Friends with few trade benefits
Canada and the United States have many reasons not to be in a trade war. They share a 5,500-mile border, Canada is the largest buyer of US exports, and their economies are deeply integrated. They actually build things together. Supply chains routinely cross the border multiple times before a product reaches consumers, whether it is an automobile, an aircraft component, or a piece of defense equipment. Most importantly, however, Ottawa and Washington are parties to one of the largest free trade agreements in the world.
Yet US trade policy is increasingly exposing the limits of such deals.
Since assuming office in January 2025, US President Donald Trump has imposed tariffs on nearly all trading partners, first under the International Emergency Economic Powers Act (IEEPA), then under Section 232, Section 122, Section 301, and Section 338. Behind this alphabet and number soup of legal authorities lies a fundamental shift: Rather than relying on the negotiated rules of free trade agreements, consulting with industry, or passing legislation through Congress, the Trump administration is increasingly relying on executive authority to shape its trade policy.
For US trading partners, that means more than living with the uncertainty that new tariffs could hit at any moment. It also raises the question: How much is a free trade agreement with the United States worth if the executive can simply layer new tariffs on top of it?
Free trade deals face executive tariff power
Though the United States still has fourteen comprehensive free trade agreements with twenty economies around the world—from South Korea to Chile to Morocco—the role of those agreements has become less clear. Free trade deals are designed to reduce trade barriers like tariffs through preferential treatment relative to the most-favored-nation (MFN) rate. But they do not protect imports from additional tariffs imposed under presidential authority.
In short, the free trade discount remains—but so does the additional tariff.
For example, a copper shower faucet from Bahrain would not face the 4 percent MFN tariff but would face the 50 percent Section 232 tariff. Instead of 54 percent, the total tariff rate would be 50 percent. A napkin from Colombia would avoid the 3.3 percent MFN tariff but still face a 12.5 percent Section 301 tariff, bringing the total down from 15.8 percent.
So free trade agreements still matter, but they no longer provide the certainty that trading partners might expect from such deals. In effect, the Trump administration has found a workaround—or rather an overlay—to impose high tariffs regardless of free trade status.
Tariffs trump trade deals
Free trade agreements may have shaved a few percentage points off US tariffs, but they have not kept rates low.
From January 2025 to January 2026, the average tariff rate on imports into the United States jumped from 2.2 percent to 9.9 percent. For the twenty countries that are in a free trade agreement with Washington, the rate jumped from just 0.2 percent to 4.6 percent.
That might look like a win. But it isn’t quite that simple.
While the average US tariff rate increased by 345 percent, the average rate for free trade partners increased by more than 2,000 percent. Although that’s largely because they started from such low rates, it doesn’t make the impact of such massive increases any less real—especially when the initial shock is so severe.
And the additional tariffs can, in fact, be high for longstanding partners. Modeling a full year of tariffs in 2026, some countries face additional tariff rates of nearly 35 percent. How is that possible, you ask? Because what a country exports matters more than whether it has a free trade agreement.
Take Bahrain. The United States imported $365 million in unwrought aluminum from the Gulf state in 2025. Thanks to the United States-Bahrain Free Trade Agreement, importers avoided the 2.6 percent MFN tariff. But they still ended up paying a 50 percent Section 232 tariff. Similarly, South Korea, which supplied the US with $30 billion worth of passenger vehicles in 2025, avoided the 2.5 percent MFN tariff but paid 15 percent in Section 232 tariffs.
The reverse is also true. Colombia, Panama, and Chile faced average tariff rates of around 3.5 percent from April 2025 to April 2026. However, that relatively low rate was not primarily a result of their free trade agreements with Washington. Instead, it reflected the composition of their exports to the United States—including crude oil, coffee, and precious metals—most of which are exempt from additional Section 301 or Section 232 tariffs. Coffee, for example, faces no MFN tariff for any partner and no additional executive-imposed tariff.
The last deal standing
There is, however, one major exception to this trend: the United States-Mexico-Canada Agreement (USMCA). The trade agreement—worth nearly $1 trillion in trade—has largely shielded imports from Canada and Mexico from the new tariffs imposed by the Trump administration. In fact, imports that claim USMCA status have been exempt from IEEPA, Section 122, and Section 301 tariffs. Certain Section 232 tariffs still apply, but the USMCA has kept the average tariff on Canadian and Mexican imports at just 3.8 percent, a far cry from the roughly 30 percent that could have applied without it.
But even this protection has started to erode.
On July 20, Trump announced 50 percent tariffs on roughly $20 billion in Canadian imports under Section 338, including—for the first time—goods imported under USMCA. Although the affected trade accounts for just about 5 percent of total imports, this sets an important precedent. And with the United States having declined to renew the USMCA in July, the agreement itself is on increasingly shaky ground.
Washington is sailing against the trade winds
At this point, the broader question is not whether free trade deals with the US can save countries a few percentage points in tariffs. They can. The question is whether they will be a viable tool going forward, given that Washington can singlehandedly undermine them.
Looking at the last eighteen months of US trade policy, it would not be unreasonable to conclude that free trade agreements themselves are going out of style.
Zooming out, however, the broader trade landscape looks quite different. Beyond the United States, countries still seem to value the art of the free trade deal. Since January 2025, the European Union, for instance, has negotiated free trade agreements with Argentina, Brazil, Paraguay, and Uruguay—as part of the EU-Mercosur Partnership Agreement—and India. India, in turn, has signed an agreement with New Zealand and the United Kingdom (UK)—and the UK has reached an agreement with South Korea.
Around the world, governments are continuing to use trade agreements to open markets, strengthen supply chains, innovate, and shape the economic rules of the future. The United States is building economic walls.
Madeline Chalecki is an assistant director at the Atlantic Council’s GeoEconomics Center, where she leads the center’s work on trade policy, tariffs, and supply chains, including the Trump Tariff Tracker.
This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in receiving the newsletter, email JYin@atlanticcouncil.org.
Related Reading
Image: Flags from countries around the world. Source: Shutterstock.