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Updated July 3, 2024
U.S.-Canada Trade Relations
The United States and Canada have one of the largest
Selected Trade Issues
bilateral commercial relationships in the world, including a
Current and potential areas of discussion between U.S. and
highly integrated energy and automotive market. Over the
Canadian officials include Canadian legislation regarding
past 30 years, U.S.-Canada trade relations have been
digital services providers, news outlets, and online content;
governed first by the 1989 U.S.-Canada Free Trade
automotive issues and potential cooperation on critical
Agreement, then by the 1994 North American Free Trade
minerals; U.S. access to Canada’s dairy market; and
Agreement (NAFTA), and now by the 2020 United States-
Canada’s softwood lumber industry.
Mexico-Canada Agreement (USMCA). Congress may
Digital Services Tax Act. In June 2024, the Canadian
consider the implications of current and potential areas of
government enacted a bill into law which included a 3%
trade dispute and cooperation with Canada ahead of the
digital services tax (DST) on certain revenue of large digital
scheduled 2026 review of USMCA.
services providers related, for example, to online
U.S.-Canada Trade Overview
marketplaces, online advertising, social media platforms,
Canada is the top U.S. partner for trade in goods and
and the sale or licensing of user data. The DST is to be
services (see Figure 1Error! Reference source not
retroactive to January 1, 2022. The DST is not yet in force;
found.). In 2023, Canada exported 78% of its goods to, and
the Governor General of Canada is to designate a date for
imported almost half of its goods from, the United States.
entry into force. The United States is home to several of the
As of 2022 (latest data available from the U.S. Bureau of
world’s largest digital services providers, and some
Economic Analysis), the United States is the largest source
Members of Congress have expressed concerns that DSTs
of foreign direct investment (FDI) by stock in Canada
disproportionately impact U.S. firms (e.g., H.Res. 268).
($438.8 billion), and Canada is the fourth-largest FDI
In October 2021, members of the Organization for
source in the United States ($589.3 billion).
Economic Cooperation and Development (OECD)/G20
Figure 1. Top U.S. Trade Partners (2023)
Inclusive Framework, including the United States and
Canada, agreed on a plan to update the global tax system
and develop an international digital tax framework. In July
2023, 138 out of 145 framework members agreed to hold
off on imposing DSTs until at least 2025 to allow for
additional progress. Canada was an exception, stating that it
would not support a DST moratorium without a “firm and
binding” implementation timeline for the agreement. U.S.
officials have stated that additional discussions are needed
Source: CRS, with U.S. Bureau of Economic Analysis data.
before the United States signs the framework agreement.
Canada is the largest supplier of U.S. energy imports—
Some Members of Congress have argued that the
including crude oil (see Figure 2Figure 2), natural gas, and
framework plan would disproportionately impact U.S.
electricity—and the second-largest recipient of U.S. energy
companies and have criticized what they view as the
exports.
Administration’s lack of adequate consultation with
Congress. Some Members have noted that a global
Figure 2. U.S. Crude Oil Imports from Canada
framework could provide more stability for U.S. firms as
opposed to the implementation of DSTs by individual
countries. Congress may face consideration of legislation
for an agreement to be implemented (see CRS In Focus
IF11874, International Tax Proposals Addressing Profit
Shifting: Pillars 1 and 2).
Canadian officials have indicated that they are discussing
the DST with U.S. counterparts. The Office of the U.S.
Trade Representative (USTR) previously investigated other
countries’ DSTs under Title III of the Trade Act of 1974
Source: CRS, with U.S. Census Bureau data, as presented by Trade
(19 U.S.C. §§2411-2420), commonly referred to as
“Section 301.” USTR found these DSTs to be
Data Monitor, accessed April 2024.
Notes: Global energy prices were higher overal in 2022 due in part
discriminatory towards U.S. companies and announced, and
to market instability following Russia’s invasion of Ukraine.
then immediately suspended, plans for retaliatory action in
the form of increased tariffs. Following the October 2021
OECD/G20 Inclusive Framework announcement, USTR
terminated the tariffs and investigations. In response to
https://crsreports.congress.gov
U.S.-Canada Trade Relations
Canada’s DST, some Members and U.S. industry groups
The electric vehicle (EV) tax credit in P.L. 117-169, known
have urged USTR to initiate consultations under USMCA
as the Inflation Reduction Act of 2022 (IRA), also contains
and/or a Section 301 investigation. USTR has stated that it
North American requirements for EV and battery
would assess a Canadian DST against the “same standard”
manufacturing. The EV tax credit also requires a certain
as the abovementioned DST investigations.
percentage of critical minerals to be sourced from the
United States or its free trade agreement partners, including
Online News Act. Canada’s Online News Act, which went
Canada. Canada is a top source for U.S. imports of key
into effect on December 19, 2023, allows Canadian news
critical mineral inputs for EV batteries. In March 2023, the
outlets to collectively bargain with digital platforms (e.g.,
United States and Canada launched an Energy
Google, Meta) regarding payments for the use of news
Transformation Task Force and a Joint Action Plan on
content. The act also establishes a mandatory arbitration
Critical Minerals Collaboration to promote an integrated
framework in the event that news outlets and digital
approach towards critical supply chains, including EVs,
platforms cannot reach a payment agreement. The Canadian
batteries, and critical minerals. Canada is also a member of
government contends that the act ensures fair sharing of
the U.S.-led Minerals Security Partnership, which
revenue (e.g., from digital advertising) between news
encourages public and private sector coordination on
outlets and digital platforms. Some U.S. companies have
critical minerals investments.
negotiated payment agreements with the Canadian
government, while others have stopped displaying news
Congress may continue to monitor the implementation and
content through their platforms in Canada. Some Members
economic impacts of the USMCA automotive rules of
of Congress have introduced legislation (e.g., S. 1094)
origin and the IRA EV tax credit, and U.S.-Canada
similar to the Online News Act. Other Members have
cooperation on critical supply chains.
expressed concerns that the Online News Act may unfairly
Dairy and Supply Management. Canada supports its
target U.S. companies and violate USMCA.
dairy, poultry, and egg sectors by limiting production,
Online Streaming Act. The Canadian Radio-Television
setting prices, and restricting imports (“supply
and Telecommunications Commission (CRTC) requires
management”). Under USMCA, Canada committed to
television and radio companies operating in Canada to fund
provide greater access for U.S. dairy exports through 14
and broadcast a certain percentage of Canadian content.
U.S.-specific tariff-rate quotas (TRQs), which allow
Canada’s April 2023 Online Streaming Act gives the CRTC
specified quantities to be imported into Canada at
the power to regulate entities that broadcast through social
preferential duty rates. USTR has challenged Canada’s
media (e.g., Facebook) or online streaming services (e.g.,
dairy TRQs twice under USMCA. In the first case, in
Netflix, YouTube). The CRTC has stated that it is targeting
December 2021, a USMCA panel ruled in favor of the
“late 2025” to implement a new regulatory framework for
United States. In the second case, in November 2023, a
Canadian content requirements. Some Members of
USMCA panel ruled in favor of Canada. U.S. officials and
Congress have expressed concerns about the act’s
some Members of Congress expressed disappointment in
implementation and potential discrimination towards U.S.
the decision, which cannot be appealed. Some Members
companies and creators. In June 2024, the CRTC released
have urged USTR to continue to pursue improved U.S.
proposed regulations and announced that it will require
access to Canada’s dairy market. At the same time, some
online streaming services with annual revenues of CAD $25
Members have called on USTR to pursue new U.S. dairy
million (USD $18 million) or more to contribute towards or
market access opportunities in other countries.
directly fund Canadian content. The CRTC stated that it
Softwood Lumber. The United States and Canada have
expects this funding requirement to take effect on
had a decades-long dispute over trade in softwood
September 1, 2024. U.S. industry groups have criticized the
lumber—primarily used in residential construction,
measure as discriminatory towards foreign firms, while
remodeling, and repair. The last agreement governing U.S.-
some Canadian observers argue that funding requirements
Canada softwood lumber trade expired in October 2015.
apply to companies in Canada regardless of nationality.
Since the agreement’s expiration, the United States has
Congress may examine the act’s potential impacts on U.S.
imposed antidumping (AD) and countervailing duties
companies and whether it raises concerns under USMCA.
(CVD) on imports of Canadian softwood lumber. Canada
Automotive and Critical Minerals. USMCA contains
has filed challenges against the AD/CVD duties through
various North American content requirements for duty-free
NAFTA, USMCA, the World Trade Organization (WTO),
automotive trade (referred to as “rules of origin”). Mexico
and the U.S. Court of International Trade. Congress may
and Canada challenged the U.S. interpretation of the rules
consider whether a new softwood lumber agreement is
of origin—the United States argued for a stricter approach
necessary and how a potential agreement might impact U.S.
to calculating North American content, while Mexico and
producers. Congress may also consider the economic
Canada argued that the three parties had agreed to a more
impacts of lumber duties on U.S. consumers.
flexible interpretation to help North American producers
Issues for Congress
meet the content requirements. In December 2022, a
Congress may be interested in monitoring USMCA
USMCA panel decided in favor of Mexico and Canada’s
implementation—including the scheduled 2026 USMCA
position, and the decision cannot be appealed. The three
joint review—and Canada’s compliance with USMCA
countries have stated that they are continuing to work
commitments. Congress may also consider whether or not
toward a resolution. The three countries may potentially
to engage with Canada at the congressional/parliamentary
discuss the automotive rules of origin during the scheduled
level to discuss pathways to address bilateral irritants and
2026 review of USMCA.
deepen cooperation in key supply chains.
https://crsreports.congress.gov
U.S.-Canada Trade Relations
IF12595
Kyla H. Kitamura, Analyst in International Trade and
Finance
Disclaimer
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https://crsreports.congress.gov | IF12595 · VERSION 4 · UPDATED