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Exports

Canada's USMCA Compliance Rate Lags, Threatening Economic Growth

Strategic Insights

— 2 min read

Canada's manufacturing sector is struggling to take advantage of the USMCA trade deal, with fewer than 40% of goods shipped to the U.S. meeting the agreement's rules-of-origin. This lag in compliance is concerning, as it may result in Canada facing a higher tariff rate from the U.S., leading to lower economic growth. Despite an increase in compliance rates in April, many manufacturing sectors have not improved their compliance rates, and energy exports are largely driving the growth. Economists warn that lower compliance rates increase the risk of economic downturn, and the impact on GDP could be significant if the situation does not improve.

Key Takeaways:

  • Fewer than 40% of goods Canada shipped to the U.S. last year met the USMCA rules-of-origin, leaving many at risk of higher tariffs.
  • The increase in USMCA compliance rate in April was largely driven by energy exports becoming compliant, while many manufacturing sectors saw no improvement.
  • For many other manufacturing sectors, compliance rates held steady or slipped compared to last year, according to a recent analysis.
  • Non-compliant shipments from Canada to the U.S. have fallen by almost half since the start of the year, write economists Alexandra Brown and William Jackson.
  • Capital Economics has assumed an 8-per-cent average tariff rate for U.S. imports from Canada, resulting in a 1.6-per-cent hit to GDP after three years.
  • If USMCA compliance remains stuck at 60% and the U.S. maintains its 50-per-cent tariffs on metal imports from Canada, the average tariff rate would jump to 12-per-cent, resulting in a 0.8-percentage points larger impact on GDP.

Statistics:

  • 40% of goods Canada shipped to the U.S. met the USMCA rules-of-origin last year (1)
  • 60% of USMCA compliance rate in April (1)
  • 25% tariff on most imports from Canada and Mexico implemented by President Trump in early March (1)
  • 8-per-cent average tariff rate assumed by Capital Economics for U.S. imports from Canada (1)
  • 1.6-per-cent hit to GDP after three years under the 8-per-cent average tariff rate (1)
  • 12-per-cent average tariff rate that would result if USMCA compliance remains stuck at 60% and the U.S. maintains 50-per-cent tariffs on metal imports (1)
  • 0.8-percentage points larger impact on GDP under the 12-per-cent average tariff rate (1)
  • Almost half of non-compliant shipments from Canada to the U.S. fell since the start of the year (1)

Sources:

  • (1) Globe and Mail, "Canada's USMCA compliance rate lags, threatening economic growth"

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