Canada Implements Retaliatory Tariffs as Trade War with US Enters Prolonged Phase

Canada officially enacted retaliatory tariffs on a broad range of American products on Tuesday, marking a significant escalation in the trade dispute with its southern neighbor. With no immediate prospect of a renewed deal, the new measures target approximately C$28bn ($20bn; £15bn) of US exports, imposing levies of up to 50% on items ranging from steel and furniture to cotton T-shirts.

Prime Minister Mark Carney described the response as “dollar-for-dollar” retaliation, applied to hundreds of goods as of midnight Tuesday. However, the government made adjustments following pressure from domestic stakeholders, notably removing fresh fish and lobster from the list after pushback from the seafood industry. The sector relies on a complex cross-border supply chain, with American-caught lobster often processed in Canada before being re-exported to the US.

Tensions have intensified despite mutual statements of desire for an agreement. Talks collapsed in late August, and US Trade Representative Jamieson Greer asserted that the onus is now on Canada. Speaking to Fox News, Greer claimed Washington had offered the “best deal” and criticized the lack of communication since negotiations failed. He also warned that further Canadian retaliation could prompt the US to ban imports of certain Canadian products.

The diplomatic standoff coincides with aggressive rhetoric from President Donald Trump. On Monday, he threatened to halt all US business with Bombardier, one of Canada’s largest manufacturers, unless it relocates production south of the border. The company contributed over C$7bn to Canada’s GDP in 2024. Trump also criticized Canada’s exchange rate on Truth Social and posted an image suggesting North American integration under the US flag.

Current tariff structures include a 25% US tax on Canadian vehicles, along with duties on steel, aluminum, and lumber. In late August, Trump added 50% tariffs on dairy, alcohol, hockey sticks, and perfume. Canada’s counter-measures sit alongside existing taxes on non-compliant American vehicles under the USMCA/CUSMA free trade agreement.

While polls indicate majority support among Canadians for a robust tariff response, economists caution that the measures will increase consumer prices for everyday items. The Canadian Chamber of Commerce urged a targeted approach to avoid endless escalation, though its president, Candace Laing, acknowledged that businesses are preparing for a prolonged dispute.

The economic fallout has already begun to show. After gaining 181,000 jobs between April and July, Canada lost approximately 41,000 positions in August, a period that saw the imposition of new US tariffs and the collapse of trade talks. Meanwhile, Carney’s government has highlighted efforts to diversify trade away from the US, noting that US-bound exports dropped to 66% in July from a pre-war average of 75%.