Since U.S. President Donald Trump first threatened to place massive tariffs on Canadian goods, the country has been embroiled in a whirlwind back and forth with its biggest trading partner.
Against this backdrop, China has slapped new tariffs on certain Canadian goods, and at least one other long-standing trade squabble has been pushed back into the spotlight.
Here’s a quick look at how tariffs are set under normal circumstances, why some of them (under certain conditions) can skyrocket, and why New Zealand is unhappy.
How do Canada’s tariffs work?
Tariffs are governed by the Customs Tariff Act, which sets a general rate of 35 per cent for goods entering Canada. This may seem high, but this baseline rate is almost never used.
This is because Canada, along with more than 160 other countries, is part of the World Trade Organization (WTO), and all WTO members have “Most-Favoured-Nation” (MFN) status when trading with each other.
All of Canada’s key trading partners are WTO members and they pay lower MFN rates — which vary from product to product. The rate can be even lower if the two countries have their own trade agreement.
“Whether it’s multilateral or bilateral with other WTO members, you’re allowed to reduce that MFN tariff to something lower, either a lower duty tariff or a no duty tariff,” said Martha Harrison, an international trade lawyer.
For example, the MFN rate for certain railroad axles is 9.5 per cent, but Australia and New Zealand pay just two per cent, because of separate agreements.
Under the Canada-United States-Mexico Agreement (CUSMA), 98 per cent of goods entering Canada from the U.S. have no tariffs – or at least, they didn’t before the trade war.
Many goods can enter Canada tariff-free under MFN status, but Canada places higher default tariffs on some products. Our MFN rate for clothing products averages around 18 per cent, which is partly to help domestic producers compete fairly, but also in the hope of lowering the number of products made under poor labour conditions entering Canadian markets, Harrison says.
But when it comes to the dairy industry, tariffs get a little more complicated.
What about dairy?
Canada uses “supply management” policies for certain agricultural products to control prices, maintain food safety standards and protect the dairy, egg and poultry industries from foreign competition — policies which have long irritated trade partners such as the U.S. and New Zealand, another big dairy producer.
The policies aim to limit how much of each product — butter, cheese, ice cream, eggs, etc. — can be imported. Importers apply for a percentage of the quota, and are able to bring in that quantity with no tariffs.
Donald Trump is not a fan of Canada’s dairy supply management system — repeatedly attacking it in his first term and going after it again as he prepares to return to the White House. CBC’s Ellen Mauro meets concerned Canadian dairy farmers and explains why the system has the U.S. president-elect so riled up.
Trump has claimed Canada is “ripping [the U.S.] off” by putting tariffs of over 200 per cent on dairy products.
But those tariffs only kick in after the U.S. surpasses the quantity it’s permitted to sell in Canada tariff-free – a number negotiated by the Trump administration in 2018 as part of CUSMA.
“Unless or until you meet that threshold, you do not pay,” Harrison said, noting that the U.S. has never reached the quota, which the U.S. dairy industry acknowledged earlier this month.
During the negotiation of CUSMA, Canada agreed to increase over time the quota of U.S. products that can enter the market tariff free.
New Zealand formally challenged this system in 2022, saying Canada wasn’t holding up its commitments under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The dispute is ongoing.
Why is China upset?
In October, Canada put a 25 per cent surtax on steel and aluminum products from China, and 100 per cent on Chinese-made electric vehicles (EVs), claiming unfair competition. Tariffs are often collected in the form of a surtax, which are additional taxes on top of existing rates.
China responded with retaliatory tariffs on Canadian agricultural and food products, including canola oil and peas.
The U.S. had earlier that year raised tariffs on a range of products from China, including steel and aluminum — an example of how closely aligned Ottawa and Washington’s trade goals were just last year.
“It’s not uncommon for Canada to follow in our key trading partner’s footsteps relating to trade policy,” Harrison said. “It makes sense from a North American economy perspective.”
The destabilizing of this historical relationship, enshrined in CUSMA, is “especially troubling,” she added.
“Our most important trading partner appears to be less aligned with Canada’s focus on international trade and with Canada’s position within the CUSMA arrangement.”
