The average effective tariff that was being charged on Canadian goods going to the United States was possibly as low as 2.4 per cent to 2.5 per cent, two economic houses suggest.

New reports by Oxford Economics Ltd. and Capital Economics Ltd. suggest the average

tariffs being charged on Canadian exports to the U.S. in June were as low as 2.4 per cent and 2.5 per cent,

well off a previously forecasted rate from Capital of nine per cent for the month.

“With one full quarter of data with new U.S. tariffs now under our belt, it’s increasingly clear that a much larger portion of Canadian goods are entering the U.S. duty-free than the official data on (

Canada-U.S.-Mexico Agreement ) compliance suggests should be the case,” Michael Davenport, Canada economist at Oxford Economics, said in his report.

North America economist Alexandra Brown, who estimated a tariff rate on Canadian exports to the U.S. of 2.5 per cent, citing data from the U.S. International Trade Commission, said in her report that “even if that figure understates the bill, as we suspect, firms appear to be benefiting from CUSMA exemptions to a greater extent than we first assumed.”

Economists had previously expected U.S. tariffs to come in much higher, referencing U.S. Census Bureau data that said only 56 per cent of Canadian goods were compliant with CUSMA. But it appears that a bit more than 90 per cent of Canadian products are entering the U.S. free of such levies.

Davenport said this is happening for a variety of reasons, including a separate classification under U.S. international trade rules that covers non-CUSMA compliant goods. It’s also possible the U.S. data is just incomplete, wrong or that “fluid and volatile U.S. trade policy could be causing customs agents to mislabel or misclassify some imported goods.”

As of Sept. 1, Oxford is estimating the effective tariff rate on Canadian exports to the U.S. to rise to 6.2 per cent, recalibrated from 14.2  per cent, and it expects that rate to hold into 2026, based on the rising compliance rate and an increase in the tariff rate on non-CUSMA-compliant goods to 35 per cent and a new 50 per cent tariff on copper.

The Bank of Canada estimates the tariff rate is in the neighbourhood of five per cent, according to senior deputy governor Carolyn Rogers

during a press conference on July 30. The central bank also estimates that 95 per cent of Canadian exports to the U.S. are eligible to avoid tariffs.

“We expect more and more goods to become compliant with CUSMA” as companies complete their compliance paperwork, she said.

However, Bank of Canada governor Tiff Macklem said the central bank’s numbers are forecasts and that the trade situation is “fluid.”

Prime Minister Mark Carney estimated Canada’s average effective tariff rate at 5.5 per cent . Still, Canadian exporters are facing tariff rates that are the lowest in the world.

Nevertheless, Canadian exports to the U.S. fell 24 per cent between January and June, with about two thirds of the drop due to metals and energy, Brown said, attributing that mostly to a slowdown in Canadian oil production and a major decline in gold exports.

There were also declines in other categories that could be attributed to U.S. importers waiting for clarity on the CUSMA compliance of certain goods.

“If that is true, exports should gradually recover as Canadian exporters’ favourable position becomes clearer,” she said.

However, Brown said export order indicators look weak and there remains much uncertainty around the CUSMA negotiations set for next summer, meaning “exports are unlikely to drive meaningful economic recovery.”

Davenport said Canada’s economy remains “extremely” vulnerable.

“We expect the impact of the trade war to continue to build as the actual average effective tariff rate rises towards our estimate in the coming months,” he said.

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Canada’s productivity crisis worsened in the second quarter, with labour productivity dropping by one per cent, Statistics Canada said on Wednesday.

The last time labour productivity declined this sharply was in the fourth quarter of 2022, when it fell by 1.1 per cent. — Jordan Gowling, Financial Post

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