Trade talks between Canada and the U.S. have broken down, leaving threatened U.S. tariffs to go into place, along with likely dollar-for-dollar retaliation by Canada. According to Prime Minister Carney, "last-minute changes in the U.S. proposed terms were unfair, uneconomic, and called into question the reliability of any deal". The White House's previously-announced 50% tariffs on C $28 billion of Canadian goods will now go into effect.
Recall that the U.S. will use Section 338 of the Tariff Act of 1930, which is an emergency trade authority that gives the President power to impose additional duties of up to 50% on imports from countries that “discriminate against or impose unequal burdens on American commerce”. In this case, the areas in question were alcohol, dairy and autos (alcohol and autos were countermeasures against prior U.S. tariffs).
Canada will, reportedly, retaliate dollar-for-dollar while maintaining the measures already in place. It remains to be seen if the U.S. will further retaliate to Canada's retaliation and escalate this even further. As an example, the U.S. side has since stated that they will increase tariffs on Canadian autos and parts to 50% at the start of 2027, which would be another significant step up.
Some quick notes:
Tariffs will not apply to energy, potash, critical minerals, fish and goods already subject to tariffs under Section 232.
The new tariffs will apply to goods covered under USMCA. This is a major break from the current tariff environment, where 90%-plus of Canadian exports not targeted by specific levies have continued to move tariff-free under cover of the existing trade agreement. This raises more questions on the usefulness of the existing USMCA.
As Table 1 shows, the largest impacts are in the following sectors: chemicals, plastics, electronics and related equipment; consumer goods and forestry and wood products; and other manufacturing, machinery and industrial equipment, agricultural and food products. And there are exemptions, such as goods already saddled with Section 232 tariffs.
Canada's retaliation is pending, but is expected to target C$28 billion imports from the U.S. Any fiscal response and support measures by the federal government are also pending, but they appear to have fiscal capacity to do so without seriously deepening the deficit
