Toronto, Aug 22 (AP) Canada is dropping retaliatory tariffs to match US tariff exemptions for goods covered under the United States-Mexico-Canada trade pact, Prime Minister Mark Carney announced Friday.

Carney said Canada will include the carve-out that the US has on Canadian goods under the 2020 free trade deal that shields the vast majority of goods from the punishing duties.

“Canada currently has the best trade deal with the United States. And while it's different from what we had before, it's still better than that of any other country,” Carney said.

Carney and US President Donald Trump spoke on the phone Thursday and Carney met with his Cabinet on Friday before making the announcment.

The move is designed to reset trade talks between the two countries. The USMCA is up for review in 2026, and Carney called the trade pact a unique advantage for Canada at a time when it is clear that the US is charging for access to its market.

Carney said the commitment of the US to the core of USMCA means the US average tariff rate on Canadian goods remains one of its lowest, and that over 85 per cent of Canada-US trade continues to be free of tariffs.

Canadian and Mexican companies can claim preferential treatment under the USMCA.

Former Prime Minister Justin Trudeau initially put on retaliatory tariffs in response to US tariffs, but before the US tariffs were applied the Trump administration exempted goods covered by the free trade deal.

Most imports from Canada and Mexico are still protected by the USMCA, but US Commerce Secretary Howard Lutnick has said, “I think the president is absolutely going to renegotiate USMCA.” Preserving the free trade pact will be critical for Canada and Mexico. More than 75 per cent of Canada's exports go to the US while more than 80 per cent of Mexico's exports go there.

Trump has announced some sector specific-tariffs that do apply for Canada despite the USMCA — known as 232 tariffs — which are having an impact on the Canadian economy. There is a 50 per cent tariff on steel and aluminum imports, for example.

“Canada and the United States have reestablished free trade for the vast majority of our goods. Canada will retain our tariffs on steel, aluminum and autos as we work intensively to resolve the issues there,” Carney said.

Carney previously rescinded Canada's plan to tax US technology firms after Trump said he was suspending trade talks with Canada over those plans, which he called “a direct and blatant attack on our country.” The prime minister disputed any notion that Canada is appeasing Trump, noting that Canada is matching what the US is doing.

“The president and I had a long conversation,” Carney said. “There is a review of the free trade agreement in the spring. We're starting our preparations.” (AP) GSP

Tariff exemptions under USMCA: Canada matches US exemptions, drops most retaliatory duties while keeping sectoral tariffs. Canada will match US tariff exemptions under the USMCA by removing retaliatory duties on most goods covered by the pact, restoring preferential treatment for qualifying imports, while retaining tariffs on steel, aluminum and autos as sectoral measures pending negotiation.