The United States

tariff rate

on Canada’s exports at the end of 2025 was lower than previously thought, according to data released earlier this week, but whether that lasts is the question on everyone’s mind as the July 1 date that kickstarts the

Canada-U.S.-Mexico Agreement

(CUSMA) review comes into view.

The average effective tariff rate on Canadian exports to the U.S. fell to 3.1 per cent in December from 3.7 per cent in November, while the share of tariff-free exports rose to 89 per cent in December, slightly higher than the monthly average of 87 per cent for the year, the U.S. Census Bureau said.

Exports from Canada to the U.S. continue to face the lowest tariff rate among the U.S.’s largest trading partners, Nathan Janzen, an economist at RBC Economics, said in a note, adding that the effective tariff for those other countries was 9.3 per cent in December, down from a peak of 11 per cent in October.

Earlier economist estimates forecasted Canadian exports to the U.S. would face an

effective tariff rate

of around six per cent and Prime Minister

Mark Carney

last September estimated tariffs stood at around 5.5 per cent.

Capital Economics Ltd., in a report last year, predicted the effective tariff rate could fall to as low as 2.5 per cent.

Though Canada is currently enjoying a lower rate, it still represents a major hit to business given that CUSMA was established to create a zero-tariff trading zone.

“The U.S. reported tariff revenues remain high, but continued to edge lower in December, including those collected from Canada,” Janzen said.

Tariffs against Canadian goods appear to be trending lower, but sectors such as

steel

and

aluminum

continue to suffer under the weight of 50 per cent levies.

Trade

in general has suffered. Canada’s share of total U.S. imports shrank to 11.2 per cent last year, from 12.6 per cent in 2024, which Janzen said was “the second-largest decline among major U.S. trade partners next to China’s drop from 13.4 per cent to nine per cent.”

U.S. Trade Representative

Jameson Greer

earlier this week said Washington was open to changing its tariffs on steel and aluminum.

But reports have also emerged that U.S. President

Donald Trump

is weighing breaking up CUSMA to negotiate separate deals with Mexico and Canada.

That is not the position of most economic houses.

“Our working assumption is that a modified, but ultimately similar, USMCA is extended at some point in the next 12 months,” Bradley Saunders and Kimberley Sperrfechter, economists at Capital Economics, said in a note on Thursday that looked at some of the questions around CUSMA.

They said the looming U.S. midterm elections and overall business support for the pact will likely dissuade Trump from pulling out, though he might threaten to as a negotiating tactic.

Saunders and Sperrfechter expect the U.S. will target greater access to Canada’s dairy sector and possibly higher North American content rules for the auto sector, even going so far as to push for higher U.S.-content. Canada will likely seek relief from sector-specific tariffs, but the economists said it’s possible those industries will have to settle for the CUSMA-compliant relief mechanism currently in place.

There is a chance the U.S. will push to establish a “Fortress North America” policy bloc during negotiations, they said.

The pair estimated that a renegotiated CUSMA could boost Canada’s gross domestic product to 1.5 per cent from 1.1 per cent this year. A U.S. withdrawal would plunge Canada’s and Mexico’s economies into recession, they said.

“We think the popularity of the trade agreement among domestic firms, the potential for backlash from an increasingly assertive Congress and the likelihood of intervention by the Supreme Court should keep the Trump administration from attempting to withdraw,” they said.

  • Posthaste: CIBC warns Canada’s housing market is in rougher shape than we thought
  • Posthaste: Canada’s biggest city is losing momentum, and that’s a problem for the whole country

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Canada’s trade deficit last year widened to $31.3 billion, marking the largest annual shortfall on record outside of the COVID-19 pandemic, as U.S. tariffs hammered key export sectors.
Annual exports last year decreased by 0.2 per cent, driven by declines across most product groups, Statistics Canada reported on Thursday. Exports to the U.S. tumbled 5.8 per cent. — Bloomberg
Read the full story here.
  • Today’s Data: Canadian retail sales for December, raw materials price index, U.S. fourth quarter GDP advanced estimate, personal consumption expenditures index, new home sales, University of Michigan consumer sentiment index.
  • Earnings: Onex Corp., Secure Waste Infrastructure Corp.


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Jamie Golombek

, managing director of

Tax and Estate Planning with CIBC

, talks about what’s new in

tax returns

this year and how the

Canada Revenue Agency

can help you find deductions and credits. Watch the video

here

.

Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on  one of the country’s most important sectors.

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McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column

can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

mortgage rate page

for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s

YouTube channel

for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.

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  • Posthaste: CIBC warns Canada’s housing market is in rougher shape than we thought
  • Posthaste: Canada’s biggest city is losing momentum, and that’s a problem for the whole country

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