The future of U.S.-Canada trade after tariff escalation

President Donald Trump signed several executive orders at the start of his second term that lay out a blanket 25% tariff on Canadian goods imported into the United States, with some exceptions such as energy. Canadian energy will carry a lower tariff of 10%. 

The bulk of these tariffs went into effect at midnight on Tuesday, March 4, sending U.S. markets into a dramatic sell-off.

It’s unclear which tariffs will last; Trump has since altered, paused or canceled some of the tariffs.

The tariffs have prompted a strong response from Canadian leadership, including implementing retaliatory tariffs of 25% on $30 billion worth of U.S. goods that began on March 4.

“Should these tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several nontariff measures; measures which will demonstrate that there are no winners in a trade war,” then-Prime Minister Justin Trudeau said on March 4, after the U.S. tariffs went into effect.

“I think there’s a very good case to be made that across all of these tariff threats, not just with Canada, but with what we’re seeing him say about the EU, about trading partners writ large as that he’s in search of a reason to impose tariffs,” said Erica York, a vice president of federal tax policy at the Tax Foundation. “It doesn’t really matter what the reason is because the goal is to get a tariff. The goal is not necessarily some type of specific negotiation on a really clear ask and really clear outcome.”

“President Trump will again use tariffs to level the playing field for American workers and reignite America’s industrial might,” said White House spokesman Kush Desai in a statement to CNBC.

“Trade policy is going to change, and we’re going to make it fair to Americans,” Commerce Secretary Howard Lutnick told CNBC’s “Squawk Box” on March 4. “I know people worry about short term, but we are going to bring jobs [back to America].”

In 2020, Congress passed the United States-Mexico-Canada Agreement, or USMCA, which replaced the North American Free Trade Agreement, and was one of the Trump administration’s economic and political priorities of his first term.

Trump’s decision to impose tariffs on Canada, despite having negotiated the deal himself, raises concerns about the U.S.’ reliability as a trading partner, York said.

“I think that just sets the stage for a new era of trade policy, and one where the U.S. may not be as reliable as a trading partner as we used to be if a deal that you negotiate with the U.S. can just be potentially tossed out a few years later,” York said.

“There has been this huge uptick in a national sense of pride in Canada, like: how dare our best friend do this to us?” Riaz Kara, vice president of policy at the Ottawa, Canada-based think tank the Public Policy Forum.

Kara says the tariff dispute has prompted reflection on the country’s reliance on the U.S. and the need for greater economic independence.

“We are beholden to this unreliable neighbor to the South now, and the whims of that neighbor are making us finally ask the questions of what do we need to become?” Kara said.

Watch the video above to learn more about how this trade dispute will impact consumers and what this could mean for the future relationship of the two countries.