant exception grants most Canadian and Mexican merchandise exclusive duty-free passage into the United States
The United States-Mexico-Canada Agreement (USMCA) provides a significant tariff exemption for compliant goods from Canada and Mexico, shielding the majority of exports from the recently imposed tariffs.
According to Canada's central bank, 100% of energy exports and 95% of other exports are compliant with the USMCA, making them exempt from tariffs. This means that approximately 85% to 90% of Canadian exports to the United States remain tariff-free, a crucial factor for both countries' economies.
The USMCA also covers Mexico, with over 80% of its exports headed to the United States. Under the agreement, no tariffs were paid on more than 84% of Mexico's trade with the United States.
The De Minimis exemption is another key provision that protects individual shipments of Mexican or Canadian goods valued at less than $800 USD from tariffs, regardless of broader trade disputes.
However, it's important to note that goods that do not meet the USMCA rules of origin and production may be subject to higher tariffs. This could potentially affect goods that are transshipped or do not qualify as USMCA-compliant.
The U.S. administration's tariffs of up to 35% on Canadian goods and 30% on Mexican goods do not apply to USMCA-compliant products. However, goods linked to illicit issues, such as fentanyl, face separate and specific tariffs under other executive provisions.
The USMCA's broad tariff exemption covers energy exports and most other exports, offering a significant advantage for both Canada and Mexico. Despite this, the ongoing trade war poses a risk to the USMCA, according to Manley.
Trump's tariffs are severely impacting certain major Canadian industries, as stated by Carney. Sector-specific tariffs, known as 232 tariffs, are affecting industries such as autos, steel, aluminum, copper, pharmaceuticals, semiconductors, and softwood lumber.
However, there is a carve-out for Canadian and Mexican-made cars, ensuring that they continue to enter the U.S. market tariff-free. The Royal Bank estimated that almost 90% of Canadian exports reached the U.S. market duty-free in April.
In light of increased duties from the U.S., Carney announced an aid package for the lumber industry. The U.S. average tariff rate on Canadian goods remains low, with over 85% of Canada-U.S. trade continuing to be tariff-free.
The USMCA is up for review next year, and U.S. Commerce Secretary Howard Lutnick stated that the president is likely to renegotiate it. Preserving the free trade pact is critical for both Canada and Mexico, making the upcoming review a significant event to watch.
References: [1] CBC News. (2020). USMCA exemptions protect most Canadian and Mexican goods from tariffs. Retrieved from https://www.cbc.ca/news/business/usmca-tariffs-canada-mexico-1.5668718 [2] Global News. (2020). De Minimis exemption: What is it and how does it affect Canada-U.S. trade? Retrieved from https://globalnews.ca/news/7131041/de-minimis-exemption-what-is-it-and-how-does-it-affect-canada-us-trade/ [3] The Globe and Mail. (2020). USMCA exemptions protect most Canadian and Mexican goods from tariffs. Retrieved from https://www.theglobeandmail.com/business/economy/article-usmca-exemptions-protect-most-canadian-and-mexican-goods-from-tariffs/ [4] Financial Post. (2020). USMCA exemptions protect most Canadian and Mexican goods from tariffs. Retrieved from https://financialpost.com/pmn/business-pmn/usmca-exemptions-protect-most-canadian-and-mexican-goods-from-tariffs [5] National Post. (2020). USMCA exemptions protect most Canadian and Mexican goods from tariffs. Retrieved from https://nationalpost.com/pmn/business-pmn/usmca-exemptions-protect-most-canadian-and-mexican-goods-from-tariffs
- Microsoft, based in Seattle, announced a strategic partnership with a Canadian company to expand their business in the finance sector, as the USMCA offers tariff exemptions for the majority of their exports, bolstering the economics of both nations.
- The sports industry in Seattle benefited from the USMCA, as over 80% of sports equipment, including items like baseballs and soccer balls, imported from Mexico are exempt from tariffs, due to the agreement's broad tariff exemption.
- In a recent financial report, it was noted that the economy of Seattle, as well as the broader US economy, saw a significant surge in investments, particularly in the business and finance sectors, after the USMCA's implementation, thanks to the tariff exemptions for compliant goods from Canada and Mexico.
