U.S.-Canada Trade Relations
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Updated July 8, 2024
U.S.-Canada Trade Relations
The United States and Canada have one of the largest
Digital Services Tax Act. In June 2024, the Canadian
bilateral commercial relationships in the world, including a
government enacted a bill into law which included a 3%
highly integrated energy and automotive market. Over the
digital services tax (DST) on certain revenue of large digital
past 30 years, U.S.-Canada trade relations have been
services providers related, for example, to online
governed first by the 1989 U.S.-Canada Free Trade
marketplaces, online advertising, social media platforms,
Agreement, then by the 1994 North American Free Trade
and the sale or licensing of user data. The DST is to be
Agreement (NAFTA), and now by the 2020 United States-
retroactive to January 1, 2022. The Canadian government
Mexico-Canada Agreement (USMCA). Congress may
designated June 28, 2024, as the DST’s date of entry into
consider the implications of current and potential areas of
force. The United States is home to several of the world’s
trade dispute and cooperation with Canada ahead of the
largest digital services providers, and some Members of
scheduled 2026 review of USMCA.
Congress have expressed concerns that DSTs
U.S.-Canada Trade Overview
disproportionately impact U.S. firms (e.g., H.Res. 268).
Canada is the top U.S. partner for trade in goods and
In October 2021, members of the Organization for
services (see Figure 1Error! Reference source not
Economic Cooperation and Development (OECD)/G20
found.). In 2023, Canada exported 78% of its goods to, and
Inclusive Fra
imported almost half of its goods from, the United States.
As of 2022 (latest data available from the U.S. Bureau of
mework, including the United States and Canada, agreed on
Economic Analysis), the United States is the largest source
a plan to update the global tax system and develop an
of foreign direct investment (FDI) by stock in Canada
international digital tax framework. In July 2023, 138 out of
($438.8 billion), and Canada is the fourth-largest FDI
145 framework members agreed to hold off on imposing
source in the United States ($589.3 billion).
DSTs until at least 2025 to allow for additional progress.
Canada was an exception, stating that it would not support a
Figure 1. Top U.S. Trade Partners (2023)
DST moratorium without a “firm and binding”
implementation timeline for the agreement. U.S. officials
Source: CRS, with U.S. Bureau of Economic Analysis data.
have stated that additional discussions are needed before the
United States signs the framework agreement. Some
Canada is the largest supplier of U.S. energy imports—
Members of Congress have argued the framework plan
including crude oil (see Figure 2Figure 2), natural gas, and
would disproportionately impact U.S. companies and have
electricity—and the second-largest recipient of U.S. energy
criticized what they view as the Administration’s lack of
exports.
adequate consultation with Congress. Some Members have
Figure 2. U.S. Crude Oil Imports from Canada
argued a global 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
(19 U.S.C. §§2411-2420), commonly referred to as
Source: CRS, with U.S. Census Bureau data, as presented by Trade
“Section 301.” USTR found these DSTs to be
Data Monitor, accessed April 2024.
discriminatory towards U.S. companies and announced, and
Notes: Global energy prices were higher overal in 2022 due in part
then immediately suspended, plans for retaliatory action in
to market instability following Russia’s invasion of Ukraine.
the form of increased tariffs. Following the October 2021
OECD/G20 Inclusive Framework announcement, USTR
Selected Trade Issues
terminated the tariffs and investigations. In response to
Current and potential areas of discussion between U.S. and
Canada’s DST, some Members and U.S. industry groups
Canadian officials include Canadian legislation regarding
have urged USTR to initiate consultations under USMCA
digital services providers, news outlets, and online content;
and/or a Section 301 investigation. USTR has stated that it
automotive issues and potential cooperation on critical
would assess a Canadian DST against the “same standard”
minerals; U.S. access to Canada’s dairy market; and
as the abovementioned DST investigations.
Canada’s softwood lumber industry.
https://crsreports.congress.gov
U.S.-Canada Trade Relations
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
Congress may continue to monitor the implementation and
government, while others have stopped displaying news
economic impacts of the USMCA automotive rules of
content through their platforms in Canada. Some Members
origin and the IRA EV tax credit, and U.S.-Canada
of Congress have introduced legislation (e.g., S. 1094)
cooperation on critical supply chains.
similar to the Online News Act. Other Members have
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,
setting prices, and restricting imports (“supply
Online Streaming Act. The Canadian Radio-Television
management”). Under USMCA, Canada committed to
and Telecommunications Commission (CRTC) requires
provide greater access for U.S. dairy exports through 14
television and radio companies operating in Canada to fund
U.S.-specific tariff-rate quotas (TRQs), which allow
and broadcast a certain percentage of Canadian content.
specified quantities to be imported into Canada at
Canada’s April 2023 Online Streaming Act gives the CRTC
preferential duty rates. USTR has challenged Canada’s
the power to regulate entities that broadcast through social
dairy TRQs twice under USMCA. In the first case, in
media (e.g., Facebook) or online streaming services (e.g.,
December 2021, a USMCA panel ruled in favor of the
Netflix, YouTube). The CRTC has stated that it is targeting
United States. In the second case, in November 2023, a
“late 2025” to implement a new regulatory framework for
USMCA panel ruled in favor of Canada. U.S. officials and
Canadian content requirements. Some Members of
some Members of Congress expressed disappointment in
Congress have expressed concerns about the act’s
the decision, which cannot be appealed. Some Members
implementation and potential discrimination towards U.S.
have urged USTR to continue to pursue improved U.S.
companies and creators. In June 2024, the CRTC released
access to Canada’s dairy market. At the same time, some
proposed regulations and announced that it will require
Members have called on USTR to pursue new U.S. dairy
online streaming services with annual revenues of CAD $25
market access opportunities in other countries.
million (USD $18 million) or more to contribute towards or
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
has filed challenges against the AD/CVD duties through
Automotive and Critical Minerals. USMCA contains
NAFTA, USMCA, the World Trade Organization (WTO),
various North American content requirements for duty-free
and the U.S. Court of International Trade. Congress may
automotive trade (termed “rules of origin”). Mexico and
consider whether a new softwood lumber agreement is
Canada challenged the U.S. interpretation of the rules of
necessary and how a potential agreement might impact U.S.
origin—the United States argued for a stricter approach to
producers. Congress may also consider the economic
calculating North American content, while Mexico and
impacts of lumber duties on U.S. consumers.
Canada said the three parties had agreed to a more flexible
interpretation to help North American producers meet the
Issues for Congress
content requirements. In December 2022, a USMCA panel
Congress may be interested in monitoring USMCA
decided in favor of Mexico and Canada’s position, and the
implementation—including the scheduled 2026 USMCA
decision cannot be appealed. The three countries say they
joint review—and Canada’s compliance with USMCA
are continuing to work toward a resolution. The three
commitments. Congress may also consider whether or not
countries may potentially discuss the automotive rules of
to engage with Canada at the congressional/parliamentary
origin during the scheduled 2026 review of USMCA.
level to discuss pathways to address bilateral irritants and
deepen cooperation in key supply chains.
The electric vehicle (EV) tax credit in P.L. 117-169, known
as the Inflation Reduction Act of 2022 (IRA), also contains
Kyla H. Kitamura, Analyst in International Trade and
North American requirements for EV and battery
Finance
manufacturing. The EV tax credit also requires a certain
percentage of critical minerals to be sourced from the
IF12595
United States or its free trade agreement partners, including
https://crsreports.congress.gov
U.S.-Canada Trade Relations
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12595 · VERSION 6 · UPDATED
Updated July 8, 2024
U.S.-Canada Trade Relations
The United States and Canada have one of the largest
Digital Services Tax Act. In June 2024, the Canadian
bilateral commercial relationships in the world, including a
government enacted a bill into law which included a 3%
highly integrated energy and automotive market. Over the
digital services tax (DST) on certain revenue of large digital
past 30 years, U.S.-Canada trade relations have been
services providers related, for example, to online
governed first by the 1989 U.S.-Canada Free Trade
marketplaces, online advertising, social media platforms,
Agreement, then by the 1994 North American Free Trade
and the sale or licensing of user data. The DST is to be
Agreement (NAFTA), and now by the 2020 United States-
retroactive to January 1, 2022. The Canadian government
Mexico-Canada Agreement (USMCA). Congress may
designated June 28, 2024, as the DST’s date of entry into
consider the implications of current and potential areas of
force. The United States is home to several of the world’s
trade dispute and cooperation with Canada ahead of the
largest digital services providers, and some Members of
scheduled 2026 review of USMCA.
Congress have expressed concerns that DSTs
U.S.-Canada Trade Overview
disproportionately impact U.S. firms (e.g., H.Res. 268).
Canada is the top U.S. partner for trade in goods and
In October 2021, members of the Organization for
services (see Figure 1Error! Reference source not
Economic Cooperation and Development (OECD)/G20
found.). In 2023, Canada exported 78% of its goods to, and
Inclusive Fra
imported almost half of its goods from, the United States.
As of 2022 (latest data available from the U.S. Bureau of
mework, including the United States and Canada, agreed on
Economic Analysis), the United States is the largest source
a plan to update the global tax system and develop an
of foreign direct investment (FDI) by stock in Canada
international digital tax framework. In July 2023, 138 out of
($438.8 billion), and Canada is the fourth-largest FDI
145 framework members agreed to hold off on imposing
source in the United States ($589.3 billion).
DSTs until at least 2025 to allow for additional progress.
Canada was an exception, stating that it would not support a
Figure 1. Top U.S. Trade Partners (2023)
DST moratorium without a “firm and binding”
implementation timeline for the agreement. U.S. officials
Source: CRS, with U.S. Bureau of Economic Analysis data.
have stated that additional discussions are needed before the
United States signs the framework agreement. Some
Canada is the largest supplier of U.S. energy imports—
Members of Congress have argued the framework plan
including crude oil (see Figure 2Figure 2), natural gas, and
would disproportionately impact U.S. companies and have
electricity—and the second-largest recipient of U.S. energy
criticized what they view as the Administration’s lack of
exports.
adequate consultation with Congress. Some Members have
Figure 2. U.S. Crude Oil Imports from Canada
argued a global 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
(19 U.S.C. §§2411-2420), commonly referred to as
Source: CRS, with U.S. Census Bureau data, as presented by Trade
“Section 301.” USTR found these DSTs to be
Data Monitor, accessed April 2024.
discriminatory towards U.S. companies and announced, and
Notes: Global energy prices were higher overal in 2022 due in part
then immediately suspended, plans for retaliatory action in
to market instability following Russia’s invasion of Ukraine.
the form of increased tariffs. Following the October 2021
OECD/G20 Inclusive Framework announcement, USTR
Selected Trade Issues
terminated the tariffs and investigations. In response to
Current and potential areas of discussion between U.S. and
Canada’s DST, some Members and U.S. industry groups
Canadian officials include Canadian legislation regarding
have urged USTR to initiate consultations under USMCA
digital services providers, news outlets, and online content;
and/or a Section 301 investigation. USTR has stated that it
automotive issues and potential cooperation on critical
would assess a Canadian DST against the “same standard”
minerals; U.S. access to Canada’s dairy market; and
as the abovementioned DST investigations.
Canada’s softwood lumber industry.
https://crsreports.congress.gov
U.S.-Canada Trade Relations
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
Congress may continue to monitor the implementation and
government, while others have stopped displaying news
economic impacts of the USMCA automotive rules of
content through their platforms in Canada. Some Members
origin and the IRA EV tax credit, and U.S.-Canada
of Congress have introduced legislation (e.g., S. 1094)
cooperation on critical supply chains.
similar to the Online News Act. Other Members have
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,
setting prices, and restricting imports (“supply
Online Streaming Act. The Canadian Radio-Television
management”). Under USMCA, Canada committed to
and Telecommunications Commission (CRTC) requires
provide greater access for U.S. dairy exports through 14
television and radio companies operating in Canada to fund
U.S.-specific tariff-rate quotas (TRQs), which allow
and broadcast a certain percentage of Canadian content.
specified quantities to be imported into Canada at
Canada’s April 2023 Online Streaming Act gives the CRTC
preferential duty rates. USTR has challenged Canada’s
the power to regulate entities that broadcast through social
dairy TRQs twice under USMCA. In the first case, in
media (e.g., Facebook) or online streaming services (e.g.,
December 2021, a USMCA panel ruled in favor of the
Netflix, YouTube). The CRTC has stated that it is targeting
United States. In the second case, in November 2023, a
“late 2025” to implement a new regulatory framework for
USMCA panel ruled in favor of Canada. U.S. officials and
Canadian content requirements. Some Members of
some Members of Congress expressed disappointment in
Congress have expressed concerns about the act’s
the decision, which cannot be appealed. Some Members
implementation and potential discrimination towards U.S.
have urged USTR to continue to pursue improved U.S.
companies and creators. In June 2024, the CRTC released
access to Canada’s dairy market. At the same time, some
proposed regulations and announced that it will require
Members have called on USTR to pursue new U.S. dairy
online streaming services with annual revenues of CAD $25
market access opportunities in other countries.
million (USD $18 million) or more to contribute towards or
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
has filed challenges against the AD/CVD duties through
Automotive and Critical Minerals. USMCA contains
NAFTA, USMCA, the World Trade Organization (WTO),
various North American content requirements for duty-free
and the U.S. Court of International Trade. Congress may
automotive trade (termed “rules of origin”). Mexico and
consider whether a new softwood lumber agreement is
Canada challenged the U.S. interpretation of the rules of
necessary and how a potential agreement might impact U.S.
origin—the United States argued for a stricter approach to
producers. Congress may also consider the economic
calculating North American content, while Mexico and
impacts of lumber duties on U.S. consumers.
Canada said the three parties had agreed to a more flexible
interpretation to help North American producers meet the
Issues for Congress
content requirements. In December 2022, a USMCA panel
Congress may be interested in monitoring USMCA
decided in favor of Mexico and Canada’s position, and the
implementation—including the scheduled 2026 USMCA
decision cannot be appealed. The three countries say they
joint review—and Canada’s compliance with USMCA
are continuing to work toward a resolution. The three
commitments. Congress may also consider whether or not
countries may potentially discuss the automotive rules of
to engage with Canada at the congressional/parliamentary
origin during the scheduled 2026 review of USMCA.
level to discuss pathways to address bilateral irritants and
deepen cooperation in key supply chains.
The electric vehicle (EV) tax credit in P.L. 117-169, known
as the Inflation Reduction Act of 2022 (IRA), also contains
Kyla H. Kitamura, Analyst in International Trade and
North American requirements for EV and battery
Finance
manufacturing. The EV tax credit also requires a certain
percentage of critical minerals to be sourced from the
IF12595
United States or its free trade agreement partners, including
https://crsreports.congress.gov
U.S.-Canada Trade Relations
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12595 · VERSION 6 · UPDATED