Trump has signed an order that raises the tariff rate on goods from Canada to 35%, up from 25%. This change will take effect on August 1. According to the White House, items that qualify under the United States-Mexico-Canada Agreement (USMCA) will not be affected by these tariffs. This decision comes after Trump expressed disagreement with Canada’s stance on recognizing Palestinian statehood. The administration has promised to use all available measures to protect national security. Countries listed in Annex I of the executive order will face the 35% tariffs, while those not listed will be subject to a 10% tariff. Additionally, goods sent through other countries to avoid the 35% tariff will incur a 40% transshipment tariff.

Currency Market Impacts

With these tariffs starting tomorrow, August 1, we can expect immediate and notable changes in the market. The most immediate impact will be on the currency market, particularly the U.S. dollar compared to the Canadian dollar. We expect the Canadian dollar, which ended today at about 1.38 CAD per USD, to weaken significantly. This presents a chance for traders to take long positions on the USD/CAD pair using futures or options. Canadian stocks will likely see a sharp decline when the markets open. Traders might consider buying put options on broad Canadian ETFs, like the iShares MSCI Canada ETF (EWC), to profit from an expected downturn. This situation mirrors what happened during the 2018 steel and aluminum tariff conflict, where Canadian stocks fell sharply right after tariffs were announced. Due to the sudden nature of the executive order, implied volatility on Canadian assets will likely rise. Buying volatility could be a smart strategy, such as using straddles on the most affected Canadian companies or currency futures. This approach would benefit from significant price movements, regardless of the direction, which is particularly useful in today’s uncertain political environment.

Tariff-Impacted Goods

It’s important to identify which goods are not protected by the USMCA, as these will be hit hardest by the 35% tariff. Key items include softwood lumber and specific agricultural products. A recent report from Statistics Canada for Q2 2025 showed that non-USMCA protected goods made up over $15 billion in exports to the United States, highlighting a vulnerable part of the trade relationship. Lastly, we must consider the impact on U.S. companies. Businesses that depend on non-USMCA imports from Canada will face higher costs, which could hurt their future earnings and stock prices. On the other hand, U.S. producers competing with these Canadian imports may benefit from the situation. Create your live VT Markets account and start trading now.

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