---

ELBOWS UP? DUMB STRATEGY

CANADA'S ELBOWS UP STRATEGY WAS DOOMED TO FAIL, AND IT JUST DID

As we first alluded to January 20, 2025, Canada's "retaliatory tariff" – or in the Prime Minister's view, our "elbows up" – strategy was a bad idea and of "questionable economic policy".  We also described it as a fight that Canada could not win for Bloomberg Daily Tax.

Perhaps expectedly, Prime Minister Carney has today backed off the heart and sole of that retaliatory response, creating an exception for US origin goods.

What Canada Was Doing vs. What the US was Doing

The first thing to understand about Canada's "retaliatory" approach is that Canada was imposing a 25% tariff on virtually everything being imported from the US, that qualified as US origin.  Yes, there were some exceptions (and some additional technicalities), but suffice to say, goods wholly produced in the US or made in the US from US parts and components – i.e., the sort of goods which qualify for "duty free" trade under the current US-Canada-Mexico Free Trade Agreement ("USMCA" or "CUSMA" depending on what you want to call that) – were being taxed by Canada, and at a rate of 25%.  The same goods that had enjoyed free trade between Canada and the US for over 35 years, since the old Free Trade Agreement ("FTA") was put in place in 1989.

Was the US doing the same thing?  Nope!

From the get-go, President Trump clarified that goods qualifying for USMCA treatment (i.e., "real Canadian made goods") were NOT subject to the US tariffs.  Yes, there were exceptions like steel and aluminum, where US policy seems clearly aimed at re-shoring in that industry.   But even the US automotive rules went out of their way to ensure that "Canadian origin" parts were not caught by US tariffs.

Properly understood, then, Canada had its "elbows up" when the US barely had its fist clenched.  No wonder the US positioned this as pulling the rug out from under the USMCA.

In this view, the US was quite clearly respecting its obligations under the USMCA, but Canada was quite clearly not. 

All to the detriment of Canadian businesses and Canadian consumers who were actually the one's required to pay these retaliatory tariffs.  READ THAT AGAIN:  Canadians were paying these surtaxes, not anyone in the US!

Today's Announcement & Takeaways

As reported by CBC News here, Canada appears to have relented, and will be removing its retaliatory tariffs on goods that are compliant with the Canada-U.S.-Mexico Agreement (CUSMA), starting September 1, 2025.

For importers, the name of the game now is to work with US exporters to ensure that USMCA Certifications of origin are in place for qualifying goods.

For Canadian consumers, and in more practical terms, no more surtaxes on Florida orange juice, Napa Valley wines, or Kentucky Bourbon.  Hopefully our government overlords allow us to freely buy these in Canadian stores.

For assistance with Canadian tariffs, please click here.

Download a PDF copy of this Blog here.