While tariffs imposed by the United States are weakening certain strategic sectors, Canada and Quebec are faring better than expected. But the outlook remains uncertain.
Since Donald Trump returned to the White House in January 2025, trade tensions between Canada and the United States have flared up again. The introduction of new tariffs on steel, aluminum, vehicles, lumber and several manufactured goods has rekindled concerns about Canada’s dependence on its main trading partner. Yet, while recent data show a weakening of exports and a widening of the trade deficit, they also reveal a certain resilience, and even an ability to adapt, on the part of Canadian and Quebec companies.
A growing trade deficit
In August 2025, Canada’s merchandise trade deficit widened for the first time since the implementation of U.S. tariffs, rising from $3.82 billion to $6.32 billion, according to a National Bank analysis. This is far from economists’ forecasts of $5.6 billion.
This deterioration was largely due to a drop in real exports (-2.8%) and a marked decline in sales of metal, forestry and agri-food products. Crude gold, silver and palladium were down by 11.8%, while lumber exports fell by 25.4%, penalized by the increase in anti-dumping duties imposed by the United States.
However, some increases offset these declines. Exports of aircraft, consumer goods and energy products rose, as did those of aluminum, even though the product is now subject to a 50% tariff. Exports are up 48.3% month-on-month, their highest level since May (though still 10% below their 10-year average).
With access to the U.S. market tightening, Quebec’s aluminum industry quickly redirected part of its deliveries to Europe. Since the start of the year, exports to the Netherlands have jumped 74.5%, those to Italy have doubled and those to Poland have quadrupled, reported La Presse.
However, this strategic redeployment was not enough to compensate for significant losses: Rio Tinto estimates the financial impact of the US measures on aluminum at US$300 million, while Alcoa reports a loss of US$100 million. Before the imposition of the duties, monthly sales to the USA averaged $1.1 billion; these have now fallen to $848 million, a drop of 24%.
Drop in Quebec exports
According to the Institut de la statistique du Québec (ISQ), in the second quarter of 2025, Quebec’s international trade declined by 0.3% year-on-year. Behind this overall figure lies a marked imbalance: imports rose by 6.4%, while exports plunged by 7.6%, widening the trade deficit to $7.6 billion, up 142% year-on-year.
Exports to the United States fell particularly sharply: -14.5% in value. This trade, which still accounted for over 55% of Quebec’s trade flows at the start of the year, was down to 44.7% in the second quarter – its lowest level since 2010.
Unsurprisingly, the sectors hardest hit were those already targeted by U.S. surtaxes. The aluminum industry suffered a 14.5% drop in exports, aerospace was down 21%, and lumber exports fell to a low not seen since May 2015 (excluding the pandemic).
In Quebec, exports of precious metals and chemicals also declined sharply. On the other hand, aircraft engine exports surged by 68.4%, mainly to the United States.
A shock cushioned by ACEUM and diversification
Despite this hostile backdrop, several factors have cushioned the blow. On the one hand, some 85% of Canadian exports remain duty-free thanks to the Canada-U.S.-Mexico Agreement (CUMA). As a result, Canada remains the second country with the lowest average tariff for access to the US market, after Mexico.
On the other hand, several companies have rapidly redirected their exports to other markets. This strategy, initiated several years ago, is beginning to bear fruit. While the United States remains Canada’s main trading partner, its relative share of total exports is beginning to decline.
According to Statistics Canada, by March 2025, exports to markets other than the United States had risen by 24.8%, thanks in particular to marked increases to the United Kingdom (crude gold), the Netherlands and Hong Kong (crude oil), as well as to Germany for various products.
This reorientation can also be seen at sector level. The Canadian agri-food sector has adopted a $12 billion plan to halve its dependence on the United States over the next few years. The same trend can be seen in energy products: in Newfoundland and Labrador, more than half of oil exports are now destined for Europe or Asia, compared with less than 10% twenty years ago.
Quebec is also focusing on the technology and digital services sectors, taking advantage of international trade agreements and the digital transformation to expand its market opportunities. In addition to responding to unfavorable economic conditions, this diversification is helping to strengthen the overall resilience of the Canadian economy to future trade shocks.
Source: Statistics Canada
In total, Canadian exports amounted to $60.5 billion in August 2025, compared with $64.1 billion for the same period in 2024, a drop of 5.5%. Despite a slight decline (-3.4%), China is still Canada’s second-largest trading partner, far behind the United States.
Real impact on employment and investment
The prolonged uncertainty generated by the tariff war is not without consequences for the labor market. According to Statistics Canada, Canada recorded a net loss of 107,000 jobs over the summer. Although there was a rebound in September, with the creation of 60,000 jobs, this was not enough to bring down the unemployment rate, which remained at 7.1% – its highest level in four years. Since the start of the year, the picture remains modest: net job creation stands at just 22,000, a sign of a labor market losing momentum.
Quebec is also feeling the pinch. According to the Fédération des chambres de commerce du Québec (FCCQ), the Quebec manufacturing sector lost 15,000 jobs in the first half of 2025. The decline is even more marked in construction (25,000 jobs) and the primary sector (4,000 jobs).
Investment in Québec industry has also fallen by $318 million, and hiring intentions are down among exporting companies. “It’s uncertainty that’s hurting our businesses and regions the most,” summarized FCCQ President and CEO Véronique Proulx. In Quebec, however, the unemployment rate fell to 5.7% in September, compared with 6.0% in August.
A tense outlook
For 2026, the World Trade Organization predicts a sharp slowdown in world trade growth, revising its forecast to just 0.5%, compared with 1.8% previously. Rising protectionist tensions, particularly in the United States, and the absence of any prospect of a return to complete free trade are weighing heavily.
The Minister responsible for Canada-U.S. Trade, Dominic LeBlanc, himself acknowledged that “the relationship with the U.S. has fundamentally changed, and it won’t magically return to what it was a year or 25 years ago”. He is now banking on market diversification and the abolition of interprovincial trade barriers to strengthen economic resilience.
In July, the federal government announced the lifting of the last federal restrictions in the Canadian Free Trade Agreement (CFTA), marking an important step towards a more integrated domestic market, an election commitment by Prime Minister Mark Carney.
Despite efforts to strengthen Canadian economic integration, interprovincial trade remains limited. According to Statistics Canada, in 2023, only 41% of companies purchased goods or services from a supplier located in another province or territory, and just 26.9% made interprovincial sales.
Companies in the wholesale and manufacturing sectors are the most involved in this type of exchange, both in terms of buying and selling. However, there are marked regional differences: companies located in the territories – notably Nunavut (77%) – rely heavily on suppliers from other provinces, while those in Ontario (34.4%) and Quebec (33.3%) use them much less frequently.
Despite the removal of barriers, many impediments to interprovincial trade persist. The rules and standards applicable to goods and services still vary considerably from province to province, whether in terms of labelling, safety standards, food inspection or transportation. These regulatory divergences complicate the circulation of products, increase compliance costs for companies, and limit their ability to take full advantage of the Canadian market. Added to this are logistical obstacles, such as the lack of efficient transportation infrastructures linking the different regions, which also hinder commercial potential between the provinces.
Abolishing regulatory barriers is therefore a step in the right direction, but experts agree that it will have to be followed by sustained efforts, at both federal and provincial levels, to harmonize practices, modernize transport networks and turn the internal market into a genuine free-trade zone.
More questions? We have the answer.
How do U.S. tariffs (Canada USA) work since Trump?
U.S. tariffs operate as a tax levied directly by the U.S. government on imported goods. Contrary to the U.S. President‘s claims, it is U.S. importers – not exporting countries – that pay these duties to the U.S. Treasury.
TheUS administration calculates these tariffs using a so-called “reciprocal” method, taking into account the barriers imposed on US products as well as other factors such as currency manipulation or subsidies. Rates vary considerably: a floor of 10% has applied universally since April 2025, with surcharges of up to 54% for China or 20% for the European Union.
For Canadian goods, the situation remains complex. Although Trump initially threatened to impose a 25% tariff on all Canadian products, the Canada-U.S.-Mexico Agreement (CUMA) still protects 38% of Canadian exports, according to U.S. authorities.
What are the Canadian tariffs on American products?
Canada has responded to U.S. tariffs by imposing 25% countermeasures on $155 billion worth of U.S. imports. The first phase, effective February 4, 2025, targets $30 billion worth of U.S. goods, including orange juice, peanut butter, wines, spirits, beer, coffee, appliances and cosmetics.
Since March 2025, a second wave of Canadian counter-tariffs has hit additional products worth $125 billion, including tools, computers and sports equipment. These measures apply only to U.S.-origin products, excluding goods in transit on the effective date. The government has also established a remission process allowing Canadian companies to request exceptional relief from these tariffs in certain circumstances.
What are the U.S. tariffs on Canada?
Currently, U.S. tariffs on Canadian products vary according to a complex two-tier system. A 10% base tariff has applied universally to all Canadian goods since April 2025, while a 25% surtax applies specifically to steel, aluminum and certain lumber products.
Canadian energy receives preferential treatment with a reduced rate of 10%, recognizing American energy dependence. Wood kitchen cabinets and furnishings are subject to increased duties of up to 35%.
However, theCanada-U.S.-Mexico Agreement still protects 38% of Canadian exports from these additional duties. This exemption represents some $180 billion in annual trade, preserved from current trade negotiations.
Who pays customs duties in Canada?
In Canada, the importer is responsible for paying customs duties to the Canada Border Services Agency (CBSA). This rule applies to both companies and individuals bringing goods into Canada.
When a Canadian company imports U.S. products covered by tariff countermeasures, it must pay the 25% duty on the value of these goods. TheCBSA calculates these amounts before applying taxes such as GST and HST.
Travelers bringing back personal goods from the U.S. may also be subject to these tariffs, particularly for steel and aluminum products of U.S. origin. The burden of proving that goods do not originate in the U.S. rests with the person importing them.
