“Retaliation Over Negotiation”: Canada Strikes Back at 50% U.S. Tariffs as Trade Conflict Escalates Amid Push to Distance Itself From Washington

U.S. imposes 50% tariffs on Canada under Section 338 of the Tariff Act
Canada opts for “all-out confrontation” over further talks as it seeks to reduce U.S. dependence
U.S. private-sector companies also encounter trade barriers in Canada

Canada is imposing sweeping retaliatory tariffs on U.S. products. After the United States levied a steep 50% tariff on Canadian goods, citing Canada’s trade practices, Ottawa is responding head-on rather than exploring room for further negotiations. The move is widely seen as reflecting Canadian Prime Minister Mark Carney’s hard-line policy stance, which treats economic integration with the United States itself as a source of vulnerability.

Canada Announces Retaliatory Tariffs

According to Reuters on August 25, local time, the Canadian government will impose retaliatory tariffs of 15% to 50% on approximately 700 categories of U.S. products worth $19.9 billion, effective September 8. Existing retaliatory tariffs on steel and aluminum products will be doubled to 50%, while U.S.-made furniture and apparel will be subject to the same rate. Cheese, home appliances, certain seafood products, and derivative steel and aluminum products will face a 25% tariff, while machinery, industrial tools, and agricultural equipment will be subject to a 15% tariff. Canadian Industry Minister Mélanie Joly said the tariffs were intended both to protect Canadian businesses and to exert political pressure on the United States ahead of the November midterm elections. The strategy is to target goods produced in specific U.S. states so that companies and voters in those regions directly feel the impact.

Canada’s hard-line response stems from the tariffs recently imposed by the United States. The U.S. government announced last month that it would levy a 50% tariff on $14.4 billion worth of Canadian goods, citing concerns over Canada’s trade practices. The two countries subsequently held negotiations aimed at reaching a comprehensive trade agreement before the tariffs took effect this month, but failed to find common ground after the U.S. side introduced new conditions at the last minute that extended beyond the existing scope of negotiations. The Canadian government said on August 21 that it had suspended the talks after determining that Washington’s demands could harm Canadian workers, businesses, strategic industries, and national interests. The United States began applying the tariffs to Canadian goods as scheduled on August 22.

Trajectory of the U.S.-Canada Tariff Conflict

This is not the first time the United States has applied tariff pressure on Canada. U.S. President Donald Trump has used steep tariffs as a negotiating instrument since the outset of his second administration. On his first day in office, January 20 last year, Trump warned that he could impose a 25% tariff on goods from Canada and Mexico. In March of the same year, he imposed a 25% tariff on Canadian goods and a 10% tariff on energy products. Canada responded by applying a 25% retaliatory tariff to $21.6 billion worth of U.S. goods. Product-specific tariff pressure also expanded around the same period. In March last year, the United States imposed a 25% tariff on steel and aluminum from all countries, including Canada, followed by a 25% tariff on imported automobiles in April.

Canada subsequently imposed an additional 25% retaliatory tariff on $21.5 billion worth of products, including U.S. steel and aluminum, and applied the same rate to U.S.-made vehicles that did not comply with the United States-Mexico-Canada Agreement (USMCA). In August last year, the Trump administration raised the tariff on non-USMCA-compliant Canadian goods from 25% to 35%, arguing that Canada had failed to cooperate sufficiently in curbing fentanyl inflows and had retaliated against U.S. tariff measures. At the time, Washington also threatened to impose an additional 40% tariff on Canadian goods found to have been transshipped to evade tariffs.

Table 1. U.S. Tariff Pressure on Canada

Debate Erupts Over Section 338 of the U.S. Tariff Act

After a series of smaller disputes, the two countries have again entered an all-out confrontation following Washington’s latest tariff action. The legal basis for the tariffs is Section 338 of the Tariff Act of 1930, also known as the Smoot-Hawley Tariff Act. The provision allows the president to impose additional tariffs of up to 50% on products from a country deemed to discriminate against U.S. commerce—for example, by treating American goods or companies less favorably than those of third countries—to offset the resulting disadvantage. The Office of the United States Trade Representative (USTR) cited Canada’s retaliatory tariffs on U.S. automobiles, the removal of U.S. alcoholic beverages from retail shelves, and the allegedly less favorable treatment of U.S. products relative to European Union products in Canada’s dairy market as grounds for invoking Section 338.

The problem is that Section 338 has effectively lain dormant for nearly a century. Although its potential application against countries including Spain and China was considered during the 1930s and 1940s after it was incorporated into the Smoot-Hawley Tariff Act in 1930, it has never actually been used to impose tariffs. The legality of the latest measure has consequently become a subject of intense debate in legal circles. Ryan Majerus, an international trade attorney at King & Spalding, told The Washington Post that imposing tariffs under Section 338 was a “completely untested” approach. Peter Harrell, a researcher at Georgetown University’s Institute of International Economic Law, and Jennifer Hillman, a professor at Georgetown University Law Center, also noted that although Washington cited Canada’s automobile, alcoholic-beverage, and dairy policies, the products ultimately subjected to tariffs included hockey sticks, cement, and other goods with little direct connection to those policies. Because tariff revenue could far exceed the damages claimed by the U.S. government, critics argue that the measure may have exceeded the statutory limit of merely “offsetting” the alleged harm.

Carney “Dependence on the U.S. Is a Weakness”

Against this backdrop, Canada has chosen the hard-line option of retaliatory tariffs instead of pursuing further negotiations with the United States. The move is widely interpreted as reflecting Prime Minister Mark Carney’s political objective of reducing Canada’s dependence on its southern neighbor. In a video address in April, Carney said, “The United States has changed, and we must respond.” He emphasized that “many of our strengths based on our close relationship with the United States have now become vulnerabilities,” describing them as “vulnerabilities that we must address.” He added that “the world has become more dangerous and divided,” arguing that “the United States has fundamentally transformed its approach to trade, raising tariffs to levels not seen since the Great Depression.”

Carney’s rhetoric has grown markedly sharper as U.S. trade pressure has intensified. Following Washington’s announcement last month that it would impose a 50% tariff, he described U.S. trade measures as “unilateral” and said Canada would strengthen its domestic economic foundations and diversify its overseas partners regardless of the outcome of negotiations. After suspending trade talks with the United States on August 21, he made clear that “we knew from the outset that the United States had changed and that there would be no return to the old relationship,” adding that safeguarding Canada’s resilience, independence, and sovereignty took precedence over reaching an agreement with Washington. The following day, he directly criticized the United States for “weaponizing economic integration by imposing tariffs on its allies.”

Private Companies Caught in the Crossfire

Canada’s confrontational stance extends beyond bilateral merchandise trade and is also evident in mounting pressure on U.S. private-sector companies. In May, the Canadian Radio-television and Telecommunications Commission (CRTC) unveiled new regulations requiring foreign online streaming services—including Netflix, Disney+, and Amazon Prime Video—with annual Canadian broadcasting revenue exceeding $18 million to allocate 15% of their local revenue to Canadian programming expenditures (CPE). The measure effectively triples their contribution burden from the existing 5%. Large operators with annual Canadian revenue of at least $72 million must also allocate at least 30% of their total expenditures to “enhanced partnerships” in which Canadian producers retain a majority share of the copyright. The CRTC expects the measures to sustain an annual content-investment base of more than $1.44 billion.

The United States immediately treated the measure as a trade issue. Pete Hoekstra, the U.S. ambassador to Canada, wrote on X, formerly Twitter, that “the CRTC is targeting U.S. companies with taxes and erecting new discriminatory trade barriers,” criticizing the decision for worsening an already unfavorable investment environment for U.S. companies in Canada. The U.S. content industry also mounted a strong backlash. The Motion Picture Association (MPA), whose members include Netflix, Disney, Amazon MGM Studios, Paramount, Sony, Universal, and Warner Bros. Discovery, said in a statement following the CRTC’s decision that the regulator had imposed “unprecedented, unnecessary, and discriminatory investment obligations” on U.S. streaming companies. Charles Rivkin, chairman and chief executive officer of the MPA, also warned that Canada’s regulations could violate its obligations under the USMCA and discourage further investment and innovation.