Trump’s Tariffs: Why Can’t CUSMA Stop Them?

On February 1, 2025, U.S. President Donald Trump announced the imposition of tariffs on Canadian goods - 25% on all imports from Canada, with energy imports facing a slightly lower tariff of 10%. This decision was justified by concerns over illegal immigration and drug trafficking, particularly the smuggling of fentanyl, from Canada into the United States. This sudden escalation in trade restrictions has sparked outrage and unease on both sides of the border. In response, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs of 25% on $30 billion worth of U.S. goods, effective February 4. However, both countries agreed shortly after to a 30-day suspension of the duties, during which Canada committed to strengthening its northern border security. Trudeau announced Canada would spend $1.3 billion CDN over the span of six years to upgrade border security and intensify efforts against fentanyl smuggling, with investments in advanced surveillance such as drones and mobile towers, deployment of 10,000 troops, and closer U.S.-Canada cooperation. Additionally, Trudeau’s administration appointed Kevin Brosseau, a former high-ranking RCMP official, as Canada’s “fentanyl czar,” working with the Canadian Border Services Agency (CBSA) to spearhead efforts against opioid smuggling. This temporary ceasefire offered the two countries time to renegotiate, however, it did not last long. On February 10, Trump signed executive orders to impose 25% tariffs on all U.S. steel and aluminum imports, including those from Mexico and Canada. These actions underscored the fragility of trade relations under the Canada-United States-Mexico Agreement (CUSMA), which replaced the North American Free Trade Agreement (NAFTA) in 2020.

This is not the first time the Trump administration has targeted Canada with levies. In the spring of 2018, the U.S. imposed 25% tariffs on Canadian steel and 10% on aluminum, citing national security concerns under a rarely used clause of U.S. trade law. Canada retaliated with its own tariffs, and after nearly a year of economic friction, both sides withdrew the measures. A similar pattern unfolded in August 2020, when the U.S. applied a 10% tariff on Canadian aluminum. Once again, Canada retaliated, and the tariffs were paused a month later after Canada’s threats proved effective.

The recent tariff escalation raises critical questions about why CUSMA, a trade agreement meant to foster economic stability and cooperation, has been unable to prevent such actions. CUSMA’s goal is to maintain NAFTA’s tariff-free market access, while including updates to address modern-day trade challenges and opportunities such as labour regulations and environmental standards. However, as Gus Van Harten, professor of trade and investment law at York University, said in an interview with CBC, "A trade agreement is just a treaty ... and treaties can be broken.”

The new tariffs being put in place violate CUSMA’s provisions unless the U.S. invokes specific exemptions, such as those related to national security. Trump has enacted the International Emergency Economic Powers Act (IEEPA), which allows him to restrict economic activity during a national emergency - in this case relating to the flow of illegal immigration and illicit drugs from Canada into the U.S.. However, this approach is unorthodox for tariffs and will likely face legal challenges. Additionally, Canada is not a significant transit country for fentanyl or illegal immigration compared to China or Mexico, making up only 0.2% of U.S. border fentanyl seizures, showing the legal weakness of this rationale. 

Canadian officials have indicated that they view these tariffs as clear violations of U.S. trade commitments under both the World Trade Organization (WTO) framework and CUSMA and will likely challenge them through both channels. At the WTO, Canada’s case would likely succeed, however, the resolution process could take months or even years. A challenge under CUSMA would also likely favour Canada but faces similar delays. These delays create a window in which the American levies could cause significant economic disruption. Additionally, Trudeau has indicated that in response to U.S. actions, he would put retaliatory tariffs in place. However, this could also face legal scrutiny under WTO and CUSMA rules, complicating the resolution process.

The economic consequences of tariffs between Canada and the U.S. are severe for both nations. The Canadian Chamber of Commerce estimated that Trump's 25% tariff would cost Canadians about $1,900 per person annually, with energy, auto, mining, pharmaceutical, chemical, and forestry products being the most heavily impacted sectors. Looking at the impact on American consumers, over half of U.S. aluminum product imports come from Canada, in addition to Canada being America’s largest supplier of crude oil and lumber. Higher tariffs on Canadian goods would increase costs for U.S. manufacturers, which would then be passed on to American consumers, leading to higher prices for goods ranging from cars to energy to household products. Additionally, U.S. exporters targeted by Canada’s potential retaliatory duties would face reduced demand in export markets.

The larger implications of this trade dispute highlight a critical flaw in CUSMA: its limited ability to prevent or resolve disputes from unilateral trade actions. Considering the emergency powers and national security loopholes that the U.S. is invoking, one may question Trump’s support of the Agreement in general. When the Agreement was signed, he remarked that CUSMA was the “most modern, up-to-date, and balanced trade agreement in the history of the country”. However more recently, in October 2024, Trump stated that “Upon taking office, [he] will formally notify Mexico and Canada of my intention to invoke the six-year renegotiation provision of the USMCA that I put in.” This may mean that Trump is not ready to fully tear up the Agreement, although he does not seem to feel overly constricted by the international rules-based order that has long governed trade. These comments and his actions may have implications on what to expect next from his administration. 

As tensions mount during the 30-day suspension of tariffs on Canadian goods, the stakes for both nations are high. Ideally, Trump and Trudeau will reach a resolution that will prevent the economic fallout of a prolonged trade war. However, in the longer term, Canada may need to reconsider its heavy reliance on the U.S. market and begin diversifying trade relationships. Ultimately, this period serves as a reminder of the fragility of even the closest trade partnerships.