Canada’s Tariff System Before the U.S. Trade War: How It Worked and Who Benefited

Before the recent trade tensions with the United States, Canada’s tariff policies were largely in line with international trade norms, although certain industries—like dairy—remained contentious. While U.S. President Donald Trump’s tariffs have disrupted long-standing agreements, Canada’s trade regulations have long been shaped by the Customs Tariff Act and World Trade Organization (WTO) rules.

How Canada’s Tariffs Were Structured

Canada’s tariff system is governed by the Customs Tariff Act, which technically sets a general tariff rate of 35% on imported goods. However, this high baseline rate is almost never applied in practice.

Instead, Canada—along with more than 160 WTO member countries—offers Most-Favoured-Nation (MFN) status, ensuring that trading partners receive lower, standardized tariff rates. These MFN rates vary by product, and they can be reduced even further under bilateral or regional free trade agreements (FTAs).

Long-Standing Trade Disputes: The Dairy Conflict with New Zealand

One of the most contentious pre-trade war disputes involved Canada’s dairy supply management system, which has repeatedly angered countries like New Zealand. Under this system, Canada limits dairy imports while maintaining high tariffs on foreign dairy products, protecting its domestic dairy farmers. This has been a major sticking point in past trade negotiations, with New Zealand frequently pushing for greater access to Canada’s dairy market.

Who Benefited from Lower Tariffs?

While dairy remained a protected sector, some countries managed to negotiate favorable trade terms with Canada. Australia, for example, secured lower tariffs on railroad axles, benefiting its industrial sector.

However, as trade tensions escalate between Canada, the U.S., and China, many of these existing trade arrangements are being tested, with retaliatory tariffs reshaping global supply chains. While Canada once operated within a stable, WTO-backed tariff framework, the ongoing trade war is forcing Ottawa to rethink its trade priorities and partnerships.