President Donald Trump escalated a trade dispute with Canada after the latest negotiations collapsed on Aug. 21, imposing 50% tariffs on $20 billion in Canadian products and moving to ban several categories of imports. Canada retaliated on Tuesday with tariffs of its own, further straining one of the United States’ largest trading relationships.
Trump said the U.S. tariffs were a response to what he described as discrimination against American auto, dairy and alcoholic beverage exports. Following Canada’s retaliation, he moved to prohibit imports of the dairy byproduct whey, most alcoholic beverages, and motorcycles and mopeds from Canada, while saying toilet paper, bedsheets and fishing rods would be removed as tariff targets.
The confrontation comes despite deep commercial ties and the US-Mexico-Canada Agreement, which Trump negotiated during his first term and signed with the leaders of Canada and Mexico in late 2018. The agreement took effect on July 1, 2020, and allows most U.S. exports to enter Canada duty-free. Canada buys more from the United States than any other country and is the second-largest export market for American farmers, behind Mexico.
Before the latest escalation, Canada’s effective tariff rate on U.S. imports was about 2.4%, according to Oxford Economics, less than half the 5% rate the United States imposed on Canadian goods. Canada’s trade equals 64% of its economic output, compared with 25% for the United States, according to the World Bank.
Canada generally ranks among the world’s more open economies, although it protects some domestic industries. The Heritage Foundation placed Canada at No. 14 among 184 economies on its Index of Economic Freedom, eight positions above the United States at No. 22, while the Fraser Institute ranked Canada No. 11 among 165 countries and territories.
Longstanding sectoral disputes remain. The United States has complained for decades about what it calls unfair subsidies for Canadian softwood lumber producers, allegations Canada disputes. Barry Appleton, co-director of New York Law School’s Center for International Law, described Canada as “a modestly protected economy with two or three genuinely closed sectors.”