A prolonged trade struggle between the United States and Canada remains unresolved, impacting both economies as the conflict drags on without a mutual agreement. Since United States President Donald Trump resumed office nearly 18 months ago, the imposition of extensive tariffs has strained relations between the long-time neighbouring allies.
The Trump administration targeted Canada early on with tariffs, prompting Canada to counter with equivalent retaliatory measures. Currently, the US tariffs affect Canada’s critical sectors including steel, aluminium, lumber, and automobiles, with an additional 50% levy on approximately C$28bn ($20bn; £15bn) of Canadian goods introduced last week. Canada has responded with its own “dollar-for-dollar” counter-tariffs targeting an array of US goods.
Impact on Canadian Provinces
The trade tensions have had uneven effects across Canadian provinces. Ontario, which has a robust manufacturing sector, faces severe repercussions from the auto and steel tariffs, leading to job cuts and decreased production. The province has experienced a loss of tens of thousands of manufacturing jobs since early 2025. Meanwhile, Quebec has seen a 36% decrease in metal exports from February 2025 to 2026, along with a 3.6% drop in sector employment. According to the Royal Bank of Canada, Ontario and Quebec are the most affected, while other provinces like Newfoundland and Labrador or Prince Edward Island remain less vulnerable.
US States Feeling the Heat
In the United States, the economic repercussions of Canadian counter-tariffs target specific states. Ohio, a vital swing state, will face tariffs on C$3.2bn of its exports, which represents 12% of its trade. The state’s steel industry, along with its production of laundry machines, is expected to suffer significantly. Illinois, home to the farm equipment giant John Deere, will contend with new tariffs on farm machinery, affecting its local economy. Economist Derek Holt notes that these tariffs seem strategically aimed at swing states that could influence future US elections.
Rising Tariff Rates
Despite Canada’s historically low tariff rates compared to other nations, recent US measures raise the country’s average effective tariff rate to 5.7% as of recent months, surpassing Mexico’s and nearing those imposed on the UK and Vietnam. China’s tariffs with the US remain at about 20.5%, the highest among major trade partners. Before these changes, Canada enjoyed the lowest average US tariff rate of 2.9% in June.
Shifting Export Strategies
Amidst the trade turmoil, Canadian businesses are diversifying their markets. Canadian exports, traditionally reliant on the US, have increasingly shifted to other countries. Prime Minister Carney has committed to doubling the nation’s non-US exports over the next decade. However, the transition is challenging for sectors deeply linked with US trade, especially in regions like Oshawa and Kitchener-Cambridge-Waterloo in Ontario.
In a more positive note, foreign direct investment in Canada peaked at C$96.8 billion in 2025, marking record capital inflow. The economy rebounded with a 3.3% GDP growth in the second quarter of 2026, driven by a surge in exports and domestic investments. The upcoming Canada Investment Summit aims to attract further investments into the country.
Employment and Economic Consequences
Tariffs have caused significant job losses on both sides of the border, mainly affecting the manufacturing sectors. Canada has lost approximately 55,000 manufacturing jobs since January 2025, and continued tariffs threaten an estimated 90,000 more. In the US, policies known as “Liberation Day” tariffs have also negatively impacted the workforce. Additionally, US households may incur an average of $840 in additional costs this year due to these tariffs. While Canada’s counter-tariffs are more selective, they may increase manufacturing expenses as they largely apply to US industrial supplies.
Reporting based on coverage first published by bbc.co.uk.