The US-Canada trade war

 

The US and Canada appear no closer to resolving their ongoing trade dispute.

Tensions have been simmering between the two neighbours since President Donald Trump returned to the White House just over 18 months ago, and unleashed a wide-ranging global programme of tariffs.

Canada was one of the first countries the Trump administration hit with levies, and is one of two countries to respond with its own reciprocal measures.

Currently, the US has hit Canada's key sectors of steel, aluminium, lumber and automobiles with tariffs, and last week imposed an additional 50% levy on about C$28bn ($20bn; £15bn) of Canadian goods.

Canada has hit back with its own counter-tariffs on American goods, announcing on Tuesday what it calls a "dollar-for-dollar" and "strategic" retaliation designed to match the US tariffs.

With no resolution in sight, how has this enduring trade war affected Canada and the US, and what could come next?

Here are five charts to help break it all down.

Trade war hits Ontario hardest

The tariffs and counter-tariffs have hit some states and provinces harder than others.

In Canada, some provinces have been more exposed to US sectoral tariffs on steel, steel derivatives, aluminium, and autos and vehicle parts that don't comply with the current North American trade deal, known as the USMCA.

Ontario, the most populous province with a significant manufacturing sector, has been hardest hit by the auto and steel tariffs.

Several Ontario auto parts and assembly plants have announced layoffs and production cuts, and the province is estimated to have lost tens of thousands of manufacturing jobs since early 2025.

Metal exports from Quebec - which produces steel, copper and aluminium - fell 36% between February 2025 and 2026, and there was a 3.6% drop in employment in the sector, according to data released in July.

The Royal Bank of Canada estimates that Ontario and Quebec are the most impacted by US sectoral tariffs, while Newfoundland and Labrador, New Brunswick, Alberta, Saskatchewan and Prince Edward Island are the least exposed.

Additional US tariffs on $20bn worth of Canadian goods that came into effect on 22 August are expected to impact all provinces in some way, though British Columbia, Quebec and Ontario will feel the brunt.

Swing states in the cross hairs

The US economy is much larger and the impact of Canada's counter-tariffs won't be as stark.

But some states will feel the pain of Canada's retaliation more than others, with tariffs levied on C$28bn worth of US goods from steel to furniture, cosmetics and toilet paper, as of 8 September.

According to data by Statistics Canada, the swing state of Ohio will be hardest hit, with C$3.2bn - or 12% - of its exports soon to be tariffed by Canada, followed by Illinois and Pennsylvania.

For Ohio, it's the tax on steel that will particularly hurt, as well as the tax on laundry machines. In Illinois, where farm equipment giant John Deere is based, it will be the new tariffs on farm and construction equipment.

Derek Holt, an economist with Scotiabank, noted that Canada's counter-tariffs appear to be "very deliberately oriented" towards some swing states that could decide the US balance of power in the upcoming midterm elections.

From the lowest tariff rates to one with the pack

Prime Minister Carney has assured Canadians that, despite the high-profile trade fight, they face some of the lowest US tariff rates compared to other countries.

But with the latest 50% tariffs imposed on a range of Canadian goods, the average effective US tariff rate on Canada is now higher than Mexico's, and is approaching the rate faced by others like the UK and Vietnam.

An average effective tariffs rate reflects the average tariff paid across all imports.

According to data by the Royal Bank of Canada, the average effective US tariff rate on Canada in June was 2.9% - the lowest among major US trade partners. It has now nearly doubled to 5.7%.

By comparison, the US effective tariff on the UK is 6.2%. China still faces the highest US tariffs at an average of around 20.5%.

Canada's exports are going elsewhere

Canada, by the happenstance of being neighbours with the world's largest economy, is hugely reliant on US trade.

Their proximity - and free trade agreements in place since the 1980s - has allowed the two countries to develop one of the world's most deeply economically integrated trading relationships.

The US buys more than 70% of Canadian exports, and is a top US trading partner alongside Mexico and China.

But the tariff fight has already started to shift Canadian businesses to other markets. Carney has pledged to double Canada's non-US exports over the next decade.

Bank of Canada statistics suggest that Canadian firms are exporting more to countries other than the US since Trump's return to the White House in January 2025.

Some businesses are adapting to find customers elsewhere.

Matteo Sgaramella, who owns Toronto-based menswear clothing company Outclass, told the BBC he has started attending trunk shows in Paris instead of New York, helping him reach more customers in Europe.

"The reception has been amazing," he said, adding that some European stores are particularly enthused about supporting Canadian products due to the ongoing trade war with the US.

"We're kind of seen as the one country that's kind of standing up to the Americans right now," Sgaramella said.

Other businesses, however, are struggling to diversify their trade, particularly in Ontario manufacturing sectors that are deeply integrated with the US.

A recent report by the Canadian Chamber of Commerce pointed out three such regions in Ontario - Oshawa, London and Kitchener-Cambridge-Waterloo - as being particularly vulnerable.

"These cities remain heavily tied to the US market, while growth in exports outside the US has been limited or insufficient to offset broader weakness in trade activity and local economic conditions," the report said.

While some businesses are lagging, foreign direct investment into Canada hit C$96.8 billion in 2025, the highest inflow of capital to the Canadian economy since 2007.

Canada's economy also strongly rebounded in the second quarter of 2026 to 3.3% growth in the country's GDP, thanks to a jump in exports and domestic investment.

These latest figures have warded off recession concerns, at least for now.

Carney is hoping to attract even more investment. In September, his government will host the first-ever Canada Investment Summit, bringing major investors, CEOs and business leaders to Toronto for two days.

Fewer jobs and less disposable income

On both sides of the border, tariffs have hit jobs and disposable income.

According to an analysis commissioned by Canadian American Business Council (CABC), if the US and Canada allow the USMCA to fail, there would be tens of thousands of jobs lost, primarily in the manufacturing industries directly affected by tariffs and that are highly reliant on the US market.

Around 55,000 manufacturing jobs have already been lost in Canada from January 2025 to January 2026, according to Bank of Canada data.

Not all figures are bad, however, as employment has steadily risen in Canadian sectors that are not vulnerable to US tariffs.

But there is a risk of further Canadian job losses due to the recent 50% tariffs imposed by the Trump administration.

Calgary-based economist Trevor Tombe estimates that a total of 90,000 jobs across Canada could be lost if these new US tariffs persist.

In the US, the liberal Center for American Progress think tank estimates that Trump's "Liberation Day" tariffs, placed last year on dozens of America's trade partners, have also led to tens of thousands of jobs lost manufacturing, transportation and warehousing sectors.

Even for those whose jobs remain secure, the tariffs have meant higher sticker prices on everyday items.

The US-based Tax Foundation estimates that an American household could pay $840 more on average this year due to Trump's tariffs on a number of nations, including Canada.

Canada's counter-tariffs are much more targeted and are designed to limit the impact on Canadian consumers, but economists say businesses will likely now pay more to manufacture goods, as a bulk of the taxes will be applied on industrial supplies imported from the US.

 

https://www.bbc.com/news/articles/c4g4r4lxx25o