Year Two of Canada-U.S. Tariffs: What Contractors Should Expect

For anyone hoping 2026 would finally bring a little peace and quiet to Canada-U.S. relations, that optimism may have been premature. Between the fireworks at Davos, the skirmish over Greenland, Canada’s new trade deal with China, and the looming review of the Canada-United States-Mexico Agreement (CUSMA), 2026 has already given us plenty to unpack. While 2025 brought uncertainty and transition, 2026 is emerging as a decisive year – one that may fundamentally reshape the future trajectory of Canada-U.S. relations.

Amid all the drama and political theater, it’s worth pausing to take stock of where the trade relationship between the two countries stands. This article will explain where Canadian tariffs are at in early 2026, and give contractors an idea of what to expect moving forward.

The Current State of Canada – U.S. Tariffs

The trade war between Canada and the U.S. began almost immediately after President Trump took office in January 2025. What followed was a series of tariff announcements, pauses and reversals, until by late April both countries had imposed substantial levies on one another. As the year unfolded, some of these tariffs were scaled back while new ones were introduced, creating a constantly shifting trade landscape.

Here are the current (as of February 2026) tariffs affecting Canadian exports into the U.S.:

• 35% tariff on all imports that don’t comply with CUSMA (effective April 2, 2025).
• 10% tariff on non-CUSMA compliant potash and energy products (effective April 2, 2025).
• 25% tariff on all cars and trucks not built in the U.S. (effective April 2, 2025).
• 50% tariff on aluminum and steel (effective June 4, 2025).
• 50% tariff on copper (effective August 1, 2025).
• Elimination of the U.S. de minimis treatment for low-value shipments. Goods valued at $800 or less are now subject to all applicable duties (effective August 29, 2025).
• 35% tariff on softwood lumber (effective October 14, 2025).
• 25% tariff on upholstered wooden products and kitchen/bathroom cabinets and vanities (effective October 14, 2025).
• Goods transshipped to evade the 35% tariff will be penalized with a 40% tariff. For example, if a business tries to avoid the 35% tariff by shipping goods through another country first, the U.S. will penalize that action with an even higher tariff of 40%.

Additional goods – such as semiconductors, heavy trucks, pharmaceuticals and films – are under consideration for new tariffs, though no details on timing or rates have been released.

The U.S. Supreme Court is preparing to rule on the legality of some of President Trump’s tariffs, specifically the blanket 35% tariff on non-CUSMA compliant Canadian goods imposed under the International Emergency Economic Powers Act (IEEPA). The justices are weighing whether these measures fall within the president’s lawful authority or whether he exceeded his powers by invoking emergency authorities to justify them. If the Court rules against the administration, the tariffs could be struck down. However, the White House has signaled that contingency plans are in place should it lose the case.

Beyond tariffs, other mechanisms have also been leveraged to restrict Canadian business activity in the U.S. President Trump recently announced his intention for the Federal Aviation Administration (FAA) to de-certify Canadian aircraft, including jets produced by Bombardier, from operating in the U.S., citing Canada’s refusal to certify several Gulfstream jets for sale in its market. This kind of tit-for-tat policymaking has become increasingly common over the past year.

Here are the current tariffs affecting U.S. exports into Canada:

• 25% tariff on all U.S. vehicles that don’t meet CUSMA requirements (effective April 9, 2025). This does not apply to auto parts.
• 25% tariff on selected steel and aluminum products, covering $12.6 billion in steel and $3 billion in aluminum (effective March 13, 2025).

Effective September 2025, Canada lifted its 25% tariffs on $44.2 billion worth of U.S. goods that had been in place since March.

The Overall Impact of Tariffs

The trade war between Canada and the United States has affected businesses and consumers on both sides of the border, though the impact has been disproportionately felt in Canada. The U.S. remains Canada’s largest export market, but its share of Canadian exports fell to 68% in November 2025, down from 76% a year earlier. This decline is largely driven by Trump’s tariffs on steel, automotive products, aluminum and lumber, which have hit these critical Canadian sectors especially hard. In November, Canadian exports of motor vehicles and parts dropped by 11.6%, reaching their lowest level in three years. Exporters in these hard-hit sectors are being pushed to seek out new markets, reflecting a broader shift toward trade diversification across both Canada’s public and private sectors.

The Role of Free Trade

The saving grace in all of this is CUSMA. Goods that meet CUSMA’s rules-of-origin requirements are exempt from the United States’ blanket 35% tariff on Canadian imports, allowing an estimated 90% of Canadian goods to enter the U.S. duty-free. However, compliance comes with extensive and detailed documentation requirements, and many businesses may need legal or advisory support to ensure they meet the necessary standards.

A formal review of CUSMA begins on July 1, 2026. Although that process is still ahead, both Canada and the United States have already completed their public consultations, with businesses on both sides of the border strongly advocating for renewal. Under the agreement, Canada, Mexico and the U.S. must each indicate – on or before July 1 – whether they intend to renew, renegotiate or withdraw.

Several factors will shape the upcoming review process, and all parties – particularly the United States – are expected to arrive with firm demands. The worst-case outcome would be the elimination or non-renewal of CUSMA, which would significantly disrupt the deeply integrated Canada-U.S. economy. It would also likely pose challenges for U.S. contractors seeking to bid on Canadian contracts.

The Buy Canadian Movement

In response to U.S. tariffs, Canadian governments have taken various measures to support Canadian suppliers and be less reliant on U.S. business. Most notably, the Government of Canada is in the process of implementing its new Buy Canadian Policy, which encompasses a set of new procurement rules that prioritize Canadian suppliers and Canadian-made goods and services. Although some details are still being ironed out, the policy will reward contractors for their Canadian content, materials and employees. Contractors will not necessarily need to be Canadian in terms of their ownership but rather invest in Canada.

Another key element of the policy is its emphasis on reciprocal procurement. Suppliers based in countries that provide Canada with comparable market access will be eligible to competitively bid on federal contracts. As a result, a successful renewal or renegotiation of CUSMA – or the establishment of a new, mutually satisfactory free trade agreement – would ensure that Canada’s public-sector market remains open to U.S. contractors.

The Outlook Ahead for Canadian Contracting

At this stage, amid escalating tit-for-tat measures and political rhetoric on both sides, the situation remains highly unpredictable. U.S.-based contractors should prepare for a range of scenarios as they plan their business development pipelines, including full, partial or limited access to Canada’s public-sector market during the remainder of President Trump’s term. Where feasible, companies should also explore potential investment opportunities in Canada, such as establishing or expanding operations or acquiring or partnering with a Canadian firm. Likewise, if U.S. governments were to respond to ‘Buy Canadian’ policies by restricting Canadian suppliers from their own contracts, additional implications would likely follow.