Trump hits Canada with 50% tariffs as Carney seeks talks

The 50% tariff is the steepest levied against a U.S. ally under a Depression-era law, threatening to unravel North American trade.

President Donald Trump imposed 50% tariffs on most Canadian goods Monday under Section 338 of the 1930 Tariff Act, citing discrimination against U.S. autos, alcohol and dairy, as Prime Minister Mark Carney signaled openness to negotiations.

"Canada has made a series of detailed and comprehensive proposals to resolve this dispute and to modernize CUSMA," Carney said in a statement. "We stand ready to engage intensively to address outstanding issues with the U.S."

The tariffs, effective in 30 days, cover wine, dairy, cement, furniture and ice hockey gear while exempting energy products, potash, fish and critical minerals. The action follows Trump's earlier 25% levy on Canadian autos, which Carney said Canada "merely matched" with its own 25% tariff on U.S. vehicles not qualifying for preferential USMCA treatment. The 2020 trade pact was not renewed by the U.S., triggering negotiations that could run until 2036.

The escalation risks reigniting a trade war that could raise costs for U.S. households and disrupt cross-border supply chains in automotive, agriculture and manufacturing. "This trade dispute has raised costs for families, particularly in the U.S.," Carney said.

The White House invoked Section 338, an obscure Great Depression-era law that allows presidents to impose tariffs up to 50% on countries deemed to discriminate against U.S. goods. The provision had been targeted for repeal by Democratic lawmakers last year over concerns Trump could use it to destabilize the economy.

"This is the nuclear option for Trump tariffs," said Scott Lincicome, vice president of general economics at the Cato Institute. "The invocation of 338 injects massive uncertainty into the global economy."

U.S. Trade Representative Jamieson Greer defended the action, saying Canada "continues to retaliate against the United States for its efforts to rebalance trade." He cited Canada's removal of U.S. alcohol products from shelves, preferential dairy market access for the European Union, and a cap on U.S. vehicle exports.

Ontario Premier Doug Ford took a harder line than Carney, posting on social media: "If these tariffs proceed, Canada should respond tariff for tariff, dollar for dollar."

The last major U.S. tariff escalation against an ally came in April 2025, when Trump's "Liberation Day" tariffs provoked a financial market meltdown over inflation and recession fears, prompting him to walk back the rates for a period of negotiation. The Supreme Court ruled in February that Trump lacked the legal authority to impose tariffs by declaring an economic emergency, forcing the administration to find alternative legal authorities — including Section 338.

The tariffs could weaken the Canadian dollar against the greenback while pushing safe-haven assets higher. The Distilled Spirits Council of the United States called for a negotiated solution, with CEO Chris Swonger urging policymakers "to pursue a negotiated solution that restores market access for U.S. spirits and avoids further harm to the U.S. hospitality sector."

Candace Laing, CEO of the Canadian Chamber of Commerce, said the two countries need to use the 30-day window before the tariffs start "to make meaningful progress in advancing formal talks."

If no deal is reached within 30 days, the 50% tariffs will take full effect, potentially triggering retaliatory measures from Canada that could target U.S. agricultural and manufacturing exports. The political stakes are high for Trump ahead of November's midterm elections, with inflation already rising since he took office — driven in part by tariffs and higher oil prices from the conflict in Iran.

This article is for informational purposes only and does not constitute investment advice.