The White House announced late Thursday that US President Donald Trump has signed an Executive Order increasing the tariff on Canada from 25% to 35%, with the higher tariff set to take effect on August 1, 2025.
Additional takeaways
- Trump signed an executive order modifying reciprocal tariff rates for certain countries.
- Trump administration will continue to use all available tools to protect national security.
- Trump has determined that it is necessary and appropriate to modify the reciprocal tariff rates for certain countries.
- Countries listed in Annex I of the executive order will be subject to the tariff specified therein.
- Countries not listed in Annex I will be subject to a 10% tariff.
Market reaction
At the time of writing, the USD/CAD pair is trading 0.01% lower on the day to trade at 1.3855.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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