Canada–U.S. Tariffs: Why Carney Still Needs Trump

The United States midterm elections changed the political balance in Washington, but they did not immediately move the legal lever that has kept Canadian exporters facing steep tariffs. On 10 November, Prime Minister Mark Carney said the White House would remain the decisive counterpart for Canada’s trade negotiations despite Democratic gains in Congress. His point was practical: the new Congress cannot take office until January, and the president currently controls the executive machinery that imposed the disputed duties and can modify them. Canada is therefore choosing to keep one federal negotiating channel open rather than allow provincial governments to pursue separate approaches to U.S. governors and senators. The decision preserves a coherent Canadian position, but it also concentrates the immediate negotiation in a White House that has used tariffs as leverage. The costs are already visible in trade flows and official tariff estimates; whether a deal reduces them without compromising Canadian policy autonomy remains unresolved.

The midterm result did not repeal a tariff

Mark Carney’s remarks, reported by the Associated Press on 11 November after a news conference in Montreal, were a response to the idea that Democratic election victories might give Canada a new route around President Donald Trump. Democrats campaigned against the tariffs and some lawmakers have promised to challenge them. But the election result itself did not amend the Tariff Act, cancel a presidential proclamation or restore tariff-free treatment to every Canadian product.

The timing matters. The new Congress elected on 3 November does not begin its term until 3 January 2027. The US Senate (opens in a new tab) and House therefore remain under their existing membership during the immediate post-election period. Until then, the existing Congress remains in office. Even after the new members are sworn in, a bill to repeal or restrict tariff authority would need to pass both chambers and survive a presidential veto or secure the votes to override one. That is a possible political route, not a guaranteed near-term remedy for Canadian businesses.

The immediate legal authority is executive. On 20 July 2026, President Donald Trump issued proclamations under Section 338 of the Tariff Act of 1930, which authorises additional duties when the president finds that a foreign country discriminates against U.S. commerce in a way that places American trade at a disadvantage. The White House announced 50% tariffs on specified Canadian products, including goods in the automotive, alcohol and dairy disputes. On 22 August, a further 50% tariff measure covered a wider group of Canadian goods valued by Finance Canada at $27.6 billion. Canada announced dollar-for-dollar countermeasures; its targeted counter-tariffs on a corresponding $27.6 billion of U.S. imports took effect on 8 September. Later U.S. proclamations modified the covered products. These are targeted measures, not a 50% tax on every Canadian export.

The distinction is important because Section 338 is not the same instrument as the sectoral tariffs imposed under Section 232 or the emergency tariffs used in other trade disputes. The legal basis, covered goods and exemptions differ. A headline saying “50% tariffs on Canada” obscures the actual tariff schedule and can exaggerate the share of bilateral trade affected.

The size of the exposure

Canada has a strong reason to negotiate with Washington even while it diversifies elsewhere. Statistics Canada reports that the United States accounted for 71.7% of Canadian merchandise exports in 2025, down from 75.9% in 2024. The U.S. share of Canadian merchandise imports also fell, from 62.3% to 58.8%. The shift is meaningful, but the American market remains the destination for more than seven in every ten Canadian export dollars in goods.

The U.S. Trade Representative estimates that U.S. goods and services trade with Canada totalled $872.3 billion in 2025. That included $715.5 billion in goods trade and $156.8 billion in services. The U.S. exported $333.6 billion in goods to Canada and imported $381.9 billion. These figures show that the relationship is not a one-way Canadian dependency: American manufacturers, farmers, service providers and workers also rely on access to the Canadian market.

The tariff burden is more complicated than the statutory rate. The Bank of Canada’s 28 October 2026 Monetary Policy Report estimates that the average U.S. tariff rate on Canadian goods, measured across goods trade and the measures in force or announced by 22 October, was 7.5% in October. The corresponding average Canadian tariff rate on U.S. goods was 3.9%. The central bank assumes that most CUSMA-compliant goods remain exempt where the relevant tariff instrument allows it, while noting that some U.S. sectoral and Section 338 measures do not provide a CUSMA exemption.

That average is the more useful measure for the economy than repeating the 50% headline. It captures the mix of covered and exempt products, not the duty on one specific shipment. It also remains an estimate based on the measures and assumptions available at the report’s cutoff, not a final customs bill for every importer.

CUSMA is still in force, but it is no longer a guarantee against every tariff

The Canada–United States–Mexico Agreement remains the central framework for North American trade. Its first mandatory joint review took place on 1 July 2026, six years after the agreement entered into force. The review is not an expiry date. Canada says CUSMA remains in force until 2036, but the review gave the three governments an opportunity to agree whether to extend its term for another 16 years.

The U.S. Trade Representative said on 1 July that the United States did not agree to renew CUSMA in its current form. That statement did not terminate the agreement. It left the treaty in force while the parties continue to address its operation and their disagreements. If the governments do not agree to extend it, the agreement’s review process continues before its 2036 end date.

For exporters, the crucial distinction is between preferential treatment under CUSMA and protection from every other U.S. tariff instrument. Global Affairs Canada says more than 98% of tariff lines and more than 99.9% of bilateral trade can qualify for preferential treatment when goods meet the applicable rules of origin and the exporter properly claims the preference. But the Canadian government also acknowledges that CUSMA compliance does not exempt goods from all U.S. duties. In particular, the Section 338 measures and some Section 232 duties can still apply to covered products.

That is why Carney cannot simply tell Canadian firms that the existing trade agreement protects them. The agreement continues to matter, but the practical value of its preferences depends on the legal basis of each tariff and the product’s origin. A company can meet CUSMA rules and still face a separate duty imposed under another statute.

Why Carney wants one Canadian negotiator

Carney’s immediate political problem is not only the White House. It is also the risk of a fragmented Canadian response. According to AP, he was responding to plans by Quebec to contact U.S. officials, including governors and senators, directly. He argued that trade negotiations should have one counterpart and that managing the federal relationship is the responsibility of the Canadian government.

The argument has a constitutional and practical basis. Canada’s federal government is responsible for international trade negotiations and treaty relations. Provinces, however, control or administer important areas that affect cross-border commerce, including procurement, alcohol distribution, energy, infrastructure and some regulatory choices. Their cooperation can be essential to implementing a deal. Governors and senators can influence U.S. politics and domestic implementation, but they cannot independently sign a bilateral trade agreement on behalf of the United States.

A unified federal negotiating position can prevent Washington from exploiting contradictory Canadian promises. It can also give provinces a clear channel through which to raise the costs they face. The risk is that centralisation may leave provincial governments and affected industries with less direct influence over the details of a settlement. Carney’s position is therefore a choice about bargaining structure, not proof that provincial outreach is useless.

The prime minister’s 4 November travel announcement shows the wider strategy. From 11 to 19 November he is travelling to Ireland, the Philippines, Cambodia and China for international summits intended to diversify Canada’s trade, investment and security relationships. Canada and the EU have launched an Alliance for the Future and are working toward Canadian associate membership in the EU single-market framework. Those initiatives may widen Canada’s options over time. They cannot replace the U.S. market quickly, and they do not remove the immediate costs of tariffs already in force.

Who gains and who pays

The White House gains bargaining leverage because it can modify the scope of the duties and offer relief through executive action. U.S. producers competing with covered Canadian imports may gain temporary protection, while American exporters can lose sales when Canada retaliates. Canadian exporters in covered sectors face higher costs or reduced access; Canadian importers and manufacturers using U.S. inputs face their own exposure to counter-tariffs and uncertainty. Some of the burden can be passed to consumers through higher prices, while other costs appear as lower margins, delayed investment or reduced orders. Carney’s single-negotiator approach may protect Canada from contradictory commitments, but it also leaves the federal government accountable for the terms it accepts. Neither side can claim a household benefit merely because it announced a tariff or a negotiating position.

The economic indicators that will show whether the strategy works

The first indicator is the average tariff rate actually paid on bilateral goods trade, separated by product and legal authority. The Bank of Canada’s October estimates—7.5% for U.S. tariffs on Canada and 3.9% for Canadian tariffs on the United States—provide a baseline, but customs data will show whether exemptions, remissions and product changes alter the effective burden.

The second is bilateral merchandise trade. Canadian exports to the United States, U.S. exports to Canada, and the share of each country’s total trade accounted for by the other will show whether firms are absorbing the duties, switching suppliers or redirecting sales. The third is consumer inflation. Tariffs on intermediate goods can raise production costs before they appear in retail prices, so the global consumer price inflation indicator (opens in a new tab) is a broad reference rather than a Canada-specific tariff estimate. The cost-of-living pressure driver (opens in a new tab) and household purchasing power (opens in a new tab) frame the welfare question: do wages keep pace with the cost of imported goods, food, vehicles and household equipment?

Employment and investment are equally important. A protected domestic factory may hire more workers, but a downstream manufacturer may cut shifts if its imported components become more expensive. A firm may announce a new Canadian or American plant but delay construction until it knows whether tariffs will persist. The relevant test is actual production, capital spending, payrolls and productivity—not the number of investment announcements made during a negotiation.

What happens next

The first near-term signal is whether the White House changes the scope of Section 338 tariffs or offers a written negotiating framework. The second is whether Congress’s new membership turns campaign opposition into hearings, legislation or a bipartisan attempt to limit the president’s authority. Any such proposal must be tracked through committee, floor votes and the possibility of a veto. A campaign promise is not a change in law.

The third signal is the CUSMA review process. The parties can continue technical discussions while the agreement remains in force. The next meaningful result would be a formal agreement on extension, a defined set of amendments or a documented failure to resolve key disputes. The fourth is whether Canada’s trade diversification produces measurable new export sales rather than simply more diplomatic meetings. The EU partnership, new market access and infrastructure plans should be judged against actual contracts, exports and investment.

For Canadian households and businesses, the immediate reality is neither that the midterms solved the tariff dispute nor that Canada has no leverage. The U.S. market remains essential to Canadian exporters, while U.S. firms also depend on Canadian buyers, energy and supply chains. The new Congress may change the political environment in January, but the president still controls the current executive tariff measures. Carney’s decision to keep one federal negotiating channel is a rational response to that allocation of power. Its success will be measured by lower effective tariffs, stable market access and improved household purchasing power—not by the strength of the rhetoric on either side.

Sources

• Associated Press — Carney says Trump remains central to Canada–U.S. trade talks despite midterm wins, 11 November 2026 (opens in a new tab)
• Prime Minister of Canada — Carney announces travel to diversify Canada’s partnerships, 4 November 2026 (opens in a new tab)
• Bank of Canada — Monetary Policy Report: Tariff and other assumptions, 28 October 2026 (opens in a new tab)
• Finance Canada — Targeted countermeasures and support in response to U.S. tariffs, 25 August 2026 (opens in a new tab)
• The White House — Additional 50% tariffs on specified Canadian products under Section 338, 20 July 2026 (opens in a new tab)
• U.S. Trade Representative — Statement on the USMCA joint review, 1 July 2026 (opens in a new tab)
• U.S. Trade Representative — Canada trade summary, 2025 data (opens in a new tab)
• Statistics Canada — Canadian international merchandise trade, December 2025, 19 February 2026 (opens in a new tab)
• Global Affairs Canada — Understanding CUSMA compliance (opens in a new tab)