What to know about Canada’s escalating trade war with the US as Carney retaliates with tariffs

TORONTO (AP) — Canada struck back at U.S. President Donald Trump on Tuesday with tariffs on about $20 billion worth of U.S. goods, in response to the latest round of tariffs on Canada.

The outcome could resonate far beyond Canada, showing other governments whether a smaller U.S. ally can withstand Trump’s economic pressure.

Canadian Prime Minister Mark Carney says U.S. demands could hollow out key Canadian industries and limit the country’s independence, while Trump’s threats to Canadian sovereignty have rallied the public behind him.

“Carney and Canada have become symbolic of resistance to him,” Canadian historian Robert Bothwell said. “And what he’ll want to do is make an example of Carney and Canada and theoretically terrify everybody else while in fact showing them that they need to remove themselves even further from the United States.”

The tariffs hit hundreds of American products, including steel, aluminum, cheese, appliances, clothing, cosmetics and farm equipment, at rates of 15%, 25% or 50%.

Here’s what to know.

Canada retaliates with tariffs on hundreds of US products

Canada says its tariffs match Washington’s dollar for dollar and rate for rate. They take effect at 12:01 a.m. Tuesday under an executive action known as an order in council and cover about $20 billion in American goods, roughly 6% of the $333.6 billion the United States exported to Canada last year.

RBC Economics, the research arm of the Royal Bank of Canada, said the measures were unlikely to dent U.S. growth overall but could hit some businesses hard.

Canada has already gone beyond tariffs in other ways. Eight of its 10 provinces continue to restrict or ban sales of U.S. alcohol. The Distilled Spirits Council says U.S. spirits exports to Canada fell more than 70% year over year after those restrictions took effect.

Trump threatens to punish Canada even further

Since Canada-U.S. trade talks collapsed Aug. 21, Trump and his administration have unleashed a barrage of tariffs, threats and personal attacks portraying Canada as weak and dependent.

On Monday, Trump threatened to ban the sale of aircraft from Canada’s Bombardier, unless they manufacture planes in the United States.

“NO MORE SELLING BOMBARDIER IN THE UNITED STATES! Their products aren’t good enough!” Trump posted on Truth Social. “If they want our Market, they must build here, and stop treating America like a ‘piggybank.’”

Flavio Volpe, president of APMA Canada, a manufacturing trade group, responded on X that Bombardier uses U.S.-made GE and Honeywell jet engines and employs about 3,000 U.S. workers.

Trump previously warned that Canada’s economy could collapse if Carney continued treating him as “the enemy” and threatened consequences “worse than anything that has ever happened to a Canadian Politician.”

U.S. Trade Representative Jamieson Greer has threatened that Washington could ban some Canadian goods outright in response.

Trump even renamed Lake Ontario “Lake America,” a change ignored and ridiculed in Canada. Google and Apple bent to Trump’s pressure and changed their maps for U.S. users. On Monday, he published a map of North America covered in the U.S. flag on social media.

“After renaming a gulf and a lake, maybe the next step for him is to rename a river?” said Daniel Béland, a political scientist at McGill University.

Trump’s pressure is hardening resistance in Canada

Trump’s trade war and repeated talk of making Canada the 51st state have fueled anger and rallied support for Carney. Canadians have sharply cut travel to the United States and boycotted U.S. goods.

The current trade war began after Trump returned to office and imposed a series of tariffs on Canadian goods despite having negotiated and repeatedly praised the North American trade agreement during his first term. Many of those tariffs violate the pact.

The rupture is especially striking because the countries have long shared one of the world’s closest relationships, with deeply integrated economies, close defense and security cooperation, vast cultural ties and, before relations deteriorated, about 400,000 people crossing the border each day.

Carney has said talks can resume when the Americans “stop doing memes, stop throwing shade, stop trying to be tough” and become serious.

So far, Trump’s pressure has backfired in Canada, strengthening support for Carney rather than forcing concessions.

Nelson Wiseman, professor emeritus of political science at the University of Toronto, said Trump’s 2024 reelection deepened Canadians’ distrust of the United States — not just its government, but the judgment of Americans.

“Canada-U.S. relations, even without confrontation, will never be what they were before Trump,” he said.

Carney is becoming a global voice for standing up to Trump

At the World Economic Forum in Davos in January, Carney warned that great powers are using economic integration to coerce smaller countries. The speech helped establish him as the leading voice among countries looking for ways to resist Trump.

Trump responded a day later by saying Canada “lives because of the United States” and warning: “Mark, remember that next time you make your statements.”

Carney will address the European Parliament next week, giving him another major stage.

“The Canadian public is behind the Carney government and the world is watching what will happen next,” said Béland, the McGill political scientist. If Canada’s defiant approach succeeds, he said, it “could be used as a template” for resisting the Trump administration’s trade policies.

The fight is also about whether Canada keeps its factories

Trump has also threatened 50% tariffs on Canadian vehicles, auto parts and steel next year if Canada does not “fall in line,” a potentially devastating escalation for industries built around deeply integrated North American supply chains.

“We want the cars to be made in Detroit and in South Carolina and in Tennessee and in all of our places where we make cars. We don’t want them to be made in Canada,” Trump said.

A 50% auto tariff could hammer Canadian plants and raise vehicle prices across North America because parts and finished vehicles cross the border repeatedly during production.

Carney says Washington’s terms could leave Canadian industries “gradually wound down in Canada and wiped out.”

Could Canada actually win?

Canada starts at a disadvantage: The U.S. economy is roughly 13 times larger, and Canada sends more than 70% of its exports south of the border.

But Béland said this is not a normal trade fight. He pointed to Trump’s domestic unpopularity, the approaching midterms and court challenges that could undo more U.S. tariffs.

“Under normal conditions, this would be a very long shot for Canada,” he said.

But Washington has vulnerabilities too. U.S. refineries rely on 4 million barrels of oil a day from Canada, and American farmers depend heavily on Canadian potash fertilizer. So far, however, Canadian leaders have ruled out using some of that leverage by taxing or restricting critical exports.

Canada entered this round with some economic momentum. Its economy grew at a 3.2% annualized rate in the second quarter, more than twice the 1.5% pace in the United States.

Industry Minister Mélanie Joly put the government’s ambition plainly:

“I’m convinced that we will be able to show the world that Canada will win this trade war.”