The Devil’s in the Details: Understanding Canada/U.S. Complex Trade Landscape

The Canada-United States-Mexico Agreement (CUSMA), implemented on July 1, 2020, governs trade among Canada, the U.S., and Mexico, replacing NAFTA. It establishes a largely tariff-free framework for goods meeting rules of origin, with specific tariff-rate quotas (TRQs) for sensitive sectors like dairy, poultry, and eggs.

CUSMA eliminates tariffs on approximately 98% of goods traded among Canada, the U.S., and Mexico, provided they meet rules of origin. Goods must have sufficient North American content (e.g., 60–75% for most products, 75% for autos) to qualify for tariff-free treatment. Non-compliant goods face Most Favored Nation (MFN) tariffs.

Services, meanwhile, were generally not subject to tariffs. CUSMA does not impose tariffs on services (e.g., financial, telecommunications, professional services). Chapter 15 ensures open market access, though non-tariff barriers like licensing or regulations may apply.

In 2024, Canada was the U.S.’s largest export market for 36 states, with $412.7 billion in U.S. imports from Canada and $349.4 billion in exports to Canada. The U.S. had a $33 billion trade surplus in manufacturing with Canada, highlighting the integrated supply chains under CUSMA.

Canada exports to the U.S. include Mineral fuels and oils (valued at $129.56 billion), Vehicles ($52.87 billion), and Nuclear reactors and machinery ($32.32 billion). At the same time, U.S. exports to Canada included Vehicles ($53.67 billion), Machinery ($51.27 billion), and Electrical and electronic equipment ($28.30 billion).

The United States and Canada maintain a deeply integrated and strong trade relationship. Canada was a top trading partner for the US, both as an import source and export destination. While the US experienced a trade deficit with Canada, it's worth noting that this deficit would be significantly reduced or even reversed without energy trade (oil, gas, and other fuels).

The Devil Is In the Details of CUSMA

Certain Canadian goods faced tariffs due to specific trade disputes, safeguard measures, or non-CUSMA compliance. Services, meanwhile, were generally not subject to tariffs but could face non-tariff barriers.