Atlantic Council analysis finds U.S. tariffs are eroding practical FTA benefits
New analysis finds executive tariffs have lifted effective rates for U.S. free-trade partners, while CUSMA still cushions most Canadian and Mexican imports.
A new Atlantic Council assessment argues that U.S. reliance on executive tariff authorities has reduced the commercial certainty traditionally associated with free-trade agreements. The analysis says such agreements can still remove ordinary most-favoured-nation tariffs, but generally do not prevent additional duties imposed under authorities including Sections 232, 301 and 338. For cross-border businesses, the distinction means preferential access may remain available while product-specific tariffs are layered on top. [1]
The study estimates that the average U.S. tariff rate on all imports rose from 2.2 percent in January 2025 to 9.9 percent in January 2026. For the 20 economies with U.S. free-trade agreements, the comparable average increased from 0.2 percent to 4.6 percent. The Atlantic Council characterizes the sharp percentage increase for FTA partners as evidence that low baseline rates have not insulated them from the broader tariff shift. [1]
Its modelling for a full year of 2026 tariffs indicates that some FTA partners could face additional average tariff rates approaching 35 percent, depending largely on what they export. The report illustrates that products can retain their FTA preference against an ordinary tariff but still be subject to a Section 232 or Section 301 duty. That product mix effect means the value of an agreement differs materially across sectors rather than providing uniform protection across a partner’s exports. [1]
Canada and Mexico remain the major exception in the analysis. It estimates that claims for USMCA treatment have largely exempted their imports from IEEPA, Section 122 and Section 301 tariffs, holding the average tariff rate on Canadian and Mexican imports to 3.8 percent, versus roughly 30 percent without the agreement. However, the report says a July Section 338 action applied 50 percent tariffs to about $20 billion of Canadian imports, including goods imported under USMCA, affecting roughly 5 percent of total imports and establishing a precedent for tariffs on preferentially treated trade. [1]
For Canadian firms, the findings point to a more conditional form of CUSMA protection: origin qualification continues to matter, but it may not eliminate exposure where Washington uses sectoral or executive authorities. The analysis also says the United States declined in July to renew USMCA, adding uncertainty ahead of the agreement’s future review process. These are analytical findings on the agreement’s practical value, rather than evidence that tariff exposure has changed uniformly across every Canadian industry. [1]
This is a significant economic-data update because it quantifies how executive-imposed tariffs have raised average rates for U.S. FTA partners and frames the resulting loss of predictability for integrated Canada-U.S. supply chains. The effect is moderated for Canada by the report’s finding that USMCA treatment has kept the average tariff on Canadian and Mexican imports well below the level that could otherwise apply, even as the Section 338 precedent narrows that protection for some goods. [1]