First there was NAFTA, then CUSMA. What’s to come?
Tariffs are nothing new to Canada. Nor is controversy.
The North American Free Trade Agreement (NAFTA) – a trade deal that came into effect on Jan 1. 1994 – wasn’t welcomed with open arms. The agreement was intended to promote trade between Canada, the U.S. and Mexico, increase investment opportunities, and improve fair competition. It meant that numerous tariffs on a variety of products were removed. These included tariffs on agricultural goods, vehicles and textiles.
But many Canadian and American critics at the time of the deal were worried about corporate interests, a significant impact on the environment and lower employment standards. Canadian unions were concerned that the agreement would lead to an exodus of Canadian manufacturing firms to Mexico where labour costs were significantly lower.
Brief history of NAFTA
The deal had been a long time coming. Former U.S. president Ronald Reagan had been championing free trade since the late 1970s. And in 1984, Former Canadian prime minister, Brian Mulroney, took up the free trade mantle. Involving Mexico presented a challenge as both Ottawa and Washington were concerned about opening up their markets to the U.S.’s southern neighbour. In the end, Mulroney opted to sign as he was worried that a deal between the U.S. and Mexico might lead to less investment in Canada.
After 14 months of negotiations, Mulroney, U.S. President George Bush and Mexican President Carlos Salinas signed NAFTA in 1992. But ratification of the deal took some time, as the new U.S. president, Bill Clinton, wanted two-side accords introduced to protect the environment and labour rights. These agreements required new domestic laws to be drawn up by the three countries. When Prime Minister Jean Chrétien was elected in 1993 he led the renegotiation of NAFTA, which was finally ratified in 1993.
NAFTA’s impact
While the impact of NAFTA isn’t the easiest to quantify, total merchandise trade between the three NAFTA partners more than tripled between 1993 and 2015, amounting to over US$1 trillion, according to the Canadian Encyclopedia. In 2016, 77.8 per cent of Canada’s total merchandise exports were sent to its NAFTA partners and total merchandise trade between Canada and the United States more than doubled between 1993 and 2016. At the same time, trade with Mexico increased eightfold.
NAFTA replaced with CUSMA
In 2017, U.S. President Donald Trump threatened to renegotiate or cancel NAFTA, calling it “the worst deal ever made.” One of his election promises was to abolish the deal unless Canada and Mexico agreed to the U.S.’s terms.
Trump announced tariffs on May 31, 2018. These tariffs on imports of Canadian steel and aluminum, as well as softwood lumber, lasted for a year. Canada retaliated and announced its own tariffs totalling approximately $16.6 billion on steel, aluminum and hundreds of other products from the U.S.
After Canada’s retaliatory steel tariffs, steel exports declined by 37.8 per cent in June 2018 while aluminum saw an average monthly export value during the tariff period at 18.6 per cent lower than in 2017, according to Statistics Canada.
This led Canada, the U.S. and Mexico to head back to the negotiation table for a year. The three parties reached a deal in 2018, a trilateral agreement called the Canada-United States-Mexico Agreement (CUSMA). CUSMA came into effect on July 1, 2020. In the U.S., the deal is called the United States–Mexico–Canada Agreement, or USMCA.
CUSMA is not radically different from NAFTA. However, it appeased the U.S. with new additions regarding labour, the environment, small and medium-size businesses and digital trade. Critics of the deal felt the impact on Canada’s economy would not be significant, with Global Affairs Canada viewing CUSMA as boosting Canada’s economy by a mere 0.249 per cent of GDP by 2025.
What’s happening now
On Jan. 31st, 2025, President Trump, now in his second term, announced he was implementing a 25 per cent additional tariff on imports from Canada and Mexico and a 10 per cent additional tariff on imports from China. He also said energy resources from Canada would have a lower 10 per cent tariff.
The tariffs were to “hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country,” the White House announced.
On Feb. 1, Trudeau told a news conference he was applying tariffs to $155 billion ($107 billion) of U.S. goods. Thirty billion of those tariffs were to take effect on Feb. 4, the same day as Trump’s tariffs were set to start, while duties on the remaining $125 billion would be applied in 21 days.
On Feb. 2, Trump said he would delay the tariffs for 30 days. He said he had spoken to Trudeau and Canada had agreed to appoint a drug czar to patrol the Canada-U.S. border and had committed $1.3 billion to a border safety plan. He also announced Mexico’s tariffs would be delayed for 30 days. Ottawa announced it would postpone its tariffs as well.
On Feb. 10th, Trump confirmed he would apply a 25 per cent tariff on all steel and aluminum imports, including from Canada, starting March 12.
