A full-blown trade conflict between North America’s two largest economies entered a new tense phase on Tuesday, as Canada’s sweeping retaliatory tariffs on close to C$28 billion ($20 billion) worth of U.S. goods officially came into force. The move comes weeks after trade talks between the two nations collapsed in late August, with no resumption of negotiations in sight and escalating rhetorical and policy threats from both sides.
The counter-tariffs, which Prime Minister Mark Carney has framed as a “dollar-for-dollar” response to new U.S. import taxes, will hit hundreds of American products with rates as high as 50%. The original tariff list included everything from U.S.-produced steel, furniture and cotton apparel to fresh fish and lobster, but Canadian officials ultimately removed seafood items after widespread pushback from the country’s domestic seafood industry. The last-minute change underscores the delicate balancing act Ottawa faces as it pushes back against its largest single trading partner, where nearly three-quarters of Canada’s exports historically headed before the current trade dispute.
While both U.S. and Canadian officials have publicly stated they remain open to reaching a mutually beneficial trade agreement, no substantive progress has been made to restart negotiations since talks fell apart last month. Carney told reporters last week that Canada remains committed to securing a durable deal that serves the interests of both nations, adding: “We’re ready to sit down and strike that deal when the Americans are ready.”
But U.S. Trade Representative Jamieson Greer has rejected the framing that Washington bears responsibility for the stalled talks. Speaking to Fox News last Thursday, Greer claimed the U.S. had tabled its best possible offer, which Canada outright rejected. He added that communication between the two sides has been nearly non-existent since talks collapsed, and warned Canada in a separate interview with Canadian public broadcaster CBC that further retaliation could prompt the U.S. to expand its own trade restrictions, including potential bans on certain Canadian imports.
The escalation has been fueled in large part by aggressive rhetoric from former U.S. President Donald Trump, who has ramped up pressure on Canada in recent weeks. On Monday, Trump threatened to cut off all U.S. business with leading Canadian aerospace manufacturer Bombardier unless the company shifts all its manufacturing operations to the U.S. A 2024 report commissioned by Bombardier from global accounting firm PwC found the company contributes more than C$7 billion annually to Canada’s GDP, making it one of the country’s largest private sector employers. Over the weekend, Trump also took aim at Canada’s currency exchange rate in a Truth Social post, calling it “unacceptable”, and shared a viral graphic showing Canada, Mexico and Greenland overlaid with the U.S. flag that stoked fears of further expansionist trade and political pressure.
The current trade dispute is layered on top of pre-existing trade frictions between the two neighbors. The U.S. already imposes a 25% tariff on Canadian-made cars and trucks, as well as import taxes on Canadian steel, aluminum and softwood lumber. In late August, Trump expanded these tariffs, adding a new 25% levy that hits C$28 billion worth of Canadian goods including dairy, alcohol, hockey sticks and perfume. Canada’s new counter-tariffs add to existing retaliatory measures Ottawa already put in place against non-compliant U.S. finished vehicles under the USMCA/CUSMA free trade agreement between Canada, the U.S. and Mexico.
Canada and the U.S. share the world’s largest bilateral trading relationship, with total two-way trade hitting nearly $900 billion in 2025. Now that both new U.S. tariffs and Canadian countermeasures are in effect, businesses on both sides of the border are rushing to adapt to the new trade landscape and mitigate cost increases.
Public opinion in Canada largely backs the government’s retaliatory approach, with recent polling showing a majority of Canadians support the counter-tariffs. But economic analysts and business groups have warned of unavoidable harm to consumers. Economists point out that the new tariffs will drive up prices for everyday household goods ranging from clothing and groceries to furniture, hitting lower-income households the hardest. The Canadian Chamber of Commerce has urged the Carney government to adopt a targeted, narrow approach to retaliation to avoid unnecessary economic damage. “Businesses understand retaliation but don’t want to see endless escalation,” Chamber CEO and President Candace Laing told the BBC in a statement Friday, though she acknowledged businesses are already planning for the trade dispute to drag on for months.
The removal of lobster and other fresh seafood from the tariff list highlights the risk of unintended harm to Canada’s own economy from cross-border tariffs. The lobster industries on both sides are deeply integrated: U.S.-caught lobster is often shipped to Canada for processing before being re-exported back to the U.S. for retail sale, meaning tariffs on American seafood would have disrupted Canadian processing jobs as much as U.S. producers.
Before the latest escalation of the trade war, Canada’s economy showed surprising resilience: GDP grew 3.3% in the second quarter of 2025, and the country added 181,000 new jobs between April and July. But the onset of new U.S. tariffs and the collapse of trade talks coincided with a sudden reversal in August, when Canada lost 41,000 jobs over the month. One bright spot has been domestic manufacturing, which saw modest growth that the Canadian government attributes to a shift toward domestic goods by consumers and businesses looking to avoid cross-border tariff costs.
Carney has made diversifying Canada’s trade relationships away from over-reliance on the U.S. a central policy goal amid the dispute. July 2025 trade data already shows a marked shift: the share of Canadian exports headed to the U.S. dropped to 66%, down from an average of 75% before the current trade war began.