Yesterday’s tariff deadline came and went without a trade deal, but rather an extension to the timeline when new tariffs would take effect.

The bottom line is that Canadian businesses have a short-term reprieve, but face heightened uncertainty over tariffs and future trade action. 

In today’s Twenty-Four, we unpack the latest on tariffs based on what we know at the time of writing, potential impacts on provinces, and what we’re watching for.

What happened?

Late last night, President Trump announced that he would institute a three-day pause on the 50% tariffs on select Canadian products that were set to take effect today, citing a pending trade deal that has yet to be finalized. Prime Minister Carney’s latest statement was more nuanced: “substantial progress has been made, although there is important work to be done.” The latest at the time of writing is that both parties are working on a draft text of a potential deal. 

Canadian negotiators in Washington have been pushing for the U.S. to scrap the Section 338 tariffs and lower the existing Section 232 sectoral tariffs on steel, aluminum, autos, and lumber (see details below on what these tariffs entail). Meanwhile, President Trump and U.S. trade negotiators have publicly stated points of contention and where they seek to draw out concessions from Canada, including: the easing and adjusting of supply-managed dairy quotas to allow for more imports of U.S. dairy products, the end of a boycott of American alcohol in provincially run liquor stores, preferential access to Canadian critical minerals, and the commitment to completion of Canada’s F-35 fighter jet purchases. 

President Trump also referenced the Keystone XL pipeline as potentially being part of a pending deal. A partial revival of the cancelled Keystone XL pipeline is under evaluation, awaiting ongoing regulatory reviews. The Canadian segment of the project called the Prairie Connector—proposed by South Bow—would utilize pipelines already buried in the ground from the original project. 

What happens if Section 338 tariffs proceed?

Soon after the original Section 338 tariffs were announced last month, we dove into the potential impacts. In short, we view this a high micro, but limited macro event. Translation: some industries and businesses will be heavily impacted, but the overall tariff hit on Canada is moderate. 

While the tariff levels are punishingly high, they are limited to about 5% of Canadian exports. This raises the effective tariff rate by 2.5 percentage points, which we estimate could shave about 0.4% from Canadian real GDP by the end of 2027. 

More problematic for the economy than tariffs themselves is the uncertainty. Without a long-term deal and the constant threat of new tariffs, it is tough for many businesses to plan. The ‘on and off’ approach to U.S. tariff policies makes businesses cautious in hiring and deploying capital. Canada’s economy is already on a permanently lower growth path since the trade war started in early 2025 despite facing a lower effective tariff rate than many other U.S. trading partners.

If Section 338 tariffs come into effect, a wide range of goods, ranging from compressors, certain dairy products, plastics, and electrical boards to select textiles would be facing an additional levy of 50% on exports to the U.S. For a full list of the over 500 products impacted, see here. Sectors that are most affected by the tariffs would be electrical & industrial machinery, furniture, lighting, plastics & rubber, chemicals & cosmetics and wood & paper products.

The impacts will be highly regional, disproportionately hitting B.C., Quebec, and Ontario based on their higher export exposure to products on the tariff list.  As for Alberta, energy products are fully exempt from these tariffs, which, alongside a lower concentration in these particular sectors, limits Alberta’s overall exposure to approximately $1.5 billion (around 1% of the province's merchandise exports to the U.S.).  Our estimates of provincial exposures to Section 338 tariffs are provided below.

Small exporters will feel the impacts. A recent survey by the Canadian Federation of Independent Business (CFIB) indicates that over three-quarters of small businesses surveyed expect their revenues to drop if new tariffs apply to their products.

What tariffs on Canada does the U.S. currently impose?

Even if Section 338 tariffs do not proceed, there are two major categories of U.S. tariffs that Canadian businesses remain exposed to. 

1. Sweeping 10% tariffs across non-CUSMA-compliant goods using Section 301 of the Trade Act of 1974. These started as 25% tariffs in early April 2025 (‘Liberation Day’) under the International Emergency Economic Powers Act (IEEPA), then were raised to 35%.  The Supreme Court struck down the President’s ability to impose these sweeping tariffs last February.  The replacement tariffs of 10% are under a ‘forced labour’ provision. 
   
   These tariffs only apply to goods that are not compliant with CUSMA. The vast majority of goods are compliant and therefore avoid tariff exposure. As such, Canada faces a lower U.S. effective tariff rate than many other trading partners. 
   
   
2. Section 232 sector-specific tariffs. The U.S. currently imposes 10-100% tariffs on a range of Canadian imports, such as steel, aluminum, copper, pharmaceuticals, softwood lumber, autos and building materials. These disproportionately impact the manufacturing provinces of Ontario and Quebec, as well as B.C. - the largest lumber producer. Canadian negotiators are hoping to make progress on reducing these tariffs.  
   
   In addition to these tariffs, the lumber industry faces softwood lumber duties of about 35% on top of the 10% Section 232 tariffs.
   
   

What’s next?

At the time of writing, there are rumours of a potential deal, but nothing is confirmed.  Here are a few potential scenarios: 

1. Optimistic. A new deal that not only prevents Section 338 tariffs, but also reduces Section 232 tariffs. 
2. Status quo. Section 338 tariffs dropped, but no progress on Section 232 tariffs.
3. Pessimistic. Section 232 tariffs remain in place and Section 338 tariffs take effect.  

In all scenarios, we assume that CUSMA (currently under review) remains in place.

In short, there’s both upside and downside risk depending on what happens in Washington in the next few days. Until we know, we are holding to our current ‘status quo’ forecast for Canadian real GDP growth of 1.1% this year and 2.6% for Alberta. Given Alberta’s lower exposure to both Section 338 and 232 tariffs, it remains much more insulated than other provinces to the pessimistic scenario. 

Answer to the previous trivia question: In Canada, wheat generally claims the highest total production volume and seeded acreage among traditional major field crops, while flaxseed is among the crops that occupy the lowest acreage footprints among historical staples.

Today’s trivia question: Which country faces the highest overall U.S. tariff burden in 2026?