Understanding U.S.-Canada Tariff Exposure: Key Questions
What is the latest in the U.S.-Canada tariff dispute?
The dispute began in February 2025 when the U.S. announced tariffs on Canada under the International Emergency Economic Powers Act (IEEPA). Canada responded with retaliatory measures, although both countries agreed to a 30-day pause. By March, both countries had layered on tariffs targeting steel and aluminum, with Canada adding a broad 25% surtax. Remissions, quota cuts and new sector-specific tariffs on autos, metals and machinery followed through the rest of 2025.
In February 2026, the U.S. Supreme Court invalidated the IEEPA tariffs, prompting a temporary Section 122 surcharge, which expired in July 2026 just as the U.S. introduced new Section 338 tariffs on select Canadian goods. Canada responded in August 2026 by announcing tariffs on $27.6 billion of U.S. imports, scheduled to take effect in September 2026.
As the dispute continues to evolve, this analysis provides context for understanding trade exposure across North American states and provinces. It serves as a starting point for identifying where trade policy risk may be have the greatest implications for regional economies and, in turn, commercial real estate (CRE) markets.
Which products are traded?
The Canada-U.S. economic relationship is significant, with bilateral trade in goods and services exceeding $870 billion annually. Canada remains one of the United States’ largest trading partners, reflecting the deep integration of the two economies. Yet despite the scale of cross-border commerce, the U.S. trade deficit with Canada remains relatively modest compared with those of several other major trading partners.
Examining what moves across the border helps explain where tariff exposure is concentrated. For the U.S., energy and mineral fuels account for nearly 30% of imports from Canada, followed by vehicles and auto parts, and machinery and equipment. Canada’s import profile is somewhat different: Vehicles and auto parts represent the largest share of imports from the U.S., followed by machinery and equipment, and then energy.
These differences in the composition of trade matter because tariff exposure can look very different depending on which side of the border, and which industry, you’re examining.
Which states and provinces are most exposed?
Maryland, Kentucky, Texas and Michigan top the list, with exposure levels roughly twice the North American average. In Maryland and Kentucky, this exposure is driven by a concentration of aluminum imports, while in Texas and Michigan it is driven by automobiles and auto parts. Roughly two-thirds of U.S. states sit above the North American average.
Ontario, at about 1.02, stands apart as the most exposed Canadian province. Its position reflects deep ties to cross-border automotive, machinery and metals supply chains. Every other Canadian province falls well below the North American benchmark.
Does high exposure automatically mean high economic risk?
Not necessarily. Most U.S. states with high exposure have relatively low trade-to-GDP ratios, meaning tariffs are concentrated in specific goods without posing a threat to the broader state economy. For example, Maryland's bilateral imports-to-GDP ratio is 0.6%, while that ratio in Texas is 1.5%. Several Canadian provinces, however, exceeded 20%, including Manitoba (32%), New Brunswick (24%) and Ontario (26%). These provinces are far more dependent on trade with the U.S., even when tariff-weighted import concentration is only moderate. Exposure and vulnerability are two different risks, and the U.S. and Canada are each carrying a different risk at the end of the day.
What does this mean for CRE?
Tariffs are one of many factors that influence real estate demand and should be viewed as an additional source of cost and demand pressure rather than a primary driver of market performance. As a result, markets with relatively high tariff exposure can still experience strong real estate demand when other economic and structural drivers remain supportive.
The impacts differ on each side of the border. In the U.S., tariffs may reinforce incentives to onshore production, diversify supply chains and hold additional inventory, potentially supporting demand for manufacturing and logistics space. In Canada, efforts to diversify supply chains, expand domestic production or reduce reliance on U.S. suppliers could generate new demand for manufacturing, warehousing and distribution space.
For industrial real estate, changing trade patterns may alter how occupiers structure their supply chains. Third-party logistics providers and manufacturers may hold larger inventories, diversify sourcing, and make greater use of inland distribution facilities, bonded warehouses and other strategies that provide flexibility around the timing and cost of cross-border trade. Rather than uniformly increasing or decreasing industrial demand, tariffs are more likely to influence where demand occurs and the types of space occupiers require. Tariffs on construction materials, equipment and other inputs can increase project costs and reduce development feasibility, reinforcing a more selective approach to new construction.
Ultimately the impact on CRE impact depends on both the degree and composition of tariff exposure. A province or state concentrated in automotive manufacturing will face a different set of risks and opportunities than one focused on energy, metals or consumer goods.
What should we be watching next?
Three developments will be particularly important to watch.
First, it remains unclear whether tariffs will lead to a lasting restructuring of North American supply chains through onshoring, domestic manufacturing investment and changes in inventory strategies, or whether they primarily result in higher costs and weaker capital investment.
Second, Canada’s ability to diversify trade toward Europe, Asia and other markets will be important to monitor as it seeks to reduce its outsized reliance on the U.S. However, this is a medium- to long-term shift rather than a quick fix.
Third, political and trade policy developments, including the U.S. midterm elections and the future direction of the CUSMA/USMCA relationship, could alter the trajectory of the current tariff regime. Continued uncertainty can itself weigh on business investment across North America.
