Canadian Prime Minister Mark Carney is set to meet US President Donald Trump on Tuesday in what promises to be one of the most contentious meetings between the two leaders in recent years. This high-stakes encounter comes against the backdrop of escalating trade tensions and the damaging impact of Trump’s tariffs on both nations’ economies.
Changing Dynamics in Canada-US Trade Relations
Canada, America’s second-largest trading partner and a key ally in national security and commerce, has seen its relationship with the US strained under Trump’s aggressive tariff policies. This trade war has forced Canada to retaliate, further heightening the rift. In a sharp rebuke to Trump, Carney’s Liberal Party won the recent federal elections, which sets the stage for a collision between the newly elected Canadian government and the Trump administration.
During his victory speech, Carney said, “We are over the shock of the American betrayal but we should never forget the lessons,” signaling that the relationship between the two countries may never return to its former harmony.
Impact of Trump’s Tariffs on Both Economies
Under the United States-Mexico-Canada Agreement (USMCA), which replaced the old North American Free Trade Agreement (NAFTA), both countries had a more cooperative trade relationship. However, the 25% tariffs introduced by Trump on various goods, including cars, steel, and aluminum, have created major disruptions in trade. While the tariffs were briefly suspended in March after both countries agreed to take action on illegal immigration and fentanyl, they are still in effect for non-compliant imports.
Canada has responded with its own tariffs, levying a 25% tax on $30 billion worth of US imports, including steel and automobiles. The fallout of this trade war has been significant for both economies. In fact, the United States exported over $349 billion to Canada in 2024, primarily in energy and cars, while Canada remains the largest export destination for US goods, accounting for 14% of all US trade.
Disruptions Across Multiple Sectors
The trade war’s effects have reverberated across industries on both sides of the border. General Motors, for instance, is set to lose between $4 billion and $5 billion this year due to tariffs. At the same time, US businesses that rely on cross-border tourism are feeling the pinch, particularly in regions such as Northern Washington and Southern California.
Moreover, Canadians have increasingly turned away from purchasing American-made goods. Products like California tomatoes, Ohio-made pepperoni, and even Coca Cola are being swapped out for alternatives produced within Canada or imported from other countries. This shift in consumer behavior has further undermined the US economy’s access to the Canadian market, contributing to a decline in demand for US products.
Challenges for US and Canadian Business Owners
On a more personal level, business owners like Beth Fynbo Benike, who runs a baby products company, are facing heightened costs due to tariffs. Benike’s company now faces an additional $230,000 in shipping fees for imported goods, highlighting the significant impact these levies have on smaller enterprises.
The Federal Reserve’s Beige Book also reported a reduction in cross-border tourism, a hit that has left some retailers and hospitality businesses struggling. This decline in tourism, along with a growing reluctance among Canadians to buy American products, suggests a deepening economic divide caused by the tariff battle.
The Path Forward for Canada and the US
Despite these challenges, Canada’s government continues to resist the tariffs while also seeking ways to mitigate the damage caused by Trump’s policies. Carney’s upcoming meeting with Trump could pave the way for discussions on how to de-escalate the trade war, but with both sides feeling the strain, it remains unclear how the situation will evolve.
As Carney prepares to meet Trump, the world watches closely to see if the two countries can find a way to resolve their trade differences or if further tensions will escalate in the months ahead.
