NEW YORK — Trade negotiations between the United States and Canada have collapsed, and the two countries are now clashing as each imposes tariffs of up to 50% on some of the other's imports. Analysts say the North American trade order is being shaken at its foundations, with the U.S.-Mexico-Canada Agreement (USMCA), introduced during President Donald Trump's first term, thrown into crisis just six years after taking effect. Canada, whose sovereignty was threatened during the talks with the United States, is preparing for a prolonged fight backed by heightened public sentiment. In particular, it intends to keep up a political offensive aimed at the U.S. midterm elections in November, an issue Trump is most sensitive about. In the process, the likelihood has grown that trade-related stocks such as automakers and steelmakers in both countries will see considerable volatility. Analysts also say the standoff could give Korea a chance to expand in the North American market in industries such as autos and cosmetics, where it competes with the United States and Canada.
U.S. Slaps Up to 50% Tariffs on Canada, Shaking North American Free Trade System
On the 21st local time, U.S. Trade Representative Jamieson Greer said on X, formerly Twitter, that "Canada has refused to conclude a trade agreement," and announced that starting on the 22nd the United States would impose a 50% tariff on $20 billion worth of Canadian imports. The basis for the tariff is Section 338 of the Tariff Act, enacted in 1930 during the Great Depression. That provision allows the president to impose tariffs of up to 50% on countries that discriminate against U.S. commerce. The targeted items include some dairy products and alcoholic beverages, hockey equipment, machinery, textiles, cement and furniture. The USTR estimated that the annual import value of these items amounts to about 5% of total imports from Canada.
Greer argued that "the United States offered to provide the highest level of treatment among major exporting countries, but the balance was broken because Canada reversed its earlier commitments," adding that "Canada threw away the chance to cooperate with the United States, the fastest-growing economy among the Group of Seven."
Earlier, on the 20th of last month, Trump had given notice that he would impose a 50% tariff on some Canadian imports starting on the 19th of this month, saying Canada was discriminating against the United States in the automobile, alcohol and dairy industries. At the time, Trump also cited air pollution in the eastern United States caused by wildfires in Canada as a justification for the tariffs. The two countries then extended the tariff start date by three more days and held last-minute negotiations.
This 50% tariff is seen as different in nature from previous tariffs that exempted USMCA-covered items, in that it is a standalone trade attack. The USMCA is an agreement that took effect in July 2020 during Trump's first term. It is characterized by maintaining the framework of the previous North American Free Trade Agreement (NAFTA), in place since 1994, while sharply strengthening measures to protect U.S. manufacturing. It entered its first review period this July, six years after taking effect, and if the three countries fail to reach agreement, it will terminate as scheduled in 2036. In January of this year, Trump also disparaged the USMCA, saying it "has no real benefit and is meaningless."
Trump also imposed a 25% tariff on Canada on March 4 last year. That August, he abruptly raised the rate to 35%, citing Canada's retaliatory tariffs, the trade deficit and the inflow of the synthetic drug fentanyl. In October, he threatened to impose an additional 10% tariff because the Canadian province of Ontario had aired an advertisement featuring former President Ronald Reagan's advocacy of free trade during Major League Baseball's World Series. Since returning to office, Trump has also argued several times that Canada should be absorbed as the 51st U.S. state.
Last year's tariffs, based on the International Emergency Economic Powers Act (IEEPA), were nullified by a U.S. Supreme Court ruling in February of this year. Immediately afterward, the U.S. administration imposed a 10% global tariff on Canada along with other major countries around the world, then switched from the 24th of last month to a 10% tariff based on Section 301 of the Trade Act. Even so, none of these tariffs targeted items that met USMCA requirements.
Major foreign media outlets assessed that the Trump administration's latest tariffs have clouded the future of the USMCA system. The Washington Post noted that "the impact of the Canada tariffs on U.S. consumers will not be large," but pointed out that "if the clash between the two countries continues, the entire North American trade order could be shaken."
Canada Retaliates With Its Own 50% Tariffs, Preparing for a Long Fight With Public Backing
Canada immediately pushed back, saying it would counter the U.S. high tariffs. Canadian Prime Minister Mark Carney issued a statement on the 21st, announcing that "to protect our workers and businesses, we will impose tariffs equal in scale to those of the United States." The plan was to impose retaliatory tariffs starting on the 8th of next month on U.S. goods such as steel, dairy products, home appliances, agricultural machinery and pulp. Carney added that "for the United States to change the terms of its offer at the last minute is unfair and makes no economic sense," and said, "We will reduce our economic dependence on the United States and strengthen a strategy of economic diversification by expanding trade with other countries."
On the 22nd, Carney again reaffirmed his resolve for an all-out fight with the United States in an address to the nation. In the speech, Carney stressed that "Canada is fighting a war after being attacked by the United States," and that "the Trump administration demanded a bad deal, and we cannot accept it." According to The New York Times, Ontario Premier Doug Ford argued in a letter to Carney that oil, gas and electricity should be used as bargaining chips in the trade negotiations. The idea is that since refineries in the central United States depend heavily on Canadian heavy crude, this should be weaponized. According to the U.S. Energy Information Administration (EIA), the United States imports 52% of all its imported oil from Canada.
The United States immediately signaled further retaliation in response to Canada's pushback. Greer said in a Fox News interview that "there are no new negotiations scheduled," but added that "we are pursuing measures to respond to Canada's retaliation." Trump also declared on his social media platform Truth Social on the 24th that "Canada has extorted the United States for a long time," and that "starting January 1 next year, tariffs on automobiles, small and large trucks, auto parts and steel will be raised to 50%." Trump mocked Canada, saying, "They should remember that much of Canada's electricity, oil and gas is transported through the United States," and, "Someone has to make these clowns listen."
That same day, at a shipbuilding investment event held at the Davie shipyard in Lévis, Quebec, Carney pushed back, saying that "the goal of trade negotiations with the United States has always been to secure the best deal for the Canadian people," and "it is never about paying any price or reaching a deal by a certain time." Carney also said, "We can never accept an attitude at the negotiating table that Canada is a subsidiary of the United States, that Canadian industry will be at a disadvantage compared with the United States, and that Canadian industry will face headwinds over time," adding, "If the United States comes to the negotiating table first with the right attitude toward our industry and a genuine willingness to cooperate, then of course we will come as well." Carney went on to announce a plan to invest more than 11 billion Canadian dollars (about 11 trillion won) in building six new icebreakers in Quebec as part of economic self-reliance.
On the 25th, the Canadian government ultimately decided, as it had signaled, to impose retaliatory tariffs of up to 50% on about 700 U.S. products worth $20 billion starting on the 8th of next month. Specifically, it will impose a 50% tariff on steel and aluminum products as well as furniture and clothing. It will also levy 25% on cheese, home appliances, some seafood, and steel and aluminum derivatives, and 15% on machinery, industrial tools and agricultural machinery. The Canadian government also decided to introduce a support package worth 7.5 billion Canadian dollars to help companies and workers hurt by the new U.S. tariffs.
Conflict Even Over French-Content Priority Rules; U.S. Pledged to Cut Auto Tariffs but Excluded Trucks at the Last Minute
The hard-line standoff between the United States and Canada is understood to involve the sovereignty and public sentiment of both countries deeply. According to The New York Times on the 25th, Canada initially envisioned a so-called "Fortress North America" in the talks with the United States, in which the two countries would be bound by low tariffs and apply a common tariff policy to countries outside the region. But problems arose as the United States demanded that Canada align even with U.S. trade policy when it signs trade agreements with other countries. In the case of steel in particular, there was discussion of a plan under which Canada would apply the same level of tariffs if the United States raised tariffs on third countries. From Canada's perspective, this looked like a way of effectively giving the United States a veto over its own trade policy.
Canada's French language and cultural protection policies also became a source of conflict. Unlike the United States, Canada has used both English and French as official languages since it enacted the Official Languages Act in 1969. Above all, French is tied to the identity of Quebec. Under Quebec law, products sold in Quebec must carry descriptions in French. Global media services such as Netflix, Spotify and Apple must also give priority to French-language content.
The United States pointed even to this as trade discrimination. It took issue with rules such as those requiring streaming platforms to place Canadian French-language content more prominently. Greer criticized this in a CNBC interview, saying, "I like the people of Quebec, and I like that they speak French," but "the core issue is that Canada forces U.S. streaming giants to use part of their revenue to support domestic content."
The reopening of the Keystone XL pipeline project, which had been a concession card Canada could offer the United States, was also overturned in the final stages of the talks. Keystone XL is a large pipeline project to transport Canadian crude oil to the United States. It was halted in 2021 when former President Joe Biden revoked its permit. Trump had long demanded that the project be resumed.
According to Reuters, during the negotiations the Trump administration offered to lower the 50% steel and aluminum tariffs and the 25% automobile tariff imposed under Section 232 of the Trade Expansion Act to a maximum of 25% and 15%, respectively, in exchange for demanding that Canada further open its market to U.S. alcohol and dairy imports, but Canada did not accept this either. Decisively, the friction was sparked when the United States proposed, in the final stages of the talks, to exclude medium and large trucks — a core Canadian export item — from the auto tariff cut. The United States also demanded that the scope of the steel tariff cut be limited to a certain quota, and included a sovereignty-infringing poison-pill provision requiring Canada to consult with the United States in advance about who it sells what and how much to when trading with other countries such as China. According to the NYT, it was U.S. Commerce Secretary Howard Lutnick who added such excessive demands.
Trump also wrote on Truth Social on the 25th that "since I don't think we'll be doing much business with Ontario, Canada, anymore, I'm seriously considering renaming 'Lake Ontario' to 'Lake America.'" Lake Ontario is a large lake between the province of Ontario and New York State in the United States. It is one of North America's five Great Lakes and serves as a border between the two countries. In another Truth Social post, Trump argued, "I will never interfere with Canadians speaking French," and that "this lie was concocted by a weak and incompetent prime minister to win back the political support he has completely lost among the people of Quebec."
Entering a Strategy to Sway Midterm Voters; Korea Could Aim for Gains in Beauty and Autos
Major foreign media outlets put weight on the possibility that Canada, backed by overwhelming public support, will continue a long fight aimed at the U.S. midterm elections on November 3. Indeed, according to a poll released on the 23rd by the Canadian polling firm Angus Reid Institute, 76% of respondents rated it "the right decision" for the Canadian government to halt trade negotiations rather than accept a bad deal with the United States. Only 13% said it was "the wrong decision," and 11% said they "don't know." Support for the government's decision was especially high in provinces such as Quebec (85%) and British Columbia (85%).
On the 23rd, Bloomberg reported that Carney's cabinet sees little chance of resuming negotiations before the U.S. midterm elections and is preparing for a long fight. Canadian Industry Minister Mélanie Joly also explained on the 25th that "we are also targeting products that can be aimed at specific U.S. states," and that "we are taking a smart and strategic approach to apply political pressure." U.S. processed cheese, seafood, washers and dryers included in Canada's retaliatory tariffs are products with production bases in the states of Wisconsin, Maine and Kentucky, where Republican support is considerable. Carney also described the start date of the retaliatory tariffs not as the 8th of next month but as "the Tuesday after Labor Day (September 7)." Labor Day is generally seen as the day the U.S. election campaign gets into full swing.
As the situation worsened, The Wall Street Journal criticized it in an editorial on the 23rd as "the dumbest trade war." The WSJ pointed out that "President Trump's decision to escalate the tariff fight with Canada makes no economic or political sense at all," and that "no president in history has ever exercised the authority under Section 338 of the Tariff Act."
As the trade conflict between the United States and Canada spreads, some stocks on the New York market are being affected. The three major U.S. automakers — Stellantis (-3.51%), Ford (-3.33%) and GM (-1.08%) — all fell on the 24th on grounds that their supply chains are intricately linked with Canada. In contrast, steelmakers Nucor and Steel Dynamics rose for three consecutive trading sessions from the 21st to the 25th.
Whether Korea can reap gains amid the clash between the two countries is also drawing interest. On the 24th, the NYT noted that if tariffs are imposed on Canadian auto parts and steel, Korean, Japanese and German automakers could benefit. That is because they can buy Canadian products at better prices than U.S. companies and sell cars in the United States.
On the 25th, Bloomberg drew attention to the fact that the United States and Canada have agreed to each impose a 50% tariff on the other's cosmetics products. That is because most U.S. cosmetics companies, such as L'Oréal and Estée Lauder, use Canada as a major production base. Last year, Canada was the second-largest exporter to the U.S. beauty and skin-care market, after Korea. Depending on whether the high tariffs persist, Korea's market share could grow further.
As the trade conflict between the United States and Canada shows signs of spreading into a political clash surrounding the midterm elections, the likelihood has grown that Trump's judgment will be affected as well. For Korea, a strategy of turning the conflict between the two countries into an opportunity and pursuing maximum benefit does not look like a bad one.
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