As U.S. tariffs on Canadian goods continue to decline, many observers are breathing a collective sigh of relief. But beneath the surface of these tariff rollbacks lies a complex web of trade agreements, political maneuvering and potential disputes that could soon reignite friction between Canada and its largest trading partner. With the implementation of the Canada–United States–Mexico Agreement (CUSMA) still fresh, businesses and policymakers alike are asking: is this calm before the storm?

Background on U.S.–Canada Trade Relations

For decades, Canada and the United States have enjoyed one of the world’s most integrated trading relationships. Under the original North American Free Trade Agreement (NAFTA), tariffs on everything from autos to agricultural products were gradually eliminated. However, tensions flared several times over the last decade. Most notably, in 2018, the Trump administration imposed steep Section 232 steel and aluminum duties on Canada, citing national security. In reaction, Ottawa slapped retaliatory levies on a host of U.S. goods.

Fast-forward to today: under President Joe Biden, the U.S. has gradually lifted or paused many of those duties. Yet the underlying legal authority for Section 232 tariffs remains intact – and the U.S. has already threatened to reimpose them if certain CUSMA provisions aren’t satisfactorily enforced.

Recent Tariff Reductions

Over the past year, several noteworthy developments have eased duties on key Canadian exports:

  • Steel & Aluminum Waivers: The Biden administration extended its waiver on 25% steel and 10% aluminum tariffs for a series of temporary periods, most recently into early 2023.
  • 301 Investigations: Ongoing Section 301 reviews into Canadian softwood and other products have been delayed, giving exporters breathing room.
  • Dairy and Agri-Foods: Under CUSMA’s tariff-rate quotas, Canada has gradually increased U.S. access to its dairy market, reducing some retaliatory duties.

These measures have helped stabilize co-production in the automotive and metals sectors. Automotive supply chains that span dozens of border crossings daily have, for now, escaped renewed disruption. But each reprieve is time-limited, and the legal frameworks enabling U.S. tariffs have not been dismantled – only parked.

The CUSMA Storm on the Horizon

When NAFTA gave way to the Canada–U.S.–Mexico Agreement in July 2020, negotiators aimed to modernize dispute-settlement rules. CUSMA introduced new rules on digital trade, environmental and labour standards, and enhanced intellectual property protections. Yet it also curtailed the legacy Chapter 19 arbitration panels that once handled anti-dumping and countervailing duty disputes.

  • Dispute Settlement Changes: Under CUSMA, Canada can no longer automatically rely on independent binational panels for certain trade grievances. Instead, disputes may be settled via government-to-government consultations or ad hoc panels, which can be blocked by the U.S.
  • Sunset Clause: CUSMA’s 16-year sunset triggers reviews every six years. If either side votes to terminate the agreement at review time, the entire treaty could unravel.
  • “Snapback” Provisions: If Ottawa doesn’t comply with U.S. demands under CUSMA panels, Washington can unilaterally reimpose tariffs, nominally limited in scope but highly disruptive in practice.

These mechanisms mean that while overt duties are down for now, the risk of abrupt tariff snapbacks remains real. And with freight rates up, energy prices volatile and currency swings, companies are increasingly on edge.

Potential Impact on Key Industries

Even before potential future tariffs, several industry sectors are watching developments closely:

  • Automotive Manufacturing: North American content rules under CUSMA require more high-value, high-wage parts to originate in the region. Any sudden duties on steel or aluminum could break complex just-in-time production models.
  • Energy Exports: Liquefied natural gas, oil pipelines and cross-border power trade depend on stable regulatory regimes. Tariffs or trade disputes could chill investment in new infrastructure.
  • Agriculture & Agri-Food: Dairy and poultry sectors have seen incremental quota gains, but underlying tensions over supply management persist. A dispute over CUSMA quotas could lead to swift counter-measures.
  • Technology & Digital Trade: CUSMA restricts data localization requirements and reinforces cross-border data flows. However, if either government views new data-privacy laws or digital taxation as discriminatory, it could spark arbitration.

Strategies for Canadian Businesses

In this uncertain trade environment, Canadian exporters and investors should consider a multi-pronged approach:

  • Diversify Markets: While the U.S. remains Canada’s largest customer, growing ties with the European Union, Asia-Pacific (via CPTPP) and other regions can reduce vulnerability.
  • Value-Add Investments: Moving up the value chain in high-margin manufacturing, clean technology and intellectual property can dilute the impact of commodity-price swings and tariffs.
  • Legal Preparedness: Companies should map potential dispute-settlement pathways under CUSMA, maintain robust documentation and engage trade lawyers early if duties are threatened.
  • Advocacy & Collaboration: Industry associations can lobby Ottawa to press U.S. negotiators for durable tariff relief and to strengthen enforcement of CUSMA’s modernized chapters.

By combining these strategies, Canadian firms can better weather any sudden policy shifts and maintain competitiveness on both sides of the border.

Conclusion

Though U.S. duties on Canadian steel, aluminum and other goods have eased, the structures that enabled those tariffs remain active. With CUSMA’s updated but sometimes constricted dispute-settlement mechanisms, the door is open for rapid “snapback” levies if either side perceives non-compliance. For now, the calm may indeed be the quiet before the storm. Canadian businesses and policymakers must stay vigilant, diversify risk and prepare contingency plans – because when CUSMA’s storm clouds gather, advance preparation will determine who weathers the tempest intact.