The upcoming USMCA review risks raising tariffs on Canada’s exports to over 7%

The USMCA review is already heating up, and President Donald Trump just threw more fuel on it. On Saturday, he threatened Canada with 100% tariffs if Prime Minister Mark Carney goes ahead with a trade deal with China.

Trump said Carney would be “sorely mistaken” to think the U.S. will let Canada turn into a dumping ground for Chinese products.

Carney’s deal with Chinese President Xi Jinping was announced on January 16. It allows up to 49,000 electric vehicles from China to enter Canada each year, which is under 3% of the Canadian new vehicle market.

In return, Canada gets lower tariffs on its food exports to China. Trump didn’t like it. At first, he said it was fine, but now he’s warning Canada it could cost them if they go further with Beijing.

Trade officials defend deal as tensions rise

Dominic LeBlanc, who handles U.S. trade for Canada, fired back. He said there’s “no pursuit of a free trade agreement with China.” He called the deal limited and only about fixing tariff problems. He also described the U.S.-Canada relationship as a “remarkable partnership,” despite Trump’s attacks.

Carney, speaking in Ottawa, said the plan is to pull tariffs back to where they were in 2023 but keep the EV cap in place. “We’re going to use the expression ‘back to the future’ with respect to EVs, with respect to agriculture,” he said. He claimed it sticks to the rules under the USMCA.

Trump’s reaction comes just months before the official review kicks off. The deal marks its sixth anniversary on July 1, and if the U.S., Canada, and Mexico don’t agree to extend it for another 16 years, they’ll be stuck doing yearly reviews until the pact dies in 2036.

Any of the three can also pull out with six months’ notice. That clause’s now sitting on the table, and everyone knows it.

Economists told Bloomberg they still expect the review to end with a deal, but Trump’s threats are making things shaky. Dominique Lapointe, from Manulife Investment Management, said the new warnings add “downside risks” to the upcoming talks.

Canada’s economy vulnerable as review deadline nears

This is not great news for Canada, which sends most of its exports to the U.S. Sectors like steel, autos, aluminum, and lumber are already under pressure from Trump’s sector-specific tariffs. But there’s still a large chunk of goods that get through tariff-free under USMCA. If that protection disappears, economists say the average rate on Canada’s exports to the U.S. could spike to over 7%.

Trump’s already said this month that he sees “no real advantage” to keeping USMCA, even though it was one of his big wins when he replaced NAFTA. But now he’s acting like the deal is holding America back.

That’s not what Derek Holt from Bank of Nova Scotia sees. He said most American industries actually stood up for the deal during official hearings. In a Friday report, he wrote, “The vast majority of U.S. industries that testified at USTR hearings strongly supported the USMCA deal.”

Businesses in Canada aren’t feeling steady either. A survey by the Bank of Canada showed most companies are pausing growth plans. They’re only spending money on keeping things running, not expanding.

Bloomberg’s economists said Canada’s investment could go up by 1.3% in 2026, but only if the USMCA talks go well. Last year, it was just 0.6%.

Randall Bartlett from Desjardins said the noise and drama were always going to be part of it. He said, “It was never going to be a positive environment for business investment in Canada, particularly in the first part of this year.”

Even Matthew Holmes from the Canadian Chamber of Commerce had concerns. He said companies are already dealing with the fallout and urged both sides to “come to a better understanding quickly.”

Bartlett added that Canada’s talks with China might end up helping them during the USMCA battle. “There are other major trading partners that want to work with us,” he said. And if Canada shifts away from depending only on the U.S., it could create problems for American businesses too.

Trump himself seemed fine with the deal at first. On January 16, he said, “That’s OK, that’s what he should be doing. If you can get a deal with China, you should do that.” But now, he’s ready to hit back. The politics are changing fast. And with the USMCA review around the corner, the next few months look messy.

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