On Saturday, the United States imposed 50% tariffs on about $20 billion worth of imports from Canada, its second-largest trading partner after Mexico. The affected products cover dairy, wine, wood products, furniture, cement, ceramics and many other sectors.
Canadian Prime Minister Mark Carney said he would retaliate “dollar for dollar” with tariffs starting Sept. 8, targeting sectors such as steel, dairy, farm equipment, paper and electronics. Details will be released “in the coming days,” Carney added.
The Canadian dollar was down 0.55% against the US dollar as of 7:30 am ET. The Canadian dollar also fell against the euro, the British pound and the Japanese yen.
Bradley Saunders, a North American economist at Capital Economics, told CNBC that Canada faced a bigger hit to its economy from the tariffs than the United States.
“The high levy rate means the most exposed industries could be crippled,” Saunders said by email, highlighting that there is no longer an exemption for goods that meet the production rules set out in the United States-Mexico-Canada Agreement (USMCA), a trilateral agreement currently under renegotiation, as there has been in previous rounds of tariffs since US President Donald Trump’s “Liberation Day” in April 2025.
Although the targeted products only account for about 0.6% of Canada’s gross domestic product, “a collapse in exports would still be enough to push already weak GDP growth toward zero,” he said.
“This would especially be the case if lower US demand for finished goods, such as furniture and electrical equipment, had knock-on effects on primary industries, which are already struggling under the pressure of Section 232 tariffs.”
The situation could get even worse if Trump retaliates against Canada’s countermeasures, Saunders added, estimating that expanding tariffs from 50% to 20% of Canada’s exports of American goods, from 5% previously, could shave about 2% off Canadian GDP and push it into recession territory.
‘They attacked us’
The United States and Canada export tens of billions in agricultural products to each other each year, while their auto industries are deeply intertwined. The United States’ $48.3 billion trade deficit with Canada is largely due to its significant imports of Canadian natural gas, electricity and crude oil.
Like the European Union during its protracted trade negotiations with the Trump administration, Ottawa maintains that its trade relationship with the United States turns into a deficit once services are included.
“Canada wants the benefits of being a state, without being one!!!” Trump said in a post on Truth Social on Sunday. “They have also charged our large farmers, for many years, enormous amounts of tariffs. No more!!!”
Carney said Saturday that the United States had “asked for too much and offered too little.”
“We were not willing to compromise Canada’s sovereignty or undermine our key industries,” he said.
Tariff details on major sectors, including autos, steel and aluminum, were a sticking point, along with Canadian protections on French language use and the country’s ability to strike separate trade deals, Carney said in his comments.
When asked by a reporter why he felt Canada was entering a trade war, Carney responded: “Because they attacked us. You’re at war when they attack you. They attacked us.”
Despite the potential economic impact, Carney’s stance was welcomed by many in Canada, where recent polls suggest a majority of the public supports a hard line in negotiations with the United States, but a growing number fear for their job security. The current 50% US tariffs could lead to the loss of around 90,000 jobs, according to Canadian economist Trevor Tombe.
Carney was elected in March 2025 largely on a promise to stand up to the White House. It came as reports of Canadians removing American alcohol from store shelves highlighted sour relations between the North American neighbors.
Pierre Poilievre, leader of the Conservative opposition, said on social media that Canada “cannot accept unilateral tariffs that will deindustrialize our country.”
