Free trade carveouts key in potential deal between U.S. and Canada: business groups

Business leaders and academics say they hope to see Canada and the U.S. maintain free trade protections for most goods once an agreement is reached, even if the negotiations can’t stave off certain sectoral tariffs.

It’s unclear if the two countries will stick to the Aug. 1 deadline for wrapping up talks. Prime Minister Mark Carney said Monday negotiations were in an “intense phase,” but U.S. President Donald Trump told reporters last week that Canada wasn’t a priority for his administration amid trade talks with other partners.

Whether a deal is announced Friday or later, Canadian Federation of Independent Business president Dan Kelly said his organization’s members feel “a good chunk” of trade must remain tariff-free in order for talks to be considered successful.

A deal struck by the U.S. with the European Union on Sunday imposes a 15 per cent tariff on most goods imported into the U.S., including European automobiles, and no carveouts for key products like pharmaceuticals and steel.

Kelly said he would not consider it a win for Canada if its trade agreement with the U.S. ends up looking similar to that deal. He said the goal should be to keep zero tariffs on products that are currently protected under the Canada-United States-Mexico Agreement.

“What’s most critical, I’d say, for businesses right now is … whether we’re going to be able to protect the CUSMA exemption,” said Kelly.

“The sectoral tariffs on cars, on copper, on aluminum and steel, they’re definitely hurting, but for most manufactured goods there is a pathway to have them effectively tariff-free at the moment and we’re hoping that is maintained.”

The U.S. doubled tariffs on steel and aluminum imports to 50 per cent in early June and announced a 50 per cent tax on imported copper set to take effect in August.

While a zero-tariff outcome is unlikely, bringing down the rate applied to those materials should be a priority of the federal government, said Catherine Fortin Lefaivre, senior vice-president of international policy and global partnerships for the Canadian Chamber of Commerce.

“We know from speaking to our members impacted directly that that has to move significantly,” she said, calling the 50 per cent rate “egregious.”

“That status quo is not acceptable.”

Carney’s position in ongoing negotiations likely centres on lowering those sectoral tariffs as he’s unlikely to find success in dropping them entirely, said Drew Fagan, a professor at the University of Toronto’s Munk School of Global Affairs and Public Policy.

That’s because the Trump administration has applied those levies globally, not just on imports from Canada.

“If and when they (are removed), it’ll probably be done globally,” he said.

Despite the pain being inflicted on the economy, the average tariff currently applied on Canadian products is only about two per cent, said Fagan.

“That’s 10 times higher than what it was last year. I mean, basically all tariffs were gone. But we can live with two per cent and look to the future,” he said, adding it would be disastrous if Trump wound up CUSMA and applied across-the-board 15 per cent tariffs on Canada.

“That would be a pure disaster,” said Fagan.

“A 15 per cent tariff would be something that I would expect the prime minister would walk away from.”

Kelly said Canadian business leaders will also be watching to find out what levies will remain on imports from the U.S., noting Canada’s ongoing retaliatory tariffs “are really crippling small businesses even more than the U.S. tariffs.”

A survey commissioned by the CFIB this month found nearly seven in 10 small businesses importing from the U.S. paid the full Canadian tariff, with a median cumulative cost of $9,000 since March.

While earlier this week Carney assured Canadian businesses that Ottawa would “only sign a deal that’s the right deal,” Kelly said many just want “a conclusion to this ugly chapter in Canadian-U.S. relations.”

“I don’t disagree that no deal is better than a bad deal, but the second worst-case scenario is the uncertainty created by no deal,” he said.

Fortin Lefaivre said the chamber is less focused on the outcome of this week’s deadline, which she doesn’t expect to be met amid constantly shifting targets, than the upcoming review of CUSMA set to take place next year.

“These agreements, or really what they are — handshakes of deals — happening in other jurisdictions are important to note, but we are in a bit of a different situation here in Canada because we have an agreement in place and it has served us well,” she said.

“Really what we would like to see is that the conditions for the most favourable CUSMA outcome are laid out in the foreseeable future.”

This report by The Canadian Press was first published July 29, 2025.

Sammy Hudes, The Canadian Press