New U.S. Section 338 tariffs of 50% took effect on Canadian exports after no last-minute deal was reached, covering about 5% of Canada's shipments to the U.S. RBC Economics estimates the hit at roughly 0.4% of Canadian GDP, with plastics, electrical machinery, furniture and wood products taking the brunt of the impact.
Washington's Section 338 tariffs on a subset of Canadian goods took effect after no last-minute deal was reached, adding a 50% duty on top of existing tariffs on steel, aluminum, lumber and motor vehicles. The measures apply to products accounting for about 5% of Canadian exports to the United States.
Targeted sectors face a steep hit
RBC Economics says the Canadian value-added content of the newly tariffed goods adds up to about 0.4% of Canadian GDP and jobs, and more than 80% of exports would remain duty-free under CUSMA exemptions. Still, about 3.7% of total U.S. imports of the targeted products came from Canada in 2025, while the U.S. accounted for 81% of Canada's exports of those same products. Plastic products, electrical machinery, furniture and wood goods are the sectors most affected, concentrating the economic impact in Quebec, British Columbia and Ontario.
Canada's average effective tariff rate would mechanically rise to around 6% from around 3%, though that remains below the roughly 7% average U.S. tariff rate on imports from all countries.
Negotiations have stalled
The U.S. and Canadian sides have reportedly cut off talks, leaving the path to unwinding the new tariffs uncertain. Canada has not announced a specific response but has signaled plans for retaliatory measures. A complication is that Canada is a net importer of the targeted products from the U.S., having imported about $23 billion worth in 2025 against roughly $20 billion in exports of the same goods.
Limited pressure on the Bank of Canada
RBC does not expect the broader impact to push the Bank of Canada toward interest rate cuts, since the growth headwinds stay concentrated in a narrow set of industries better suited to fiscal relief. However, the intensifying trade uncertainty and a recent moderation in underlying inflation trends have increased the likelihood the BoC will not hike rates this year. CUSMA itself does not expire for a decade, and RBC continues to argue that cross-border trade remains mutually beneficial for both economies.
Source: ActionForex
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