Oxford Economics warns global trade slowdown may temper Canada's potential tariff advantage
Canada faces the lowest effective tariff rate from the United States among major trading partners, positioning it for potential trade advantages even amid a weakening global economy, as reported by Financial Post.
Oxford Economics Group Ltd. estimates the current effective tariff rate at 2.5 percent—lower than Mexico’s rate of four percent and well below those for other major US trading partners.
For example, the US tariff rate is estimated at 35 percent for China, 15 percent for Japan, 13 percent for South Korea, and eight percent for both the United Kingdom and the European Union.
Adam Slater, lead economist at Oxford Economics, said that if these low tariffs on Canadian and Mexican imports persist, both economies could benefit from supply chain shifts.
However, he cautioned that uncertainty over the eventual outcome of US tariffs and the future of the Canada-United States-Mexico Agreement (CUSMA) will remain a near-term drag.
CUSMA-compliant goods are exempt from US tariffs.
The agreement’s review is set for July 2026, though Ontario Premier Doug Ford has suggested it could happen sooner. That review will also begin the countdown to a possible expiry in 2036.
Oxford Economics based its 2.5 percent estimate for Canada on higher CUSMA compliance, without directly using the 91 percent duty-free figure found in some US Census Bureau data.
Census Bureau trade data labelled as CUSMA shows that 56 percent of goods from Canada and 47 percent from Mexico meet compliance requirements.
Another set of data indicates that 91 percent of Canadian imports and 84 percent of Mexican imports enter duty-free.
Oxford said it is unclear whether this is due to CUSMA or other exemptions.
Slater added that tariff exemptions for these economies “may be broader than assumed.”
Despite the low overall rate, specific sectors remain affected.
Canada continues to face 50 percent tariffs on aluminum and steel exports to the US and 25 percent tariffs on non-US vehicle components.
Non-CUSMA-compliant goods now face a 35 percent tariff, up from 25 percent, and tariffs on softwood lumber were recently raised to 35 percent.
Trade flows have also shifted.
Slater noted that Canadian imports have dropped 25 percent since January, while Chinese imports are down 50 percent.
Chinese export data to the US shows a smaller 25 percent decline, possibly due to rerouting through other countries.
Global trade is showing broader signs of strain.
Slater said world trade indicators reveal monthly global imports fell three percent in April and May, while International Monetary Fund data indicates growth in international exports slowed to under one percent. Sea and air freight data reflects similar patterns.
Oxford estimates that world trade volumes fell about three percent from the first to the second quarter of 2026, marking the weakest four-year performance since the early 1980s recession.
It has cut its global gross domestic product forecast to 2.5 percent from 2.8 percent earlier in the year, down from an initial 2.9 percent, calling it “historically on the low side.”
