Escalating Trade War: Canada Responds to Trump's Tariffs with Retaliatory Measures

In a Tuesday op-ed, Steve Forbes called for an immediate end to the escalating trade fight, writing that it "will damage both countries" and is "utterly pointless."

Forbes, a former Republican presidential candidate, argued that tariffs are taxes ultimately borne by businesses and consumers. He said Trump's proposed 50% duties on Canadian vehicles and parts would disrupt deeply integrated North American supply chains and raise car prices.

"Trade should make goods more affordable and economies more prosperous," he added in a post on X. "Current tariffs are doing the opposite, raising costs for American consumers."

Paul Krugman, the Nobel laureate economist and former New York Times columnist, wrote in a Substack post Monday that he still has to "rub my eyes at the idea of Canada as an enemy." He called Trump a "bully."

Krugman said Canada begins the fight at a clear disadvantage: The US economy is roughly 12 times larger, and the US buys about three-quarters of Canadian exports. Still, he argued that a trade war could inflict serious pain on the US because it depends on some imports from Canada.

He pointed to specialized Canadian lumber, heavy crude oil used by Midwestern refineries, and hydropower that is an important part of the electricity supply in New York and New England. He also said disrupting cross-border auto and auto-parts trade would be "immensely disruptive" to the industry on both sides of the border.

"The bottom line is that Trump is going to lose his trade war with Canada as thoroughly as he has lost his shooting war with Iran," he wrote.

David Whiston, an auto analyst at Morningstar, said the biggest assembly exposure for Ford and GM is in pickup trucks. That's the most profitable part of each car company's US business.

GM builds some Chevrolet Silverados in Canada, he said, while Ford is set to bring 100,000 units of annual Super Duty pickup capacity online at its Oakville plant in the fourth quarter.

"The math on that just got a lot worse for them," Whiston told Business Insider.

He said Canada's retaliation has little direct impact on the auto industry beyond motorcycles. But he warned that the broader trade war would still raise prices.

"A trade war is almost always bad for everyone," he told Business Insider. "It's effectively a giant tax being levied on a variety of goods, and it gives domestic producers leeway to raise prices."

Peter Harrell, the former White House senior director of international economics during the first Trump administration, said the most revealing part of Canada's response was the C$7.5 billion package intended to support affected companies and workers.

"Suggests Canada may be digging in for a fight," he wrote on X.

He also pointed to an irony in Ottawa's response: US officials have long discussed helping companies and countries withstand Chinese economic coercion.

Canada is now adopting that playbook to protect businesses from what it calls American economic coercion, he said.

Trevor Tombe, an economist at the University of Calgary, wrote that the fresh tariffs likely won't have a massive, immediate impact on Canada's national economy.

He estimated that the new import plan would raise the average tariff rate on Canadian exports by about 2.5 percentage points and shave a couple of tenths of a point off GDP growth.

That doesn't mean the effects will be evenly felt, he argued.

Tombe wrote that the tariffs could put roughly 87,000 Canadian jobs at risk if they remain in place, and affected sales fall in line with the 50% duties.

And some of those jobs would be in places that aren't directly targeted: He estimated that Alberta could lose about 9,000 jobs even though relatively little of the province's exports are directly affected.

In an interview on CNBC, Michael Froman, the president of the Council on Foreign Relations and a former US Trade Representative, said the 50% tariff package that took effect over the weekend affects only about 5% of Canadian exports to the US.

"It's significant in terms of what it says about the state of the relationship right now," he said. "But, economically, it is not terribly meaningful."

Froman said the average tariff applied to Canadian goods has climbed to about 6%, from roughly 1% at the start of Trump's second term — though it remains below the tariffs facing imports from China.

The bigger risk, he said, is to the USMCA.

"The US is engaged with Mexico in a series of negotiations, but is not yet really engaged with Canada," he said.

Peter Schiff, a stockbroker and frequent Trump critic, wrote on X that the tariffs would hit American consumers, not just Canadian producers.

"Americans purchase a lot of those goods from Canada, and those goods will now be vastly more expensive for Americans to buy," he wrote, adding that the plan would worsen "the government-created cost of living crisis."

Kelly Ann Shaw, a partner at Akin and former deputy assistant to the president for international economics in Trump's first term, said she sees no near-term resolution to the dispute.

During an interview on CNBC, Shaw said Carney's Saturday address, in which he promised dollar-for-dollar retaliation, came across as a "victory lap" to people in the Trump administration.

"There's a lot of frustration and bitter feelings on the US side," she said. "I don't really see an off-ramp anytime soon. I think Canada is going to continue to be out in the wilderness from a US negotiating perspective for a little bit now."

Frances Donald, the chief economist at Royal Bank of Canada, said the latest tariff covers only around 5% of Canadian trade with the US, with more than 80% of exports still duty-free, so it probably isn't enough by itself to derail Canadian growth.

Still, some products will be hit hard, she said.

"Plastic products, electrical machinery, furniture and wood product sectors are among the most significantly impacted by the new measures," she wrote in a Saturday note. "Because the tariff rate is so high and applies only to Canada, purchases of these products from Canada would be prohibitively expensive."

She added that the renewed trade uncertainty increases the chance the Bank of Canada won't raise rates this year.

Beichen Lin, head of Canadian strategy at Russell Investments, said the broader new tariffs affect only about 5% of Canadian exports to the US.

He added that the US economic effect should be relatively muted, while Canada faces greater uncertainty for an economy already under pressure.

"Investors would benefit from staying disciplined and maintaining a long-term focus, while taking advantage of any tactical opportunities that might arise due to market over-reactions," he wrote in a research note on Monday.

In a statement on Saturday, Jennifer Safavian, who leads Autos Drive America, a group representing international automakers operating in the US, said that Trump's tariff policy is already hurting the US auto industry.

She added that US vehicle exports to Canada have fallen 23% over the past year.

"The U.S. auto industry's continued success relies upon strong and stable partnerships across North America. We urge all parties to continue negotiations to finalize an interim deal," she wrote.

Canada's planned "dollar for dollar" retaliation on September 8 creates another deadline for the two countries to reach an agreement and potentially de-escalate, David Doyle, the head of economics at Macquarie Group, wrote in a note on Sunday.

If Canada follows through, however, it risks prompting "a subsequent escalation from the US," potentially through additional tariffs, he added.

The economic exposure is heavily skewed toward Canada.

The goods hit by the latest US tariffs are worth about 0.8% of Canadian GDP, with the tariffs amounting to roughly 0.4% of GDP. For the US, the tariffs amount to just 0.03% of GDP.

James Thorne, chief market strategist at Wellington-Altus Private Wealth, wrote on X on Sunday that Canada should prioritize preserving access to the US market rather than escalating its trade dispute.

"Broad retaliation is not a strategy," Thorne wrote, arguing that tariffs would raise costs for Canadian households and manufacturers without addressing the country's underlying productivity and competitiveness challenges.

He said Canada should instead focus on reforms including deregulation, faster project approvals, and fewer barriers to capital and internal trade.

Thorne also argued that deeper trade ties with China cannot replace Canada's highly integrated economic relationship with the neighboring US.

Dan Kelly, president at the Canadian Federation of Independent Business, said some small businesses could lose their businesses entirely as the tariff fight escalates.

In a CFIB statement on Tuesday, Kelly said that he understands what the Canadian government is trying to do. But he said retaliatory tariffs will create more uncertainty and higher costs for small local businesses.

"While I respect Canada's need to respond to the U.S. threat, the giant list of counter tariffs will create their own severe challenges for many small businesses who have already done what they can to seek new sources of supply," Kelly wrote.

Candace Laing, CEO of the Canadian Chamber of Commerce, said it's essential for the government to put speed first.

In a statement on the organization's website, Laing said if the government does not prioritize fast relief, some businesses will collapse by the time support rolls out.

We understand the government's urgency to deliver rapid, agile, and simple relief measures, which is why we cannot let red tape get in the way of being effective.

She also said companies and governments need to prepare for "long-term pivots."

"The benefits of equipping more businesses with the ability to diversify trading partners, sell more within Canada, and upskill their workers for the modern economy will have a long tail, well after this crisis has subsided."

In a statement to The Canadian Press, Jay Goldberg said that while Canadians might support a strong response to Trump's tariffs, he opposes retaliatory tariffs, arguing they hurt local businesses.

"Canadians are struggling right now with high food inflation," he said. "Making goods more expensive for consumers isn't the right response to Trump imposing additional taxes on American consumers."