President Donald Trump's escalating trade fight with Canada is squeezing the Canadian economy, threatening jobs and adding to household financial strain while steep U.S. tariffs on roughly $20 billion in goods remain in place. The pressure is concentrated in industries that depend heavily on the American market, including steel, aluminum, lumber and automobile production.
Steel exports have fallen by roughly half since the tariffs took effect, according to the Bank of Canada, while lumber exports were about 20% below 2024 levels earlier this year. Production and jobs have also declined in some of the hardest-hit sectors. The effects are not limited to producers. Consumer prices in Canada were 3% higher in August than a year earlier, with grocery prices up 2.8% and transportation costs rising 7.5%, based on government data.
Canadian retaliatory tariffs on American products have added to those costs. Prices of affected goods, a category that includes groceries, household products, furniture, electronics and appliances, rose roughly 6% more than comparable products not subject to the tariffs, according to the country's central bank.
The disputes at the center of the trade fight are not new. David Clement, North American affairs manager at the Consumer Choice Center, said the Trump administration's complaints about dairy access are, generally speaking, completely valid. « Canada has exorbitant tariffs on imports from the United States and really from everywhere around the world when it comes to chicken, turkey, eggs, cheese and milk, » Clement said. He noted that differences between American and European access to Canada's market reflect terms negotiated under separate trade agreements, including the USMCA struck during Trump's first term.
Dairy, however, represents only a fraction of the broader U.S.-Canada trading relationship. Scott Lincicome, vice president of general economics at the Cato Institute and director of its Herbert A. Stiefel Center for Trade Policy Studies, said more than 99% of U.S.-Canada trade was duty-free before 2025, and that negotiators have historically tolerated disputes over politically sensitive products like dairy to preserve the wider relationship. « The Trump administration has so far refused to make the deal, » he said.
Lincicome said free trade in products including fertilizer, energy and lumber helps keep costs down for American farmers, homebuilders and consumers. The trade dispute is unfolding as higher energy prices add another layer of pressure. He described the combination as a double whammy. « First you had the tariffs which increased the prices of a lot of products. And then you had energy prices spike because of the Iran war, » he said. Higher diesel prices ripple through the economy because they fuel tractors, trucks and trains, acting, in his words, as another tariff by raising the cost of getting products to consumers.
With midterm elections weeks away and the cost of living in focus, the dispute carries political weight on both sides of the border. Clement cautioned against letting the disagreement undermine the broader partnership. « The partnership between Canada and the United States is one of the greatest trading relationships the world has ever known, » he said. « That should be embraced. It should be enhanced, and it shouldn't be torn down by either side. »