The US-Canada trade war is escalating! Canada plans to impose retaliatory tariffs on hundreds of US goods, with increases ranging from 15% to 50%.

The US-Canada trade war is escalating! Canada plans to impose retaliatory tariffs on hundreds of US goods, with increases ranging from 15% to 50%.

Canadian Prime Minister Mark Carney has decided to respond to Trump's tariff offensive with a tough stance, betting that retaliatory measures will ultimately improve Ottawa's bargaining power. This economic game between North America's largest trading partner is evolving towards a larger-scale conflict.

Unless a last-minute change occurs, Canada will impose tariffs ranging from 15% to 50% on hundreds of U.S. goods on Tuesday. Tariffs on U.S. steel products will increase from 25% to 50%, and consumer goods such as motorcycles, cosmetics, and cheese will also be subject to tariffs. The scale of the crackdown is roughly equivalent to the U.S. tariffs on Canadian goods.

This move will have a particularly significant impact on states like Michigan and Ohio, which have close trade ties with Canada and will face fierce battles in the November midterm elections.

The Trump administration has made it clear that it will not tolerate retaliatory actions. U.S. Trade Representative Jamieson Greer has hinted at the possibility of further tariffs or even a ban on some Canadian imports, but the timeline remains unclear.

Although bilateral negotiations were once close to reaching a framework agreement, relations between the two countries deteriorated sharply after the negotiations broke down, with both sides blaming each other, and there are currently no plans for a new round of talks.

Negotiations broke down, and both sides blamed each other.

The negotiating teams from the United States and Canada had held talks for several weeks and had reached a basic consensus on the framework of an agreement. On August 18, Trump announced that the two sides had reached a preliminary agreement and gave them three days to finalize the details; however, the agreement ultimately broke down.

In the two weeks that followed, the two governments traded barbs. Finance Minister Bessant, on Fox News, likened Canada to a "puppy" barking at a big dog; Trump tweeted on Sunday on Truth Social that Canada's "currency imbalance" with the US "has been there for years—but it's not going to continue," to which the White House declined to comment.

Commerce Minister Howard Lutnick told Bloomberg Television that the Carney government, for domestic political reasons, "would rather go to war with Trump, even if it would be bad for the Canadian economy."

Carney accused the White House of making "unacceptable" demands that violated Canadian sovereignty and harmed the interests of domestic industries, including the heavy truck industry.

He also implicitly criticized the Trump administration's attitude toward trade agreements such as the USMCA, saying, "We realize that sometimes its signature is written in pencil." An unnamed Canadian official said that as of Sunday afternoon, no new talks had been scheduled between the two sides.

The economic costs of tariff escalation are already evident.

The United States imposed a 50% tariff on approximately $20 billion worth of Canadian goods, which took effect on August 22. Canada immediately announced retaliatory measures of equal scale. Given the current situation, both sides have the potential for further escalation.

After negotiations broke down, Trump announced that he would raise tariffs on automobiles from 25% to 50% starting January 1 next year, and simultaneously impose a 50% tariff on auto parts. However, no formal implementation steps have been taken yet, and it is unclear whether this is a retaliatory response to the Carney tariff measures.

According to a report by Tony Stillo and Michael Davenport of Oxford Economics, Canadian output will decline by about 0.3% from the baseline forecast, taking into account the effects of US tariffs, Canadian retaliatory measures, and related federal support programs.

The report does not yet include scenarios where trade tensions could escalate further. Canada has averaged only 3,400 new jobs per month this year, with significantly higher layoff rates in industries reliant on exports to the US.

All parties still have room for negotiation

Despite the tense situation, neither side has completely closed the door to negotiations. Carney said last week that Canada is seeking a "lasting" agreement, adding, "We are ready to sit down and reach an agreement whenever the U.S. is ready," but only if the agreement guarantees the competitiveness of Canada's automotive, steel, and aluminum industries.

U.S. House Speaker Mike Johnson also called on both sides to restart negotiations, saying "everyone wants this situation to change" and that members of both parties in Congress believe the matter is crucial for both countries.

Some differences have shown signs of easing – the issue of French language rights has been largely resolved, but core issues such as the scope of automobile tariff reductions remain highly controversial.

Poll data shows that Carney's hardline stance enjoys widespread support domestically. A Bloomberg News-commissioned Nanos Research survey conducted last week showed that nearly three-quarters of respondents rated her handling of trade negotiations as "good" or "very good."

Brian Clow, former senior advisor on trade and U.S. relations for Canada, pointed out, "Canada imposed retaliatory tariffs to make the costs of this trade war real enough to give Washington a clear incentive to return to the negotiating table."

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