Following up on our recent analysis of February exports, today's Twenty-Four examines the impact of U.S. tariffs on Canada's manufacturing sector. Although the effects were less severe than initially feared, the rise in U.S. protectionism has still exacted a substantial cost.

Despite the continued protection offered by the Canada-U.S.-Mexico Agreement (CUSMA) exemptions—which still shield the vast majority of Canadian goods entering U.S. markets—sector-specific tariffs significantly burdened the manufacturing industry last year.

Where do we currently stand on sectoral tariffs?

• Primary metals - A 25% U.S. tariff on Canadian steel and aluminum products was imposed in March 2025 and raised to 50% in June 2025. Canada was also hit with a 50% tariff on copper that has been in effect since last August. 
• Motor vehicles and parts - Since April 2025, vehicles assembled in Canada have been subject to a 25% tariff on their non-U.S. content. In May 2025, the U.S. imposed a 25% tariff on Canadian auto parts not compliant with the CUSMA. 
• Wood products - Canada's softwood lumber industry has a long history of trade disputes with the U.S. When combined with tariffs, the levy on Canadian softwood climbed to 45% late last year. The U.S. recently announced that it is planning to reduce the duty rate on most Canadian softwood producers later this year, which would lower the combined levy to a still-hefty 35%. A 25% U.S. tariff on certain upholstered wooden furniture, kitchen cabinets and vanities was imposed in October 2025. 

Despite some front-loading ahead of the tariffs, total exports to the U.S. in these categories* were down by 8% last year. While exports to China and Europe saw some noteworthy increases, these were not enough to offset the losses experienced in the U.S. market.

As of February 2026, the combined value of exports to all countries had fallen 12% for primary metals, 23% for motor vehicles & parts and 28% for wood products, relative to their respective seasonally-adjusted December 2024 levels (see chart below).  

Broader economic effects on GDP and employment

The tariffs significantly affected both output and employment** in Canada's primary metals, auto, and wood product sectors last year. Consequently, Canada’s total annual manufacturing GDP decreased by 2.6% in 2025 while employment in the industry fell by 1.3%.

One of the goals of U.S. tariffs was to reshore manufacturing jobs. However, U.S. manufacturing employment decreased by 1.2% last year, a decline similar to the one experienced in Canada (see chart below). Meanwhile U.S. manufacturing output grew only slightly (+1.5%)—at about half the rate observed the previous year.

Provincial manufacturing employment corresponds with degree of tariff exposure

While there are a range of factors that can influence labour market conditions of a specific sector, U.S. tariff rates played a key role. 

Last year, manufacturing employment generally fell more sharply in provinces highly exposed to U.S. tariffs, a trend not mirrored in provinces like Alberta and Newfoundland and Labrador (see chart below).

Saskatchewan was a notable exception, where a drop in manufacturing employment was primarily driven by a significant decline in machinery manufacturing. Conversely, Prince Edward Island (PEI) saw a surge in manufacturing employment, largely thanks to a disproportionate increase in food manufacturing.  

Recent developments and outlook

On February 20, the U.S. Supreme Court voided President Trump's sweeping emergency tariffs, including the 35% "fentanyl" tariff on Canadian goods and last year's reciprocal "Liberation Day" tariffs. In retaliation, Canada and others faced a blanket 10% tariff on all non-CUSMA compliant goods.

More recently, U.S. President Trump's announcement of reduced tariffs on certain derivative metal products, effective April 6 provides some relief in the primary metals sector, but at 25%, the tariff rate remains punishingly high.

The automotive industry continues to face challenges due to U.S. tariffs while a new trade deal has opened the Canadian market to a limited number of Chinese electric vehicles. While proponents hope for infrastructure development, critics warn it could increase competition for domestic manufacturers.

As noted above, the U.S. Department of Commerce is planning to cut the combined anti-dumping and countervailing duty rate this year. Note that this reduction does not take effect until late August 2026 and, as with the tariff on derivative metal products, it will still be very high.

The manufacturing sector's prospects hinge, in large part, on the CUSMA review this summer. If sector tariffs remain in place, the manufacturing industry will stay under pressure. More broadly, if exemptions on general tariffs are removed, the effects will be more broad-based across sectors and provinces. Our current assumption is that the CUSMA is renewed with sector-specific tariffs and the general exemption remaining in place.

*We have tried to be as accurate as possible in applying tariff codes, but the multiple, complex and shifting nature of the tariff orders from the U.S. government mean that the end results may be off by small amounts.

**We have used the Survey of Employment, Payrolls and Hours (SEPH) to conduct both sub-sector and aggregate employment analysis in this report.


Answer to the previous trivia question: Jean-Paul Sartre, the renowned French philosopher, playwright, and novelist who served as a leading figure in 20th-century existentialism, died on April 15, 1980. 

Today’s trivia question: How many years in a row have the Edmonton Oilers made it to the NHL playoffs?