US Trade War Could Be Bad News for Canadian Wallets
Canada’s leadership made good on its promise to go toe to toe with the U.S. in the latest chapter of the trade war between the historic allies.
After President Donald Trump imposed 50-percent tariffs on hundreds of Canadian exports—and threatened the same rate on the country’s cars and auto parts—Ottawa has now confirmed that it will be imposing its own duties on U.S. goods, including steel and electronics, which will take effect on September 8.
Canada’s retaliatory tariffs range from 15 percent to 50 percent and, like the U.S. levies, target some $20 billion worth of imports. This follows the breakdown in trade negotiations between the two sides last week, after which Prime Minister Mark Carney vowed a “dollar for dollar” response to the latest escalation by the U.S.
“This focused response will protect Canadian workers, farmers, fishers, families, and businesses, defend industries harmed by unjustified U.S. tariffs, and help Canadian producers compete with U.S. products in the Canadian market,” the country’s Department of Finance said on Tuesday.
The Trade War Will Hurt Both Countries
“Trade wars have no winners. President Trump’s spat with Canada is no exception,” according to Ryan Young, senior economist with the Competitive Enterprise Institute (CEI). “Trump has shown that he will raise tariffs whenever he feels like it unless Congress or Courts stop him.”
“In the meantime, American and Canadian consumers and businesses will pay more for cars, energy, food, and other products,” he wrote in a note shared on Tuesday.
Michael Smart, a professor of economics at the University of Toronto, likewise told Newsweek that tariffs generally harm a country’s own consumers rather than the exporting country.
“So, when two countries enter a trade war, they inflict pain on their consumers to try to convince the other side to stop inflicting on their own,” he said, adding that “the act is political, and the solution must be political too.”
Who Will Suffer More?
Economists from both sides of the border largely agree that the size and relative dependencies of the Canadian and U.S. economies mean the former is more exposed in the event of a tit-for-tat trade war.
“The bigger economy of the U.S. allows for production of more items at scale, which makes the U.S. relatively more self-sufficient,” said Andrey Pavlov, a professor of finance at Simon Fraser University in British Columbia, Canada.
“The trade war is certainly unfortunate,” he told Newsweek, “but Canada should take this as an opportunity to vastly increase the competitiveness of our businesses so that more of the goods and services we need are produced locally.”
“Canada does rely on the American market more than the U.S. relies on the Canadian market,” Mary Lovely, a senior fellow at the Peterson Institute for International Economics (PIIE), told Newsweek. However, Lovely added that Canada’s recent attempts to diversify both exports and imports away from the U.S. had blunted some of this potential damage.
“We saw with the China tariffs that manufacturers there were able to reroute their goods to new markets, with only a small fall off in overall exports,” she said. “There will be short-term pain if these tariffs hold, but in the longer run we will see a Canada that relies less on U.S. suppliers.”
How Exposed Are Each Country’s Consumers?
“The main problem with Canada is not that it relies a lot on international trade but that it trades too much with one country, the U.S.,” said Nicolas Schmitt, a professor emeritus in Simon Fraser’s economics department.
Around 72 percent of Canada’s merchandise exports in 2025 went to the U.S., according to government figures. Census data for the U.S., by comparison, shows that the country sent $333.6 billion worth of goods to Canada, accounting for just 15 percent of its $2.2 trillion in overall exports.
Trade and GDP numbers from Statistics Canada, the U.S. Census Bureau, and the Bureau of Economic Analysis (BEA) and other agencies show this imbalance has been remarkably persistent over the past decade, and these data can be used to estimate the direct impact on consumers’ wallets from the latest trade dispute.
In attempting to calculate the potential impact on consumers, Newsweek incorporated data on the goods and services Canada and the U.S. exported to one another last year.
We relied on the assumption—conservative when compared to official OECD estimates—that around half of export revenue ultimately translates into domestic household income. In reality, export earnings pass through businesses, workers, suppliers, taxes, and investment before reaching households, varying by industry and according to several other factors.
The 50 percent figure is therefore an analytical assumption used to illustrate relative income exposure.
The value of Canada’s goods and services exports to the U.S. was equivalent to around 38 percent of Canadian household disposable income in 2025. Assuming half of export value represents domestic income, that puts Canada’s estimated income exposure to U.S. export demand at about 19 percent of household disposable income. The equivalent U.S. figure was less than 1 percent.
The precise numbers can be debated—the calculations exclude the importance of imports and the other effects of a trade war—but the order of magnitude is clear: a sharp disparity exists between the relative reliance of Canadian and American incomes on trade with the other nation.
For Canada, this means a prolonged dispute is not merely a question of sectoral pain for the industries that are being targeted, but a meaningful threat to aggregate household living standards.
A reduction in exports to the United States would ripple through manufacturing, energy, transportation, agriculture, logistics, and business services, reducing wages, employment, bonuses, and ultimately disposable income.
The impact on the United States would be qualitatively different and modest by comparison. Certain industries, firms, and regions, however, would experience significant disruption, particularly sectors with tightly integrated North American supply chains such as automobiles, machinery, energy, agriculture, and border-state manufacturing.
How Long Will the Trade War Last?
As economists tell Newsweek, the consumer-level impact will depend heavily on the products being tariffed, and will impact different regions depending on their economic independence.
“Think about states along the Canadian border; a lot of their trade is with Canada,” said Schmitt. “Thus, there will be firms and households affected on both sides of the border. Simply, because of its size, the share of them will be smaller in the U.S. than in Canada.”
Ultimately, the effects on producers and consumers will hinge on how prolonged the latest dispute proves to be, the respective leaders of Canada and the U.S. have given no indication that they are ready to back down from their tariff threats anytime soon.
Earlier on Monday, Carney accused Trump of trying to “destroy” the Canadian auto industry, and said that Ottawa would be open to negotiations if the U.S. came to the table with the “right attitude.”
Meanwhile, Trump posted to Truth Social: “WE DON’T NEED CANADA, THEY NEED US!”
“Someone should get these clowns to ‘fall in line’ or, the consequences for Canada will be far WORSE!”, he later wrote.
The $20 billion worth of imports under the new and upcoming levies represent a small fraction of the nearly $900 billion in annual bilateral U.S.-Canada trade. Lawmakers and officials in both countries are nevertheless bemoaning the latest escalation and expressing hope that the dispute can be remedied through diplomatic channels rather than a trade war.
“Imposing new tariffs on Canada is a mistake,” Susan Collins, the Republican senator for Maine, which borders Canada, said while campaigning on Monday.
And Dominic LeBlanc, Canada’s U.S. Trade Minister, told PBS on Tuesday that the two sides could return to economic cooperation despite the breakdown in talks.
“We still believe that there’s an agreement possible that is in the best interest of both countries,” he said.
But beyond relative economic strength—and the exposure of their consumers–the leaders of both countries face different political circumstances at home which could dictate their willingness to sustain the impasse.
Polling from the Angus Reid Institute, published Saturday, found that 76 per cent of Canadians think Canada “did the right thing by ending trade negotiations,” with 62 percent backing Carney’s threat of dollar-for-dollar counter-tariffs.
“Trump commands no such backing at home,” writes Karl Schamotta, chief market strategist at the financial services firm Corpay. “And the Canadian prime minister appears to be betting that November’s mid-terms will blunt his tariff drive, opening the way to a mutually beneficial deal.”
Contact Newsweek editor on this story: Edward Pearcey.