Canadian companies across a variety of industries were elated to learn that they may be exempt from Donald Trump’s tariffs.
If a company’s goods fall under the Canada-U.S.-Mexico Agreement (CUSMA — the three-way free trade deal Trump signed in 2018), tariffs will not apply.
Stress and tension has recently stirred around the tariff increases Trump is threatening to impose on Canada starting August 1st. However, U.S. and Canadian officials say they won’t take effect on goods that comply with the terms of CUSMA.
Trade policy experts claim that most Canadian exports qualify, creatring a massive surge in companies rushing to verify their products as compliant.
This article outlines CUSMA compliance and what it means for protecting Canada’s cross-border trade from Trump’s impending tariffs.
What is the CUSMA exemption?
In March, Trump hit Canadian exports to the U.S. with 25% tariffs. Energy and potash recieved a lesser tariff at 10%.
Recently, Trump is threatened to boost these tariffs to 35% this Friday — the same date the Canadian government plans to negotiate a new economic deal with the US.
However, the US President amended those tariffs by exempting products that qualify for duty-free status under CUSMA. Originally, this exemption was intended to be a one-month pause. However, it is still in effect.
Around 86% of the value of Canada’s exports to the US could possibly qualify and travel across the border without consequence (RBC Economics).
Wolfgang Alschner, the Hyman Soloway Chair in Business and Trade Law at the University of Ottawa, believes this gives Canada “a huge comparative advantage” over the rest of the world, which faces broad-based tariffs on nearly all exports to the U.S (CBC).
“It’s a huge deal,” Alschner stated in an interview. “It’s not perfect and it’s not good for some [sectors], but overall it’s the best deal for any country in the world that currently exists.”
Which Canadian exports are exempt?
Far more Canadian exports have the potential to qualify for the exemption than those that do not.
Products that contain predominantly non-North American contents that are simply shipped over to the U.S. from Canada don’t qualify as CUSMA-compliant.
Of course, the exemption won’t apply to products belonging to Trump’s sector-specific tariffs — specifically 50% on steel and aluminum and the 25% on non-US content of automobile imports.
Outside of that, anything that is grown, harvested or extracted from Canadian soil, or built with Canadian labour, that lands on the US market can be tariff-free under CUSMA.
On the CBS program Face the Nation, US Commerce Secretary Howard Lutnick waved off the interviewer’s suggestion that free trade with Canada is “dead”. He said 75% of US imports from Canada and Mexico can cross the borders tariff-free.
What does CUSMA-compliancy look like?
Naturally, being approved as CUSMA-compliant sounds far more simple than in reality.
Any product made in Canada has the potential to fit under CUSMA. To actualize that potential, the exporter has to hop through a few hoops of fire and power through a stack of paperwork to prove the product’s Canadian origins.
CUSMA’s rules of origin vary among products. In general, 60 to 75% of its content must come from inside of North America to be tariff-free.
Laura Dawson is an executive director of the Future Borders Coalition, an organization that advocates for streamlined Canada-U.S. trade and travel.
She says proving that a product meets CUSMA’s standards is a painstaking and time-consuming process that is becoming the “new reality” for Canadian companies.
“It’s something businesses are going to have to accept, that if they want to do business with the United States, they’re going to have to prove compliance,” she said.
How to prove a productive complies with CUSMA
Canadian exporters must obtain a certificate of origin to protect their products from tariffs as they travel across borders.
CEO of A & A Customs Brokers, Steve Bozicevic, says work in securing those certificates has exploded in recent months.
“Getting the certification is relatively easy,” Bozicevic said in an interview. “Proving it if you get audited, if you are buying things from overseas and processing them, can get a little bit hairier.”
Official trade statistics show that more companies are doing engaging in this process. The proportion of Canadian goods entering the US explicitly duty-free nearly reached 90% in March and April — ascending from just below 80% in January and February.
How does CUSMA fit into trade talks?
Communication coming from the White House implies that tariffs are a reality against some Canadian exports, CUSMA exempt or not.
Canada’s trade negotiators are surely feeling the pressure to maximize the volume of tariff-free Canadian exports.
CUSMA protection can help secure that. Looking ahead, the three-way trade deal is due for renegotiation in July 2026.
As with the nature of Trump’s presidency, nothing is guaranteed and unpredictabilty is the principle. The exemption could crumble as quickly as it was granted.
“If that exemption goes away, we’re in an Armageddon scenario,” Bozicevic stated.
Do you agree? Share your thoughts in the comments.
