The US imposed 50 per cent tariffs on $20 billion (Dh73.4 billion) worth of Canadian products early Saturday after last-ditch negotiations intended to resolve the strained relations between the historic allies broke down.
The import taxes that kicked in on Saturday apply to hundreds of items from Canada, such as plywood, liquor, electrical equipment and hockey gear.
Canada immediately said it would retaliate, announcing later that new duties on US goods would take effect from September 8.
"In the coming days, we'll release details of these new tariff measures, measures which will come into force the Tuesday after Labor Day," Canada's Prime Minister Mark Carney told media.
Why did the trade talks fail?
In a statement, Mr Carney blamed Washington for the breakdown, saying “last-minute changes in the US proposed terms were unfair, uneconomic, and called into question the reliability of any deal".
He said he suspended negotiations and directed Canada’s negotiating team to return to Ottawa.
US Trade Representative Jamieson Greer said the Canadian negotiators made 11th-hour demands that upended a draft deal worked out over days of negotiations.
“Despite the US offer to Canada to receive the best treatment of any major exporter to our market, new demands and walk-backs of other commitments by Canada have upended the careful balance reached in the past days,” Greer said in a statement.
Depression-era tariff act
The new tariffs are being imposed under the Section 338 provision of the Tariff Act of 1930, which has never been used before. The law gives the president the power to impose duties on countries deemed to discriminate against US commerce.
The two sides had been discussing a deal that included lowering tariffs on certain Canadian steel and aluminium to 25 per cent, cutting duties on Canadian autos to 15 per cent and eliminating a 10 per cent lumber tariff.
But the new levies won’t apply to the most important natural resources the US imports from Canada, such as oil, potash and critical minerals. Canada is the US’s most important foreign supplier of crude oil and petroleum products — more than 4 million barrels per day.
Impact on trade and jobs
If these tariffs remain in place, Canada could lose almost 90,000 jobs, University of Calgary economist Trevor Tombe told Bloomberg. The impact is most sharply felt in machinery and electronics, plastics and rubber, furniture, wood, paper, and chemicals and cosmetics, he added. BC, Ontario and Quebec would be the worst-hit provinces, he said.
While the new measures affect a relatively small share of Canadian exports, they add to existing US tariffs on steel, lumber and autos. The new tariffs could thwart Canada's fragile economic recovery and impact how the two neighbours engage in the coming months on broader negotiations for a free-trade pact.
What's expected next?
Canada is set to release details of the retaliatory tariffs, with Mr Carney suggesting duties in industries including steel and dairy.
The recent escalation in the trade conflict has affected formal negotiations to renew the US-Mexico-Canada Agreement, which Trump declined to renew earlier this year, sending the pact into a decade of rolling reviews.
The new duties apply regardless of whether Canadian goods qualify for preferential treatment under the trade agreement, which has shielded much of Canadian industry from earlier US tariffs.
Mr Carney said, "The retaliation escalates the trade conflict and calls into question the future of a North American trade pact between the United States, Canada and Mexico that is crucial to industry in all three countries."
