Analysis September 9, 2025

The Trade Brief: Deals, Drama & Duty-Free (RIP)

Daniela Lombardo – Trade Policy Analyst, Business Council of Canada Sarah Alrifai – Communications Specialist, Business Council of Canada

Canada’s Place in the World Global Affairs International Trade North America

Hi, it’s me again, The Trade Brief!

Ah August, the “Sunday” of the summer.

The holidays have ended, the tan has faded, but the trade wars are just getting started.

There’s a lot to unpack this month, and sadly, none of it involves your vacation souvenirs. 🥲 Here are three things we think you should know:

What “elbows down and heads high” really means
Legal challenges might not end tariffs
Is this the end of duty-free shipping? gasp
What else is going on?

Elbows down?

Prime Minister Mark Carney removed some retaliatory tariffs on U.S. imports covered under USMCA. Cue controversy.

Not everyone was thrilled.

But the fact is our “revenge tariffs” weren’t only hurting the U.S … they were adding to Canada’s troubles at a time when our economy is not doing well:

Q2 economic contraction: 1.6%
Business investment drop: 10%
Unemployment: 7.1%

At the same time, tariffs meant Canadians are still paying more for everyday goods (especially food).

The twist: Many U.S. tariffs excluded USMCA-compliant goods. Canada’s didn’t. Thanks to USMCA, Canada has one of the lowest average tariff rates (3%) among major U.S. trading partners and most Canadian exports to the U.S. are tariff-free.

Keeping our full suite of tariffs would’ve meant:

📈Higher costs for Canadians
📉A weaker negotiating position
🥲Being the only country (along with China) still counter-tariffing while the U.S. finalized trade deals with a dozen others

Lil’ history: Canada had retaliatory tariffs under Donald Trump’s first term, but so did other major partners like the EU. This time, it’s solo. 75% of our exports go to the U.S. and only 18% of theirs go to Canada. And diversification is taking a hot minute.

BUT not all retaliatory tariffs have vanished. 😶‍🌫️

Tariffs on steel, aluminum, autos, and lumber (U.S.’s “hot”🔥 targets) remain.

Bottom line: the costs of retaliation were high 👍; the benefits? Minimal👎.

Look, retaliation might feel satisfying, but it’s not smart economics. Canada’s economy is tightly linked to the U.S., so stability wins.🏆

Some good news though: De-escalation seems to be (kind of) working. Prime Minister Carney and President Trump are now “talking more regularly.”

Legal challenges might not end tariffs

In the U.S., presidents have a toolbox for tariffs. President Trump? He’s used tools that have collected dust for a very long time.

The most recent one is the International Emergency Economic Powers Act (IEEPA) which he applied first to Canada, China and Mexico before using the act again in his “Liberation Day” tariffs on everyone else.

(Remember back in April the big sign President Trump pulled out with new tariffs on all countries, including those penguins in Antarctica? Those are the Liberation Day Tariffs.)

The logic for the IEEPA tariffs? Both fentanyl smuggling + persistent trade deficits = national emergencies = tariffs required.

He’s the first U.S. president to use this Act for that purpose and now it’s caught in its own legal crosshairs.

Lower courts & U.S. Court of International Trade: ruled tariffs illegal ❌
Case: heading to the Supreme Court (SCOTUS) 🏛️

🐎But hold your horses 🐎

SCOTUS may or may not agree with the lower courts (who were nay on the tariffs). The judges who disagreed with the lower court ruling gave strong arguments in favour of the White House.
Other tariff tools exist. For example, Section 232 (national security) tariffs are still standing.

If SCOTUS does rule against the White House:

Businesses could get tariff revenue back 💰
Renegotiating trade deals = political migraine 🤯

The Trump team is hitting the “prime shipping” button because they want a Supreme Court ruling like yesterday.

Regardless of the result, legal drama may shake things up and the tariffs won’t likely disappear anytime soon. And whatever happens will set a new precedent for presidential power on trade.

The end of duty-free shipping?

Plz. Say it ain’t so.

Soooo… the U.S. scrapped the “de minimis” exemption (goods under US$800 enter tariff-free) for all countries.

🇨🇦 Hit hardest: Canadian small businesses exporting to the U.S.
🇺🇸 Also hit: American consumers. Last year, nearly 4M packages/day crossed the border. (Think Etsy, Temu, Shein … RIP 🪦).

Why it matters: The exemption has raised concerns that low-value packages could be used to smuggle drugs, dodge customs, or rely on forced labour.

In other trade news

Digital dramarama 💻

Trump threatened new tariffs on countries with digital rules/taxes that:

🚫Discriminate against U.S. companies
🤐Censor free speech

‼️Just in: the EU fined Google for €2.95 billion over claims it was abusing its power on the ad sector, President Trump threatened retaliation (yikes!).

🎯 Other targets: South Korea + countries considering EU-style digital rules.

And so,

🇨🇦 Canada scrapped its Digital Services Tax this summer, but irritants remain: Online Streaming Act, Online News Act.
🇵🇱 Poland was like “ok?” and went ahead with a digital tax anyway.
🇪🇺 EU leaders warn U.S. pushback on digital rules could upend their trade deal.

Busy bees 🐝

Prime Minister Carney and his Ministers were out networking IRL making friends and deals this summer.

Highlights:

🇩🇪 Germany: Signed a critical minerals pact with Chancellor Friedrich Merz, pooling public funds for natural resource projects.
🇵🇱Poland: Deepened trade, defence, and security ties via a new high-level working group.
🇲🇽Mexico: Ministers Anita Anand & François-Philippe Champagne met President Claudia Sheinbaum.
🌎Mercosur (South American trade club): Free-trade negotiations resume between Canada and Mercosur.
🇮🇳 India: New high commissioners appointed in each country 10 months after last year’s fallout. See here for a quick recap.
🇨🇳 China: Trade representative Li Chenggang visited Ottawa after PM Carney announced the revival of the Joint Economic & Trade Commission.

Who sits with who? 🤝

Canada isn’t the only one making and trading friendship bracelets with everyone like it’s a Taylor Swift concert.

EU + Mercosur trade deal: On track to create one of the world’s largest free-trade zones.
Russia, China & India: Met at Shanghai Cooperation Organization summit. Spicy speeches + subtle jabs included. Oop 👀.
U.S. + India: President Trump & Cabinet signal deal still possible despite last month’s trade spats.

Keeping an 👀 on

Critical minerals: U.S. added potash, silicon, and copper to its “critical minerals” list. Potash was flagged as the highest risk because of Canada’s history of trade barriers. Yikes. Lower probabilities were given to Russia and South Africa who are also potash exporters. (This just feels personal tbh).
- Washington dedicated US$1B to fund new critical mineral projects.
Section 232 (security) tariffs️: U.S. Department of Commerce (DoC) is investigating wind turbine imports (which, FYI, we export a lot of to the U.S.).
- DoC also expanded tariffs on 400+ steel & aluminum derivative goods worth US$164B. The list is anticipated to 📈⬆️.
‘Bad trade’ squad assemble!️: DOJ launched a Trade Fraud Task Force to crack down on tariff evaders. (If you thought you could get away with it…think again apparently)