Recent Trade War Developments – An Overview of Tariffs & Counter-Tariffs Now in Place; Short- and Long-Term Possibilities

Further to our member updates over the summer, CA would like to provide an overview of the trade war with the U.S. For background, a simplified timeline is as follows:

Canadian Sovereignty was a core issue in the breakdown of the August trade talks, and the consensus of Canadians in general is that Canada had no choice but to walk away from negotiations.

The U.S. essentially proposed a veto over Canada’s free trade agreements with other countries and demanded Canada follow U.S. tariff action on other countries. This speaks to the view of the current U.S. administration. Clearly, they view trade deficits as bad and believe that all countries need to pay some tariff to sell into the U.S. If Canada wants tariff free trade (as is the case between U.S. states), then essentially, it must be treated as a U.S. state with no control over its own tariffs or rates.

No country in the world has such an arrangement and there is no precedent for an arrangement such as this. It would remove Canada’s sovereignty over its own trade, economic, and political affairs.  Canada, therefore, had no choice but to suspend the trade talks.

In the past, the Canada-U.S. relationship has allowed for the negotiation of agreements that focused on mutual trade and economic benefit, such as:

Trump’s administration continues to damage the Canada-U.S. relationship as it moves more and more towards asserting economic dominance.

Canada now finds itself in a very different relationship and negotiating environment with the U.S. Latest polling, however, shows an overwhelming number of Canadians support the approach of the Carney government.

To protect its economy against ongoing U.S. tariffs, Canada is executing a multi-pronged strategy focused on retaliation, domestic defense, and trade diversification.

Following the implementation of the U.S. 50% tariffs and Canada’s counter-tariffs, Canada is rolling out billions in domestic relief funding to protect Canadian workers and industries (particularly in the automotive, aluminum, and lumber sectors) from the immediate economic fallout.

Looking beyond the immediate conflict, Canada is aggressively working to reduce its historical reliance on the U.S. market, which currently absorbs nearly 75% of Canadian exports. The government has launched a long-term initiative to generate $300 billion in non-U.S. trade over the next decade by fast-tracking infrastructure upgrades and strengthening economic alliances outside of North America. While regional leaders continue to remind the U.S. of how deeply American industries rely on Canadian energy and supply chains, the strategy has faced some internal pushback from resource-rich provinces eager to protect their vital oil, gas, and potash exports from escalating trade friction.

Trump is facing historic lows in public approval as widespread economic anxiety and foreign policy fatigue severely jeopardize Republican prospects in the upcoming November 2026 midterm elections. A series of polling indicators highlight that only 27% of Americans approve of Trump’s handling of the economy, while a 55% majority believe his aggressive domestic policies and escalating international trade wars have directly worsened economic conditions.

The primary catalyst for this shifting sentiment is the ongoing war with Iran, which has dragged into its eighth month despite White House predictions of a swift resolution. The prolonged conflict has destabilized global energy supplies, causing domestic gas prices to surge past and fueling downstream inflation on everyday retail and agricultural goods. This widespread voter frustration has sparked deep anxiety within the GOP, prompting prominent Republican congressional candidates in tightly contested battleground to publicly distance themselves from the administration’s platform. With generic ballots currently favoring Democrats, Trump’s recent strategy to nationalize the midterms by urging his base to “pretend he is on the ballot” risks backfiring, as an energized opposition prepares to use the midterms as a direct referendum against his leadership.

In the short term, should the U.S. back down on their most recent tariffs on Canadian goods, it is likely that Canada would remove its’ recent reciprocal tariffs.  For our industry, this would mean that we would effectively return to tariff-free trade for our products which are CUSMA/USMCA compliant.  This could occur should the Trump administration determine that it is in its interests to reduce tensions with Canada prior to the U.S. mid-term elections.

However, Trump’s recent pronouncement that he expects Canada to come to him saying “sir, we’re sorry” and acquiesce to U.S. demands is not realistic.  There is no political room among the Canadian public for any government to do so.  Prime Minister Carney has indicated that Canada is always willing to negotiate an agreement which respects Canadian sovereignty and is fair and mutually beneficial to both parties.  The question, of course, is the U.S. under the Trump administration.

Meanwhile, Canada continues to expand its non-U.S. trading relationships with a free trade agreement with India expected early next year and an enhanced relationship with a welcoming European Union now being negotiated.  Additionally, the Carney government’s initiatives to strengthen the Canadian economy continuing with the most recent announcement of the Pacific Link pipeline proposal being accepted as a project of national importance. When completed, the new pipeline will allow for 1 million barrels per day of Canadian oil to be available for export to Asia rather than being limited to U.S. buyers.

Following the U.S. mid-term elections in early November, a significant loss by Trump’s Republicans (in both the House of Representatives and Senate) could create the opportunity for some meaningful negotiations.  Trump’s threat of further auto tariffs on January 1st, 2027, may also be a catalyst for negotiations (although it could also result in further Canadian counter measures).  It also appears that Trump does want some form of CUSMA/USMCA to continue.

However, we should not lose sight of the overarching reality that the word of the U.S. on any agreement is, as Prime Minister Carney described it, “written in pencil” and seems to last only until Trump changes his mind or has some new “grievance” he decides to pursue. Consequently, until the U.S. returns to being run by an administration that can demonstrate some degree of “normalcy” in matters of international trade and economics, industry must expect to work in a world of uncertainty and tariffs surrounding the U.S. and so must learn how to manage around it.

As this trade and tariff issue was started in the U.S., it can only be settled in the U.S. by Americans.  Consequently, companies based in the U.S. and their leaders must continue to advocate for our sector with U.S. political leaders including the Trump administration.

CA will continue to work with our industry colleagues in the U.S. and Mexico to ensure a coordinated industry effort.