US trade war with Canada raises prices, tests Trump’s strategy

The US just picked a trade fight with its largest trading partner using a law from 1930 that nobody had dusted off in nearly a century. On August 22, the Trump administration imposed 50% tariffs on roughly $20 billion worth of Canadian goods, invoking Section 338 of the Tariff Act of 1930 for the first time in its modern application. The move came after last-minute negotiations between Washington and Ottawa collapsed, leaving both governments reaching for economic weapons instead of handshakes.

The tariffs hit a surprisingly broad swath of Canadian exports: wine, dairy, cement, clothing, hockey equipment, furniture, electronics, honey, seeds, and various agricultural products. For a country that sends approximately 72% of its total goods exports south of the border, the targeted $20 billion represents about 5% of Canada’s annual shipments to the US.

Canada fires back

Canadian Prime Minister Mark Carney announced “dollar-for-dollar” retaliation set to begin on September 8, targeting US steel, dairy, appliances, agricultural equipment, and pulp and paper products.

On August 24, Trump signaled plans to raise tariffs on Canadian autos, trucks, automotive parts, and steel to 50%, effective January 1, 2027. Tariffs on Canadian steel and aluminum already sit at 50%, while US autos face a 25% Canadian tariff. The auto industry, which relies on parts crossing the border multiple times during assembly, is particularly vulnerable to this kind of tit-for-tat.

Bilateral trade in goods and services between the two countries was valued at $880 billion in the previous year.

The 1930 playbook

Section 338 of the Tariff Act of 1930 was designed to counter foreign discrimination against US products. It gives the president broad authority to impose retaliatory duties up to 50%, and in extreme cases, to embargo imports entirely. The law was enacted during the same era that produced the Smoot-Hawley tariffs, widely blamed for deepening the Great Depression.

Previous tariff actions relied on national security justifications under Section 232 or emergency economic powers. Pulling out Section 338 suggests the administration views this conflict through a different lens, one focused on alleged discriminatory trade practices rather than security threats.

What consumers and markets should expect

Analysts predict the tariffs will produce modest but real price increases for consumers on both sides of the border. Canadian wine and dairy products will cost more at American grocery stores. American steel and appliances will get pricier in Canadian markets.

North American automotive manufacturing operates on the assumption that parts flow freely across borders. A single vehicle can cross the US-Canada border several times during production. Slapping 50% tariffs on those movements raises prices and fundamentally changes the math on where companies choose to build things.

Trump’s broader strategy appears to be leveraging America’s position as Canada’s dominant export market to extract concessions. With nearly three-quarters of Canadian exports flowing to the US, the leverage is real. Carney’s government has so far shown no interest in conceding.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.