The US-Canada Trade War Explained

Last updated: October 10, 2026. The situation changes often, and we update this article whenever something important happens. In short: since 2025 the United States has put tariffs on many Canadian goods, and Canada has answered with counter-tariffs. Talks have been stuck since August 2026. The free trade agreement between the two countries still applies, but it is now reviewed every year.

Canada and the United States have one of the closest trading relationships in the world. Every day, trucks, freight trains and pipelines carry billions of dollars’ worth of goods across the border. Since early 2025 this relationship has turned into a dispute that many people call a trade war. The news coverage quickly gets lost in legal sections, percentages and special laws. Here we explain what is behind it, in plain language and with a source for every number.

What is a tariff?

A tariff is a tax charged when goods are imported. It is paid to the government of the importing country, by the importer, meaning the company that brings the goods into the country.

An example: a furniture store in Chicago buys sofas in Canada for 100,000 US dollars. With a 50 percent tariff, the store pays 50,000 dollars to US Customs. It can deal with that cost in three ways: raise its prices, accept a smaller profit, or negotiate a lower price with the Canadian maker. Usually it is a mix. Studies by the Federal Reserve Bank of New York and the Kiel Institute for the World Economy found that around 90 percent or more of the cost of the 2025 US tariffs was borne in the United States itself, by American businesses and consumers.

Why do governments use tariffs anyway? To protect domestic industries, to put pressure on another country in negotiations, or to raise money. The downside: imported goods become more expensive, and the other country often responds with tariffs of its own, known as counter-tariffs or retaliatory tariffs.

Why this dispute matters so much

For Canada, the United States is by far the most important customer. In 2024 around 76 percent of Canada’s goods exports went to the US. In turn, Canada is one of the largest trading partners of the United States and the top export market for more than 30 US states.

The two economies are tightly linked:

Energy: In 2025, 63 percent of US crude oil imports came from Canada. Around 90 percent of Canada’s oil exports go to the US, most of them by pipeline.
Cars: Parts often cross the border several times while a car is being built. Around 90 percent of Canada’s auto exports go to the US.
Metals and wood: Canada is the largest supplier of steel and aluminum to the US and supplies most of its imported softwood lumber.

This trade is governed by a free trade agreement between the United States, Canada and Mexico. It replaced NAFTA in 2020 and is called CUSMA in Canada and USMCA in the United States. Goods that meet its rules, for example because they were mostly made in North America, are normally duty-free.

How it started: the key stages

2025

February: President Donald Trump declares a national emergency, citing fentanyl smuggling and illegal migration across the border. He announces a 25 percent tariff on Canadian goods and 10 percent on energy.
March 4: The tariffs take effect. Canada responds with 25 percent counter-tariffs on 30 billion Canadian dollars’ worth of US goods. Many provinces pull US wine and spirits from government liquor stores.
March 6: The US exempts goods that meet the rules of the free trade agreement. Since then, most trade has been duty-free again.
March and April: Global US tariffs on steel and aluminum (25 percent) and on cars and auto parts (25 percent, with exceptions for North American parts) also apply to Canada. Canada responds with more counter-tariffs.
April: Mark Carney leads the Liberals to victory in the federal election and becomes prime minister.
June: Steel and aluminum tariffs rise to 50 percent. Under pressure from Washington, Canada drops its planned digital services tax on large tech companies.
August: The emergency tariff on goods outside the agreement rises from 25 to 35 percent.
September: Canada lifts most of its counter-tariffs but keeps those on steel, aluminum and cars.
October: New US tariffs on softwood lumber (10 percent, on top of anti-dumping duties that have existed for years), furniture and kitchen cabinets. After an Ontario TV ad quoting former US president Ronald Reagan criticizing tariffs, Trump breaks off talks.

2026

January: Canada makes a deal with China: up to 49,000 Chinese electric vehicles a year may enter Canada at a low tariff, and in return China cuts its tariffs on Canadian canola. Washington reacts angrily.
February 20: The US Supreme Court rules 6 to 3 that the emergency law used for the “fentanyl tariffs” does not allow tariffs. Those tariffs end and importers get their money back. The tariffs on steel, aluminum, cars and lumber stay, because they rest on a different law. The US government temporarily replaces the struck-down tariffs with a global 10 percent surcharge that does not apply to goods under the free trade agreement.
July 1: The six-year joint review of the free trade agreement. Canada wants to extend it; the US declines to extend it in its current form. The agreement remains in force until 2036 but is now reviewed every year.
July 20: Trump imposes 50 percent tariffs on a list of Canadian goods under a 1930 law, the first time a president has expressly used it for tariffs. The stated reason: Canadian barriers to US alcohol, dairy products and cars.
July 24: The temporary 10 percent surcharge expires. It is replaced by a new 10 percent tariff on goods outside the free trade agreement, based on a different law.
August 21: After weeks of talks, Carney breaks off negotiations, saying the US “asked too much and offered too little.” On August 22 the 50 percent tariffs take effect on goods worth around 20 billion US dollars.
August 24: Trump announces 50 percent tariffs on Canadian cars, auto parts and trucks from January 1, 2027 (steel already pays 50 percent). No formal order has been issued yet.
September 8: Canada’s new counter-tariffs of 15 to 50 percent on 27.6 billion Canadian dollars’ worth of US goods take effect. The US then expands its list.
September 29: The US bans imports of most Canadian alcoholic drinks and some dairy products and motorcycles.

Which tariffs apply right now?

US tariffs on Canadian goods (as of October 2026):

Steel, aluminum, copper: 50 percent, 25 percent on some products made from these metals.
Cars: 25 percent; for cars that meet the agreement’s rules, only on the non-US content. Auto parts that meet the rules remain duty-free.
Trucks: 25 percent, buses 10 percent.
Softwood lumber: 10 percent plus anti-dumping and countervailing duties of currently around 35 percent. A cut to around 25 percent has been announced.
Furniture and kitchen cabinets: 25 percent.
Special list since August 22, 2026: 50 percent on originally around 550 tariff lines, expanded on September 15, including dairy and cheese, maple syrup, alcohol, furniture, paper and hockey equipment. These tariffs also apply to goods under the free trade agreement. Energy and potash are excluded.
Import bans since September 29, 2026: most alcoholic drinks, whey, molasses and larger motorcycles.
All other goods outside the free trade agreement: 10 percent.

For perspective: most trade is still duty-free. According to estimates by RBC, more than 80 percent of Canadian exports still enter the US without tariffs, including most energy such as oil, gas and electricity. The Bank of Canada put the average US tariff on Canadian goods at around 5 percent in July 2026, and with the new tariffs it is likely around 6 percent. Before 2025 it was practically zero.

Canada’s countermeasures:

15 to 50 percent on 27.6 billion Canadian dollars’ worth of US goods, including dairy, household appliances, farm machinery, clothing and furniture.
50 percent on most US steel and aluminum products.
25 percent on US cars, with exemptions for automakers that keep producing in Canada.
In most provinces, US wine and spirits are no longer sold in government liquor stores.
A support package of 7.5 billion Canadian dollars for workers and businesses.

Who is affected?

In Canada, the hardest-hit sectors are steel, aluminum, autos and forestry. One example: in 2025 Stellantis moved production of the Jeep Compass from Brampton, Ontario, to Illinois. Canada’s economy grew only 1.7 percent in 2025, the weakest since 2016 apart from the pandemic. Unemployment reached 7.1 percent in August 2025, the highest since 2016 outside the pandemic, and stood at 6.5 percent in September 2026. The Bank of Canada cut its key rate four times in 2025, from 3.25 to 2.25 percent, and has held it there since. It says some industries have been “heavily affected” by the tariffs.

In the United States, businesses and consumers pay higher prices. Housing is the clearest example: the National Association of Home Builders estimates that tariffs on lumber and other materials add around 10,900 dollars to the cost of a new home. The Yale Budget Lab puts the cost of all US tariffs combined at more than 1,000 dollars per household per year. US winemakers and distillers have largely lost one of their most important export markets.

In travel, the dispute is especially visible. Many Canadians now avoid the United States: in 2025 their trips to the US fell by about a quarter. Since spring 2026 the numbers have risen slightly but remain well below 2024 levels.

What each side says

The US government:

Fentanyl and the border: Canada does too little against drug smuggling, and seizures at the northern border have risen sharply.
Unfair trade barriers: Canada protects its dairy farmers with tariffs of over 200 percent, keeps US alcohol off its shelves and disadvantages US cars with counter-tariffs and quotas.
Trade deficit: The US buys more goods from Canada than it sells there, about 46 billion US dollars more in 2025.
Jobs: Tariffs are meant to bring factories, especially in the auto industry, back to the US. Trump: “Build in the U.S. and there are ZERO TARIFFS.”
Other issues: Rules for streaming services and Canadian content, preference for Canadian companies in government contracts, and Canada’s deal with China.

Canada:

The tariffs violate the free trade agreement and World Trade Organization rules. Canada has filed several cases at the WTO.
Canada plays only a tiny role in fentanyl smuggling and has still spent 1.3 billion Canadian dollars on border security.
Supply chains are so intertwined that tariffs hurt both sides. Canada is a reliable supplier of energy and raw materials to the US.
In the talks, the US wanted too much: limits on Canada’s trade with other countries, concessions on protecting the French language and culture, and a deal covering only passenger cars, not trucks. Carney: “We cannot accept what they have offered, and we will not give what they have asked.”

The government’s approach is also debated inside Canada. The Conservative opposition accuses Carney of negotiating too late and too clumsily and criticizes counter-tariffs for hurting Canadian consumers. The autoworkers’ union Unifor and Ontario Premier Doug Ford oppose the electric vehicle deal with China. Still, in an Abacus Data poll in August 2026, 71 percent of Canadians supported Carney’s decision to walk away from the talks.

What do the facts say?

Who is right is ultimately a political question. On some points, though, the numbers help:

Fentanyl: According to US Customs and Border Protection, seizures at the northern border did rise. But in the first three quarters of fiscal year 2025 they amounted to 33.6 kilograms, compared with around 4,000 kilograms at the border with Mexico. The northern border’s share was less than one percent.
Dairy tariffs: The rates above 200 percent are real, but they only apply once certain quotas are exceeded. Within those quotas, US dairy products enter Canada duty-free, and on average only about a quarter of the quotas are used. In 2024 the US exported more than a billion dollars’ worth of dairy products to Canada. The US counters that Canada allocates the quotas in a way that makes them hard to use.
Trade deficit: It comes almost entirely from oil and gas. Excluding energy, the US sells more to Canada than it buys from it. In services, the US runs a surplus anyway.
Legal situation: The US Supreme Court struck down the first tariffs. Whether the new 50 percent tariffs are compatible with the free trade agreement has not yet been tested by a dispute panel. Many trade lawyers consider them a violation; the US government justifies them by saying Canada discriminates against US goods.
Who pays: Economists broadly agree that most of the cost of tariffs falls on businesses and consumers at home, not abroad.

Is a solution in sight?

A quick agreement does not look likely right now. Since Carney broke off talks in late August, there have only been technical discussions and contacts “including at the highest levels,” as US Trade Representative Jamieson Greer said on October 8, 2026. On October 1 he spoke of a few issues that are “quite difficult to resolve.”

What is likely to shape the coming months:

January 1, 2027: The announced 50 percent tariffs on Canadian cars, parts and trucks would be a heavy blow for Ontario. Both sides therefore have a reason to talk before then.
The annual review of the free trade agreement: The agreement runs until 2036, but the US can now question it every year. That gives Washington leverage.
Courts: Further lawsuits against tariffs are under way in the US, and in early 2026 the House of Representatives voted with support from both parties to end the emergency declared against Canada.

A deal would be possible if both sides give ground, for example Canada on dairy quotas and alcohol, the US on steel, aluminum and cars. In August a compromise that would have halved the metal tariffs was already under discussion and then fell through. Nobody can reliably predict the outcome.

Is Canada better off with Europe and other partners?

Canada is trying to become less dependent on the United States. Carney has set the goal of doubling exports to other countries within ten years. Some things have already happened:

Europe: The CETA free trade agreement has applied provisionally since 2017. Since then, trade in goods between the EU and Canada has grown by more than 75 percent. Ten EU countries, including France, Italy and Poland, have not yet ratified CETA. In 2025 the EU and Canada signed a security and defence partnership, and Canada is the first country outside Europe to join the EU’s SAFE defence procurement program. The two sides meet for a summit in Montréal at the end of October 2026.
Asia and Latin America: An agreement with Indonesia was signed in 2025 and one with Ecuador in July 2026. Talks are under way with the ASEAN countries, Mercosur, the Philippines and India. Since January 2026 there has been the electric vehicle and canola deal with China.
Infrastructure: LNG Canada in British Columbia, the first major liquefied natural gas export terminal, has been shipping gas to Asia since 2025, and in late September 2026 the decision was made to double its capacity. A new oil pipeline to the Pacific coast was designated the first project of national interest on October 1, 2026; construction could start in 2027 at the earliest.

The numbers show a shift: in 2025 around one third of Canada’s exports of goods and services went to countries other than the US, the highest share since the early 1980s. For goods alone, the US share fell from 76 to 72.5 percent. A large part of the increase, however, is gold going to the United Kingdom, and such flows can reverse quickly.

The limits are clear: the US is right next door, pipelines, railways and factories are built around that market, and no other partner buys as much oil, gas, electricity and as many cars. Europe can become an important second partner for Canada, but it cannot replace the US. It is more realistic that Canada will spread its risk than turn away from the United States.

What does this mean for your trip to Canada?

Entry: Nothing changes for travellers. The same entry rules apply as before (for example an eTA if you fly in from Europe).
Exchange rate: For travellers paying in euros, Canada has become cheaper: in 2024 one euro bought on average 1.48 Canadian dollars, in September 2026 about 1.61. Against the US dollar the Canadian dollar has moved much less.
Prices on the ground: Some US products in Canada have become more expensive because of the counter-tariffs. In most provinces you will hardly find US wine and spirits anymore. Canadian wines from the Okanagan or the Niagara Peninsula are a good alternative.
Combined trips to the US and Canada: Still no problem. The tariffs apply to goods, not to travellers.

Planning your trip? Our flight prices to Canada show the cheapest months to fly from your city.

Frequently asked questions

Why is the US putting tariffs on Canadian goods?

The US government first cited fentanyl smuggling and the border, later the trade deficit and Canadian barriers to US dairy, alcohol and cars. Canada considers the tariffs unjustified and a violation of the free trade agreement between the two countries.

Are all Canadian goods affected?

No. According to RBC estimates, more than 80 percent of Canadian exports still enter the US duty-free, mainly goods that meet the free trade agreement’s rules and most energy. Steel, aluminum, cars, lumber and the goods on the 50 percent list are hit hard.

What is CUSMA?

CUSMA is the free trade agreement between Canada, the United States and Mexico. It replaced NAFTA in 2020 and is called USMCA in the US. It runs until 2036 but has been reviewed every year since July 2026.

Has a holiday in Canada become more expensive?

For travellers paying in euros, rather not: the euro has gained clearly against the Canadian dollar since 2024. Some US products are more expensive in Canada because of counter-tariffs, and US wine is hard to find in most provinces.

When will the trade war end?

Nobody can say reliably. Key dates are the announced US tariffs on cars from January 1, 2027 and the annual review of the free trade agreement. We update this article as soon as something changes.

Sources

Congressional Research Service: U.S.-Canada Trade Relations and Tariffs (R49349) (opens in a new tab), September 2026
White House: fact sheet on tariffs on Canada, July 2026 (opens in a new tab) and September 2026 (opens in a new tab)
Department of Finance Canada: countermeasures and support package, August 25, 2026 (opens in a new tab)
Global Affairs Canada: statement after the CUSMA joint review, July 2026 (opens in a new tab) and State of Trade 2026 (opens in a new tab)
DLA Piper: United States declines to extend the USMCA (opens in a new tab)
Blakes: timeline of US tariffs on Canada (opens in a new tab)
PwC Canada: the new 10 percent tariff (opens in a new tab)
Davis Wright Tremaine: the 50 percent list (opens in a new tab)
Bank of Canada: rate decision of September 2, 2026 (opens in a new tab), tariff assumptions, July 2026 (opens in a new tab) and exchange rates (opens in a new tab)
Canada Energy Regulator: Canada-US energy trade in 2025 (opens in a new tab)
Canadian Press: fact check on the fentanyl figures (opens in a new tab)
FactCheck.org: Canada’s dairy tariffs (opens in a new tab)
C.D. Howe Institute: the trade deficit without energy (opens in a new tab)
BEA: US trade balance 2025 (opens in a new tab)
Federal Reserve Bank of New York, via Fortune (opens in a new tab), and Kiel Institute (opens in a new tab): who pays the tariffs
Yale Budget Lab, via ABC News (opens in a new tab), and NAHB (opens in a new tab)
RBC Economics: what we know about the new tariffs (opens in a new tab), August 2026
BNN Bloomberg: Greer on difficult issues, October 1, 2026 (opens in a new tab) and Greer on the state of talks, October 8, 2026 (opens in a new tab)
Bloomberg: talks on halving metal tariffs, August 19, 2026 (opens in a new tab)
Global News: why the talks failed (opens in a new tab)
Abacus Data: poll on walking away from the talks (opens in a new tab)
European Commission: CETA trade figures, March 2026 (opens in a new tab), Euronews: why CETA is still not ratified (opens in a new tab), and Council of the EU: Canada joins SAFE (opens in a new tab)
Statistics Canada: labour force, September 2026 (opens in a new tab), GDP 2025 (opens in a new tab) and travel 2025 (opens in a new tab)
Wikipedia: Learning Resources v. Trump (opens in a new tab)