Canada and Mexico can avoid American tariffs if they take sufficient action to secure their border and stop the flow of fentanyl, U.S. President Donald Trump’s pick for commerce secretary Howard Lutnick testified at his confirmation hearing.
“As far as I know, they are acting swiftly, and if they execute it, there will be no tariff,” Lutnick testified in Washington, D.C., on Jan. 29. “And if they don’t, then there will be.”
Lutnick also suggested Canada could be hit with a second phase of tariffs in the spring, which would come after the United States Trade Representative and Commerce Department complete their study into the United States using tariffs to reduce its trade deficits with other countries. He said the tax Trump has threatened Canada and Mexico with is a “separate tariff to create action” on the border.
Trump has threatened to impose 25 percent tariffs on all Canadian and Mexican exports unless the countries take appropriate steps to combat drug trafficking and illegal immigration at their borders with the United States.
Ottawa has introduced a $1.3 billion strategy focused on curbing illegal migration and trafficking across the border but Trump recently reaffirmed his threats to slap “substantial” tariffs on Canada. Ottawa and provinces have also been coordinating on potential retaliation.
Lutnick, CEO of financial services firm Cantor Fitzgerald, said Canadian fentanyl labs are “run by Mexican cartels” and that Canada should “respect America” by stopping them from exporting fentanyl into the country. “So it is not a tariff per se. It is an action of domestic policy: shut your border and stop allowing fentanyl into our country,” he said.
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The U.S. Customs and Border Protection intercepted 43 pounds of fentanyl at the Canadian border during financial year 2024, while 21,000 pounds were seized at the Mexican border. Production of fentanyl in Canada is on the rise driven by the increasing participation of criminal organizations, according to the 2024 public report from the Criminal Intelligence Service Canada.
Dairy and Automotives
Lutnick told the confirmation hearing he would also like to see more U.S. dairy products exported into Canada, and accused the country of treating American farmers “horribly.” The supply management system in Canada is structured to regulate the production and demand of dairy and poultry products. It incorporates tariffs that can run as high as 300 percent.
Lutnick also called for the United States to use a “thoughtful tariff policy” to bring auto manufacturing jobs back to the country. “The car manufacturing went to Canada, it went to Mexico. It’s important that that come back to Michigan, come back to Ohio,” he said.
Trump pledged in October he would renegotiate the United States-Mexico-Canada free trade agreement (USMCA) if he became president. USMCA came into effect in 2020 as a replacement for the North American Free Trade Agreement, which Trump re-negotiated during his first term.
The new deal dictated that 75 percent of auto components must come from North America—up from the previous 62.5 percent—to qualify for zero tariffs. Canada was also forced to make adjustments to its supply management system, providing new trade privileges exclusively for the U.S. dairy market.
