As USMCA compliance rises, tariff rates drop: NBF

The effective U.S. tariff rate on Canadian exporters has dropped sharply in recent months as companies have rushed to bring their products into compliance with the Canada-U.S.-Mexico Agreement (also referred to as the USMCA) trade deal, reports National Bank Financial Inc. (NBF).

In a new report, economists at NBF noted the effective tariff rate on exports to the U.S. is far below the headline levels imposed by the U.S. administration on Canada overall — thanks to exemptions from those headline rates under the USMCA trade deal.

“USMCA compliance remains the name of the tariff game in Canada,” it said.

For exports that don’t comply with the agreement, the tariff rate is over 25%, the report noted. At the rates of compliance with the USMCA back in March, the effective rate would be over 15%.

However, “As compliance has stepped up rapidly since tariffs were introduced this year, the effective tariff on U.S.-bound exports has dropped significantly,” it noted. Indeed, it estimates that the national effective tariff is currently about 5%.

Most of the exposure to higher U.S. tariffs is being felt in specifically targeted sectors, such as the steel, aluminum and auto industries, the report noted.

As a result, different regions of the country are also facing different economic impacts.

For instance, Ontario and Quebec’s higher exposures to these sectors translate into higher effective tariff rates in these provinces — over 7% — and more negative economic impacts, including rising unemployment rates.

“So, while the USMCA offers Canada significant tariff carveouts, we’d caution against completely discounting the impact of this year’s trade war,” the report said. Sector- and province-specific damage is happening — and that’s starting to be reflected in the economic data.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.