Last week, we highlighted how energy shipments to Asia and gold exports to the UK lifted Canadian exports in the first half of the year. In today's Twenty-Four, we examine the provincial story and evaluate the performance of sectors exposed to U.S. tariffs.

Tariffs have come down from last year’s peak

In June, U.S. duties paid as a share of Canadian imports stood at 2.9%*. Although this far exceeded historical levels—including those observed during President Trump's first term—it remained below the peak of 3.8% witnessed last fall.This lower rate is largely attributable to CUSMA compliance, which continues to safeguard most south-bound goods.

The recently announced Section 338 tariffs, if implemented, would push rates higher by about 2 percentage points next week, with disproportionately high impacts on B.C., Ontario and Quebec. Having said that, Canada's average tariff burden should still remain among the lowest compared to other key U.S. trading partners.

*Calculated by dividing the monthly calculated duties by the customs value of Canadian imports for consumption from the USITC DataWeb portal.  

Tariff-exposed exports bounced back in Q2

CUSMA compliance helped shield the majority of Canadian exports. However, certain export categories were severely depressed last year due to punitive U.S. tariffs of 25% to 50% placed on Canadian steel, aluminum, copper, motor vehicles and parts, and softwood lumber products. 

Fortunately, there are signs of stabilization. After dropping to multi-year lows, U.S.-bound shipments of wood products, transportation equipment, and primary metals staged a Q2 comeback—gaining a combined 15% from the first quarter, driven by a rebound in export volumes.

The tariff scope broadened in January 2026 to include items such as pharmaceuticals, kitchen cabinets, and additional wood products.

On a year-to-date (YTD) basis, the aggregate value of major Canadian  export groups to the U.S. subject to targeted levies**—representing roughly one-fifth of all merchandise exported to the U.S.—declined by about 13% compared to the first half of 2025.

Regional export trends mirror employment performance

The tariff impact is not felt equally across Canada, directly affecting local workers and communities depending on their primary regional industries.

Ontario, Quebec, and British Columbia, manufacturing hubs that are reliant on auto, steel and lumber exports, bore the brunt of sectoral duties, experiencing reductions in manufacturing employment over the course of the year. In contrast, areas that remained more protected from U.S. tariffs, such as Alberta and New Brunswick, registered employment increases.

**Includes primary metals, transportation equipment, wood and pharmaceutical products

U.S. trade crucial for Canadian manufacturing

National manufacturing output, which had already been struggling since mid-2023, suffered further declines in 2025 following the introduction of tariffs. Despite some improvement in April and May, manufacturing GDP for the tariff-exposed sectors stood near pandemic lows and was down 6.4% YTD.

We expect real manufacturing GDP to rebound in Q2, supported by Q2 export gains, a positive preliminary GDP reading for June, and a modest pick-up in activity in tariff-exposed sectors during April and May.  

Bottom line: Canada’s efforts to diversify trade partnerships globally show promise and will help buffer against U.S. protectionism. Nevertheless, the Canadian manufacturing sector remains deeply reliant on U.S. trade, sending the vast majority (79% in 2025) of its exports south of the border. Consequently, any lasting recovery for the industry requires renewed trade stability and a fair, long-term trade agreement with the U.S. We are keeping a close eye on current talks in Washington, including the potential for some type of agreement before the next round of tariffs is set to take effect on August 19.

Answer to the previous trivia question: The three NATO countries that spend the highest percentage of their GDP on defence are Lithuania (5.3%), Estonia (5.1%), and Latvia (4.9%).

Today’s trivia question: After the U.S., with which country did Canada have the largest trade surplus last year?