New 50% US Tariffs on Canada Hit Plastics, Furniture, Wood

New 50% tariffs on a subset of U.S. imports from Canada took effect after no last-minute deal was reached, a research note said. The measures apply to about 5% of Canadian exports to the United States, adding to existing tariffs on steel and aluminum.

The Canadian value-added content of the newly tariffed imports adds up to roughly 0.4% of Canadian GDP and jobs, the note said. More than 80% of exports would remain duty-free under CUSMA exemptions.

These tariffs differ from previous measures because U.S. importers would have an easier time diversifying to alternative markets than Canadian exporters, the note said. About 3.7% of total U.S. imports of the targeted products come from Canada, while the United States accounts for 81% of Canadian exports of those products.

Plastic products, electrical machinery, furniture and wood product sectors are among the most significantly impacted. Regionally, that means a higher concentration of economic impact in Quebec, British Columbia and Ontario, the note said.

Because the tariff rate is 50% and applies only to Canada, purchases of these products from Canada would become prohibitively expensive. Canada's average effective tariff rate would mechanically rise to around 6% from about 3%, no longer the lowest among major U.S. trade partners, the note said. In practice, the observed rate will not increase that much because many of these highly tariffed products will simply not be traded. The economic cost of the increase is real, the note said.

Previous U.S. tariffs on Canada have been modified or dropped weeks after imposition, the note said. That includes blanket tariffs imposed in March 2025 before the CUSMA exemption was put in place days later. An exemption list from broader U.S. tariffs on all trade partners has grown to cover more than half of U.S. imports.

The U.S. and Canadian sides have reportedly cut off negotiations, leaving the path to end the current additional tariffs highly uncertain. Canada has not yet announced a specific response but has signaled plans to impose retaliatory measures, the note said.

Retaliatory measures typically add costs to domestic imports rather than hurting foreign exporters, the note said. A nuance this time is that Canada is a net importer of products on the new tariff list from the United States. Canada imported about $23 billion of the targeted products from the U.S. in 2025, compared with about $20 billion in exports. On paper, that means redirecting imports to purchase from Canadian sellers that otherwise would have shipped to the United States could fully replace lost U.S. exports. The reality is not so simple because supply chains are heavily integrated, so exporters and importers on both sides of the border will see a significant increase in costs. There is likely more potential for trade flows to reorient within North America to avoid tariff costs with these measures than with some of the other sector-specific tariffs imposed to date, the note said.

Businesses have been showing signs of adapting after a year and a half of tariff threats, with measures of business confidence and investment perking up in 2026, the note said. The broader macroeconomic impact of the latest tariffs is not large enough to push the Bank of Canada to consider interest rate cuts. The economic drag from tariffs remains narrowly based in a small number of highly impacted industries. Fiscal policy is better suited to provide targeted relief, and reports indicate fiscal supports will follow this latest tariff round. The intensification of trade uncertainty and recent moderation in underlying inflation trends, excluding energy products, has increased the likelihood that the BoC will not hike rates this year, the note said.

The section 338 tariffs further erode the share of Canadian exports protected by CUSMA. The note said more than 80% should continue to cross the border duty-free under current rules. CUSMA itself does not expire for a decade, and the agreement requires negotiations to extend it before then. The broader CUSMA exemption has held through multiple forms of broader U.S. tariff policies, including the current section 301 global tariff measures. U.S. average tariff rates globally have been drifting lower rather than higher, with the list of broader products exempt from section 301 tariffs rising to cover the bulk of U.S. imports. The future of U.S. trade policy is highly uncertain. The note argued that trade across the Canada-U.S. border is mutually beneficial, and that argues for the bulk of trade to remain tariff-free under CUSMA.