Canada, US and tit-for-tat tariffs: How will they impact their economies?

Canadian Prime Minister Mark Carney has announced retaliatory tariffs that will “match Washington’s new tariffs dollar for dollar” after days of intense negotiations between the United States and Canada broke down.

The tit-for-tat response came after US President Donald Trump imposed a 50 percent levy on $20bn of Canadian goods, or 5.5 percent of its exports, disrupting the long history of stable relations between the two North American neighbours.

Recommended Stories

list of 4 items- list 1 of 4How will Trump’s tariffs affect Canada’s economy?

- list 2 of 4Carney: Canada will enact retaliatory US tariffs starting September 8

- list 3 of 4Canada to match US tariffs “dollar for dollar,” PM Carney says

- list 4 of 4Canada to hit US with retaliatory tariffs as trade war escalates

Trump first imposed tariffs on key imports from Canada early in his second term last year. The two countries have scuffled since with Trump periodically making new tariff threats.

So what prompted this latest escalation, and how will it impact the two Western economies?

How did talks break down?

In Ottawa on Saturday, Carney said the talks with the US broke down late the day before after Trump set conditions that were ultimately unacceptable.

“In recent days, the United States proposed new terms that were uneconomic, unfair and undermined the net benefits for Canada, and called into question the reliability of any deal,” Carney said, adding that these demands included curtailing Canada’s ability to forge new trade deals, in violation of its sovereignty.

“We’re the partner of choice in many respects for countries around the world, and the Americans wanted to restrict that. They had language that wanted to restrict that. Unacceptable.”

He added that US negotiators also made unacceptable “threats” to the French language and “Quebec culture”, referring to the French-speaking province in eastern Canada.

In a speech later in the day, Carney suggested that last-minute changes at the bargaining table had prompted him to recall his negotiators from Washington, DC, to Ottawa.

“In short, they asked too much, and they offered too little.”

Trump responded to Carney’s announcement by writing on his platform Truth Social: “Canada wants the benefits of being a State, without being one!!!” Trump has previously issued threats to annex Canada and make it the 51st US state.

The US president claimed Canada has also charged US farmers “massive amounts” of tariffs for years, adding, “No more!!!”

What Canadian products will be affected by the US tariffs?

The list of goods from Canada that will be affected is long, ranging from whisky to goose-down jackets and ice hockey equipment.

The 50 percent levy on roughly $20bn of Canadian goods covers more than 500 product categories, including:

- Alcohol, such as beer, wine, liquor and cider. They will likely hit popular Canadian brands from Crown Royal whisky to Molson beer.

- Dairy products from milk and cream to lactose syrup. Cheese, however, is not on the list even though Trump said a reason for the tariffs is Canada’s “discrimination” against US cheeses, The Washington Post reported.

- Technology from smartphones to cameras, radar equipment and antennae

- Athletic gear, notably equipment for hockey, one of two of Canada’s national sports. Other sports supplies targeted include those used in golf, at gyms and in swimming pools.

- Wood products, including lumber, mouldings, plywood, furniture and fence components

- Seasonal holiday products and gifts, including toys, clothing, Christmas decorations, jewellery, makeup and perfumes

The tariffs also apply to some products that were previously protected under the US-Mexico-Canada Agreement, a trade pact signed during Trump’s first term, putting its future into question.

The new tariffs are being imposed in addition to pre-existing US tariffs on steel, lumber and cars.

What American products will be affected by Canadian tariffs?

Ottawa, meanwhile, said its retaliatory measures beginning on September 8 will target steel, dairy, appliances, farm equipment, pulp and paper, and electronics.

The Canadian government will release more details on the items to be targeted in the coming days, Carney said.

How will the trade war affect Canada’s economy?

Canada’s economy is expected to face a big blow from the tariffs, some experts said.

“Costs are going to go up. Prices are going to go up. Unemployment is going to go up as well,” Al Jazeera’s David Mercer said, reporting from Calgary, the largest city in the western province of Alberta.

“And it’s been warned that business owners – small [and] medium-sized businesses – some of those will have to declare bankruptcy,” he said.

Julian Karaguesian, a lecturer and trade expert at McGill University in Montreal, told Al Jazeera the tariffs would “effectively price hundreds of Canadian goods out of the US market”.

Key industries that are “important and politically influential”, including the alcohol, dairy and furniture industries, will take the biggest hit, Steven Okun, the CEO of APAC Advisors and a trade specialist, told Al Jazeera.

Still, with 5 percent of Canadian exports affected out of a $382bn market, he added, “it’s not a huge hit to the Canadian economy overall.”

At the same time, Mercer said, Carney is selling the trade war as an opportunity for Canada to strengthen its trade relations with other countries.

“He’s been around the world. He’s been talking to countries in Asia, in Europe, shoring up new trade relationships, wanting to diversify Canada’s economy and Canada’s trade relationships with other countries around the world just to get away from that dependency that Canada has traditionally had on the United States,” he said.

However, that’s a tall order. The majority of Canadian exports – a whopping 73 percent – are sold in the US, totalling $409bn last year, according to the financial data company Trading Economics.

The United Kingdom is next with 6 percent of Canadian exports going there while 4.4 percent of Canadian exports head to China, according to 2025 data cited by the firm, with the rest sold in various European and Asian markets.

How will the trade war affect the US economy?

Experts warned that steeper tariffs not only raise costs for businesses but they almost always trickle down to households in the form of higher prices, including in the US.

The Business Roundtable, a group of 200 chief executives of leading US corporations, warned that the new tariffs “risk raising costs for American businesses and families” and have called on both governments to resume negotiations.

Okun said the latest tariffs will be “politically painful” on both sides of the border.

Trump’s measures have neither increased trade for the US nor led to an increase in investment, as he said they would, and instead have caused inflation by raising prices, Okun explained.

Having a blanket tariff policy does not work, unlike targeted tariffs, he said.

“Targeted tariffs can work. They can work when you have a very specific issue like with China and their unfair trade practices and you target China … in a particular sector. Those can be effective,” he said.

“These writ-large tariffs are not effective. They’re hurting the United States, and it is very much hurting the Republican Party as they come up on these midterm elections” in November.

Diamond Isinger, who served as a special adviser to former Canadian Prime Minister Justin Trudeau, said ultimately both countries will suffer from the trade war.

“It’s going to cause pain and challenge for Canadians and Americans alike in terms of the actions that, unfortunately, the US has taken as well as Canada’s retaliation. But ultimately, this was the way forward. This was the only realistic next step,” she said.

Reporting originally appeared via Al Jazeera. Read the full source for additional context.