A trade war is a political and economic term describing when two countries impose tariffs on each other so that it becomes more expensive for people from one country to purchase goods from the other. The United States has—for a long time–enjoyed a close and beneficial relationship with Canada–its northern neighbor. But relations between the two nations have become increasingly strained in the last two years. Currently, the United States is engaged in a trade war with Canada. But what does that look like, and what are the possible impacts?
What’s Happening?
Recently, the United States imposed a 50percent tariff on many Canadian goods, such as Canadian steel and aluminum. The tariffs cover about 5 percent of the goods the U.S. imports from Canada.
In response, Canada imposed its own “retaliatory tariffs” on U.S.-made goods. The new Canadian tariff plan responds to Trump’s plan by adding a 15to 50 percent tariff on over 700 American goods. This is about 6 percent of what Canada currently imports from the United States. These Canadian tariffs include paper products, construction materials, home appliances, and agricultural products such as dairy and seafood. At the same time, the Canadian government also announced a new $7.5 billion plan to support any of its businesses that might be harmed by the tariff war.
President Trump’s Response
The president responded to Canada’s economic action by imposing a list of additional tariffs. This new American response even banned some Canadian-made goods outright. Trump claims that these additional tariffs will help protect American workers, farmers, and businesses. However, the items on the list aren’t things that Americans buy in great quantity from Canada.
Examples of the newly targeted products include sequins, pony fur, and some alcoholic beverages. In fact, the new import ban covers only 0.25 percent of goods imported from Canada. Therefore, economists say that the tariffs will have little to no impact on either the U.S. or Canadian economies. Instead, they are meant to be a symbolic gesture against Canada.
President Trump has also stated that he may double tariffs on Canadian cars and auto parts to 50 percent by January 1, 2027.
What Could Happen Next?
If Trump follows through with imposing further tariffs on Canadian goods, there are several ways that Canada could respond. Currently, Canada supplies electricity to several U.S. states, including New York, Michigan, and Minnesota. It is possible that Canada could cut off its electricity exports to the United States. Ultimately, this would make electricity more expensive for American businesses and households. (On average, Americans are already paying about 4 percent more for electricity than they were paying last year at this time.)
For Canada, the trade war has caused the country to seek closer alliances with the European Union (EU). In fact, Canada’s Prime Miniter Mark Carney has floated the possibility of Canada becoming an “associate member” of the EU.
If this occurred, Canada and the EU would enjoy freer movement of goods, services, and workers, as well as joint initiatives in data centers, satellite networks, new undersea shipping routes, and more. Itt would mark a major shift in Canadian economic policy as well. The U.S. has always been Canada’s dominant trading partner. In fact, in 2025, about 72 percent of all Canadian exports were to the United States. Prime Minister Carney is scheduled to address the European Parliament and lawmakers to gain support for his plan soon.