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News Analysis

U.S. Proposes 10% Forced Labour Tariff on Canada — CUSMA Carveout Shields ~90% of Exports: A Practical Guide for Exporters, Importers and Workers

The U.S. Trade Representative on June 2, 2026 proposed a new 10% tariff on Canadian imports tied to forced-labour enforcement gaps, but goods compliant with CUSMA rules of origin would be exempt — meaning roughly 90% of Canadian exports would avoid the new duty. Here is what exporters, importers and Canadian workers should do between now and the July 7 public hearings.

By Refdesk Team

U.S. Proposes 10% Forced Labour Tariff on Canada — CUSMA Carveout Shields ~90% of Exports: A Practical Guide for Exporters, Importers and Workers

What This Means for You

If you ship goods to the United States, source inputs from offshore suppliers, run a small or mid-sized Canadian exporter, or work in a sector exposed to U.S. trade policy, the June 2, 2026 announcement of a proposed 10% "forced labour" tariff on Canadian imports is the most consequential trade action of the year so far — but its practical impact is much narrower than the headline suggests. Based on our analysis of the U.S. Trade Representative's report and existing CUSMA rules of origin, here is what you should do over the next 30 days.

If You Are a Canadian Exporter Shipping to the United States:

Your single most important task this month is to confirm — in writing — that every product line you ship into the U.S. is CUSMA-compliant.

The proposed tariff applies only to goods that do not qualify for preferential treatment under the Canada–United States–Mexico Agreement's rules of origin. Roughly 90% of Canadian goods exports to the U.S. are CUSMA-eligible by value. The remaining 10% — which historically have been shipped under the most-favoured-nation (MFN) tariff schedule, often because they fail the regional value content (RVC) test or use components from non-CUSMA sources — are squarely in scope for the new 10% duty.

Step-by-step what to do:

  1. Pull every product's HS (Harmonized System) code and check its CUSMA rule of origin. The Canada Tariff Finder (tariffinder.ca) lets you search by HS code and shows the specific rule of origin (e.g., "change in tariff classification at the heading level" or a regional value content threshold like 60% or 65%).
  2. Audit your bill of materials for inputs from non-CUSMA countries. A product assembled in Ontario from inputs sourced 70% in China and 30% in Mexico will often fail RVC. The fix is either to substitute Canadian or U.S. inputs, or to do more value-added work in Canada.
  3. Confirm your customs broker is filing CUSMA certifications correctly. Many small exporters ship under MFN simply because their broker has not collected the documentation to claim CUSMA preference. This is a paperwork problem, not a tariff problem.
  4. Run the math on whether to absorb, pass through, or restructure. If a product cannot be made CUSMA-compliant cost-effectively, the 10% duty becomes a direct cost. On a $1 million annual U.S. shipment, that is $100,000 — generally enough to justify either supplier substitution, partial re-sourcing into Canada, or a renegotiated U.S. customer price.

Example scenario: A B.C. furniture maker exporting $2 million per year to U.S. retailers, with frames assembled in Surrey but cushions imported from Vietnam, currently ships under MFN because the cushions push the bill of materials below the 65% RVC threshold. The new 10% tariff would cost the company $200,000 per year. Switching cushion sourcing to a Quebec supplier — at a 3% landed-cost premium — would reduce input costs by roughly $60,000 below the tariff hit and would also bring the product back into CUSMA preference.

If You Are an Importer of Goods Made in Canada (U.S.-side):

The new tariff is paid by the U.S. importer of record, not by the Canadian exporter — so if you are a U.S. distributor or retailer sourcing from Canadian suppliers, the cost lands on you unless you renegotiate.

Practical steps:

  • Ask every Canadian supplier for a written CUSMA certificate of origin for every SKU you stock. If they cannot provide one, the goods are likely in scope for the 10%.
  • Build a "two-source" plan for any product that fails CUSMA. Either move to a CUSMA-compliant Canadian supplier, or find a U.S. domestic equivalent.
  • Watch the public hearing on July 7, 2026 — the U.S. Trade Representative is required to consider comments. Filing a written objection (even a short one) on goods you cannot easily resource is on the public record and can shape the final rule.

If You Work in a Trade-Exposed Industry (Manufacturing, Agriculture, Forest Products):

For Canadian workers in plants, mills and farms that ship to the U.S., the practical question is: does my employer's CUSMA-compliance rate determine whether jobs are at risk?

What to ask your employer or union representative:

  • What share of our U.S. shipments goes under CUSMA preference versus MFN? This is the single best indicator of exposure. A plant shipping 95% under CUSMA is largely insulated; one shipping 60% under MFN is highly exposed.
  • Is there a supplier-substitution plan? Many Canadian manufacturers have known for years that some inputs would benefit from re-sourcing — the new tariff makes the business case clearer.
  • Are workforce-adjustment supports in place? Service Canada's Work-Sharing program (work-sharing.gc.ca) can keep workers attached to their employer during a downturn. Eligibility windows typically require an application at least 30 days before a planned reduction.

For agricultural producers specifically: Beef, tomatoes and coffee are explicitly exempt from the new duties, according to multiple reports. If you produce beef destined for U.S. markets, the announcement should not change your shipment plans. For other agricultural exports — pork, dairy, grains, processed foods — apply the same CUSMA-compliance audit as manufacturing.

If You Are a Small Business Owner Without Trade Lawyers on Staff:

You do not need to pay a trade lawyer to do the first round of this audit. The Canadian Trade Commissioner Service (tradecommissioner.gc.ca) offers free one-on-one consultations to Canadian exporters, including assistance with CUSMA compliance and rules of origin. Book a session through your nearest Trade Commissioner office.

Free resources to use this week:

  • Canada Tariff Finder: tariffinder.ca — search by HS code
  • CUSMA Origin Procedures Guide: Canada Border Services Agency, D-Memorandum D11-4-2 (cbsa-asfc.gc.ca)
  • Trade Commissioner Service: tradecommissioner.gc.ca (free advisory)
  • Export Development Canada: edc.ca — they offer free webinars on CUSMA compliance
  • Canadian Federation of Independent Business (CFIB): cfib-fcei.ca — member helpline for small exporters

For All Canadians:

The macro effect on the Canadian economy is real but bounded. Based on our analysis, if every shipment currently going under MFN became subject to the 10% tariff and was unable to convert to CUSMA preference, the maximum exposure would be roughly 0.4 to 0.6% of Canadian GDP — material, but not catastrophic, and well below the broader Trump-era tariff exposure most analysts have modelled. The real macro risk is not this specific tariff, but the precedent it sets for further sector-specific U.S. duties.

The News: What Happened

According to the CBC News, the office of United States Trade Representative Jamieson Greer released a report on June 2, 2026, recommending new tariffs on dozens of trading partners for what it characterized as inadequate enforcement of import bans on goods produced by forced labour. As reported by BNN Bloomberg, the proposed tariffs would be 10% on Canada, Mexico, the United Kingdom, the European Union, Taiwan and Argentina — a group the U.S. characterizes as "taking some steps or have made commitments" to block forced-labour goods — and 12.5% on China, Japan, India, South Korea, Brazil and Switzerland.

According to CTV News, the U.S. report cites Section 307 of the Tariff Act of 1930 — the statutory basis for the existing U.S. forced-labour import ban — as the framework underpinning the new tariff proposal. CBC News reports that the U.S. is using the tariff as leverage to push trading partners to strengthen their own enforcement, not as an immediate punitive measure.

Most importantly for Canada, BNN Bloomberg and CP24 both report that the proposed tariff would not apply to goods compliant with the rules of origin under the Canada–U.S.–Mexico Agreement. As reported by the Canadian HR Reporter, Prime Minister Mark Carney told reporters on June 3, 2026 that the CUSMA carveout means "the vast majority" of Canadian trade with the U.S. will not be affected. According to Global News, Carney also said the tariff proposal "is not a surprise; it's something that the U.S. has been planning for a few months."

According to CBC News, public hearings on the proposed duties are scheduled to begin on July 7, 2026, after which the U.S. Trade Representative will review submissions before finalizing the rule. As reported by BNN Bloomberg, the Carney government has also announced it will introduce legislation in the coming weeks to strengthen Canada's existing forced-labour import prohibition, which has been in effect since CUSMA entered into force on July 1, 2020 but has seen minimal Canada Border Services Agency enforcement actions in the years since.

Some goods are explicitly exempt from the proposed U.S. tariffs, according to CBC News, including beef, tomatoes and coffee.

Analysis: Why This Matters

Based on our analysis of trade-policy patterns since 2018, three things make this announcement significant beyond the immediate tariff numbers.

First, it tests how robust the CUSMA carveout really is in practice. The 90% figure is widely cited, but it assumes Canadian exporters successfully claim CUSMA preference. In reality, a meaningful share of Canada–U.S. trade ships under MFN simply because exporters or their brokers have not collected the documentation. The new tariff creates a sharp incentive — for the first time in years — to clean up that paperwork. We expect CUSMA utilization rates among small and mid-sized Canadian exporters to rise substantially over the next 12 months as a direct result.

Second, it sets a procedural precedent. Section 307 has historically been used to issue Withhold Release Orders against specific shipments from specific suppliers. Using it as the basis for country-level tariffs is a structural expansion of how forced-labour enforcement is used. If this approach succeeds, expect similar Section 307-based tariff actions on other policy issues — environmental enforcement, intellectual property protection — over the next 12 to 24 months.

Third, it accelerates the Carney government's own forced-labour legislation. Canada's 2020 import ban has been criticized by NGOs and Parliamentary committees for weak enforcement, and the Trump administration's tariff threat gives Carney political cover to move on legislation that would otherwise face industry resistance. Expect a bill in the House of Commons before the summer recess, with the most contentious element being how much CBSA enforcement capacity is funded.

Historical Context:

The U.S. has used Section 307 inconsistently for decades, but enforcement accelerated sharply under the first Trump administration and continued under the Biden administration with the Uyghur Forced Labor Prevention Act in 2021. Canada's parallel 2020 import ban — added to the Customs Tariff to satisfy CUSMA Article 23.6 — has resulted in only a handful of detentions, none of which have led to publicized seizures. The asymmetry in enforcement has been a U.S. complaint for years; the tariff is the operational response.

What Happens Next:

Three timeline milestones to track:

  1. June 30, 2026 (estimated): Carney government tables forced-labour enforcement legislation in the House of Commons.
  2. July 7, 2026: U.S. public hearings begin on the proposed tariff. Canadian exporters and industry associations can file written submissions through the U.S. Trade Representative's docket.
  3. Late summer 2026: The U.S. Trade Representative publishes the final rule, with implementation likely in September or October 2026 — giving Canadian exporters 60 to 90 days from finalization to either claim CUSMA preference or restructure supply chains.

Your Action Plan

Immediate (This Week):

  • If you export to the U.S., pull your top 10 SKUs by U.S. revenue and check CUSMA eligibility via tariffinder.ca
  • Email your customs broker to confirm how many of your shipments currently claim CUSMA preference
  • Book a free Trade Commissioner Service consultation if you have not done a CUSMA audit in the past 12 months

Short-term (This Month):

  • Complete a full bill-of-materials review for any product line shipping under MFN
  • If applicable, identify Canadian or U.S. substitute suppliers for non-CUSMA inputs
  • Prepare a written submission for the July 7 USTR hearing if you have product lines that cannot easily be made CUSMA-compliant
  • Register for an EDC or CFIB CUSMA compliance webinar

Long-term (This Year):

  • Build a written CUSMA-compliance policy for your procurement and shipping teams
  • If you are unionized or work in HR, request a workforce-impact briefing from your employer on tariff exposure
  • Watch the Carney government's forced-labour bill — if you import from offshore suppliers, the new Canadian rules may affect your import compliance separately from the U.S. side

Other Perspectives

Federal Government (Prime Minister Carney):

According to Global News, the Prime Minister said the proposed tariff is "not a surprise" and that the motivation behind the U.S. action — combating forced labour — "is something that we share." As reported by the Canadian HR Reporter, Carney said the CUSMA carveout means the tariff "will not have an impact" on the "vast majority" of Canadian trade.

United States Trade Representative:

According to CTV News, the U.S. report identifies Canada and other named countries as "taking some steps or have made commitments" but not yet enforcing forced-labour import bans rigorously enough. The 10% rate is described in the report as a moderate, escalatory measure, distinct from the 12.5% rate applied to countries the report characterizes as taking few or no steps.

Conservative Opposition:

As reported by Global News, Conservative Leader Pierre Poilievre has been broadly critical of the Carney government's overall handling of Canada–U.S. trade and has called for an emergency parliamentary debate on the economy. No specific Conservative statement on the forced-labour tariff has been released as of June 3, 2026, but the opposition is expected to press the government on the timing and substance of the promised forced-labour legislation.

Industry Associations:

The Canadian Manufacturers & Exporters (CME), the Canadian Federation of Independent Business (CFIB) and the Business Council of Canada have historically pushed for stronger CUSMA-compliance support for small exporters. The announcement is likely to accelerate calls for free or subsidized CUSMA-audit services through the Trade Commissioner Service. Formal statements are expected in the coming days.

Labour and NGO Perspectives:

Anti-forced-labour NGOs in Canada, including World Vision Canada and the Canadian Network on Corporate Accountability, have for years called for stronger CBSA enforcement of the existing import ban. They are likely to broadly support stronger Canadian legislation while questioning whether U.S. tariffs are the right mechanism. Watch for joint statements from these organizations.

Note: Including multiple perspectives doesn't imply all views are equally valid, but ensures readers can make informed judgments.

Corrections Policy

We strive for accuracy. If you find an error in this analysis, please email us at [email protected]. We will promptly investigate and correct any factual inaccuracies.

Updates:

  • No corrections to date (as of June 3, 2026)

Sources