Trade tensions between the United States (U.S.) and Canada have increased amid a wave of tariffs and retaliatory measures, affecting economic ties between the two countries. The U.S and Canada have had a longstanding history of bilateral trade relationships, particularly in the automotive and energy markets.
The Canada-United States Free Trade Agreement (CUSFTA), was signed in 1988 by President Ronald Reagan and Prime Minister Brian Mulroney. The agreement was enforced in 1989 and eliminated all tariffs trade between the U.S. and Canada. It was later replaced by the North American Free Trade Agreement (NAFTA) in 1994, which extended tariff exemption to include Mexico. The agreement was superseded in 2020 with the United States-Mexico-Canada Agreement (USMCA), which aimed to improve trade relations and create a balanced trade environment between the three countries.
In 2024, The U.S. Census Bureau reported that the U.S. imported $413 billion worth of goods from Canada, making it the nation’s third-largest supplier. Canada was reported as the top destination for U.S. exports in 2024. Including both exports and imports, Canada was the second-largest trade partner for the U.S. that year.
Statistics Canada reported that 76 percent of their goods were exported to the U.S. and 50 percent were imported from the U.S. in 2024. In 2023, the U.S. was the largest source of Foreign Direct Investment (FDI) to Canada, investing more in Canadian assets and businesses, by stock, than any other country. In the same year, Canada was the third-largest source of FDI to the U.S.
In Janunary of 2025, the Trump administration declared that the U.S. will impose tariffs on Canadian goods under the International Emergency Economic Powers Act (IEEPA), which grants the president authority to regulate international economic transactions. The tariffs were also imposed under the Trade Expansion Act of 1962, which permits the president to take action on imports that threaten national security. However, Canadian imports under the USCMA remain exempt from these tariffs.
In February of 2025, President Trump announced that the U.S. will impose 25 percent tariffs on all imports from Canada, including a 10 percent tariff on energy imports under IEEPA. The tariffs went into effect on March 4, however the imports under the USCMA remain suspended from these tariffs.
On March 12, Trump imposed 25 percent tariffs on steel and aluminum imports from Canada, which removed previous exemptions and raised the tariffs on aluminum by 15 percent. On April 3, a 25 percent tariff was imposed on all vehicle imports traded under USCMA, excluding all content from the U.S. The Trump administration announced that it would continue taking preventive measures to avoid the accumulation of tariffs on Canadian steel and aluminum.
Canada has responded to the IEEPA tariffs by imposing 25 percent tariffs on U.S. imports. The Prime Minister of Canada, Mark Carney, stated that these retaliatory tariffs will remain until the U.S. can make “credible, reliable commitments to free and fair trade.” Canadian provinces and territories have also announced retaliation measures on the sale of U.S. alcohol.
Congress is currently assessing the possibility of conducting oversight over U.S.-Canada trade relations. A joint review of USCMA has been scheduled for 2026.
