(Not So) Fun Fact: According to the Shipment’s analysis, nearly $16 billion worth of U.S. imports are products that come almost exclusively from Canada with an additional $39 billion of products sourced 90-99 percent from Canada.

The Eagle and the Goose: The U.S.-Canada Trade War

What’s Happening: On August 22, the White House imposed 50-percent tariffs on approximately $20 billion worth of imports from Canada using an outdated and legally questionable tariff authority under Section 338 of the Tariff Act of 1930. These tariffs were initially meant to take effect on August 19, but President Trump delayed their implementation after announcing that both sides had reached a preliminary trade deal. This deal ultimately fell apart due to last-minute conditions from the Trump trade team. Prime Minister Carney of Canada released a statement suspending trade negotiations and announcing dollar-for-dollar tariffs on imports from the United States. These Canadian tariffs – with rates of 15, 25, and 50 percent – are scheduled to take effect September 8, covering vehicles, steel, machinery, wood, and various other products. This represents an expansion on previous retaliatory measures that occurred in response to past U.S. tariff actions. Additionally, Canada announced over $5 billion ($7.5 billion CAD) in financial support for Canadian banks, businesses, and workers as the renewed trade war intensifies. The escalation has continued this week with President Trump stating that tariffs on Canadian autos and auto parts will double to 50 percent beginning January 1, 2027, and Ontario Premier Ford threatening that Canada could cut off exports of critical minerals or electricity.

Why It Matters: The reinvigorated U.S.-Canada trade war will have both economic and geopolitical consequences for the United States, with each side having advantages over the other that might make for a tricky resolution. The Section 338 tariffs target about 5 percent of all imports from Canada; the Shipment estimates annual costs to be around $3.3 billion for U.S. consumers and businesses. Meanwhile, Canada’s retaliatory tariffs hit around 6 percent of all imports from the United States, meaning each side is suffering a somewhat similar economic blow. The difference, however, is the scale of economic warfare waged against the other as – on the whole – the United States is much less dependent on Canada in terms of raw import and export values. In 2024, approximately 14 percent of U.S. exports went to Canada and 13 percent of U.S. imports came from the country. Compare that to more than 70 percent of Canadian exports and about half of all imports relying on the U.S. market. From this macro perspective, a prolonged tit-for-tat trade war will inevitably have more dire consequences for Canadians, which may explain the multi-billion-dollar support packages provided by the Canadian government and Ottawa’s stated objective to diversify trade partners. This is not to say Americans would not feel the pain. In fact, the U.S. alcohol industry has been a target of Canadian boycotts for months and has already suffered a substantial, ongoing sales slump in Canada. Now the automotive, aluminum, agricultural, and lumber sectors face similar hits in a prolonged economic brawl. Furthermore, there are hundreds of imports that come almost entirely from Canada and hundreds of exports for which Canada is the primary U.S. export market (See tables below). According to the Shipment’s analysis, there are over 350 imports at the 10-digit HTS code level, worth $15.5 billion, that come nearly entirely from Canada. An additional $39.3 billion worth of imports are between 90-99 percent sourced from Canada rather than any other trade partner. The reliance on certain Canadian imports – as well as the dependence on Canada as an export market – may be weaponized.

Although the United States may have the upper hand in terms of the size of its economy, Canadians have the edge in terms of political unity for a protracted trade war. Poll after poll shows that over 60 percent of Americans disapprove of the Trump Administration’s handling of tariff policy, which ultimately bleeds into the negative polling surrounding affordability and inflation. At the same time, polls suggest that 62 percent of Canadians believe retaliatory tariffs are “about right under the circumstances” and another 16 percent say they do not go far enough. This does not imply that Canadian businesses and consumers are not worried about economic growth and the cost of living, but that they are more unified in responding to a perceived threat and standing up for national sovereignty rather than striking a bad deal. The political element may balance the playing field and force the Trump Administration to reconsider a long-term battle with our northern neighbors, especially if Canada’s response targets key industries in politically important states. Diverting resources and attention to this battle also weakens the Trump trade team’s hand in the upcoming September 24 meeting with Leader Xi of China. A lack of reliable minerals from a key supplier such as Canada, for instance, may jeopardize the administration’s desire to minimize reliance on China for critical mineral inputs.

Looking Ahead: Estimates on how long the U.S.-Canada trade war might last vary, with some anonymous sources indicating it could take weeks or months for both sides to come to the table and reach a mutually beneficial deal. Given the fact the United States Trade Representative and Canadian trade teams appeared to have struck a preliminary deal last week, the Shipment predicts that it is possible (no matter how unlikely) for the two countries to reach an economic ceasefire before the meeting with China in late September. This would both clear the docket for focused U.S.-China economic discussions and limit economic ramifications ahead of midterms. It would also allow President Trump to announce some sort of concession from Canada as a “win.”

U.S. Reliance on Imports from Canada by 10-Digit HTS Code

Source: United States International Trade Commission (Imports for Consumption)

U.S. Reliance on Exports to Canada by 10-Digit HTS Code

Source: United States International Trade Commission (Domestic Exports)