U.S.-Canada trade tensions have escalated once again. The United States has imposed an additional 50% tariff on certain Canadian imports. Canada has responded by raising its retaliatory tariffs on U.S. steel and aluminum products and expanding them to cover furniture, clothing, video games, smartphones, and other goods. Shu-Fei Yang, Deputy Director of the Regional Development Study Center at the Chung-Hua Institution for Economic Research (CIER), said the two countries’ 50% tariffs would significantly disrupt bilateral trade and are unlikely to remain in place for long. The two sides will ultimately return to negotiations to ease tensions. However, the Trump administration has severely damaged the mutual trust that the United States and Canada built over the years. Canada will inevitably reassess its dependence on the United States.
Yang said the recent breakdown in U.S.-Canada negotiations involved not only tariffs but also the joint review of the United States-Mexico-Canada Agreement (USMCA). The United States believes the current agreement has not generated sufficient benefits for the country. It is seeking higher rules-of-origin and U.S. value-content thresholds, along with additional supply chain and economic security requirements, to strengthen domestic manufacturing and production.
USMCA Joint Review Becomes a U.S. Pressure Tool as Supply Chains and Economic Security Take Center Stage
The USMCA replaced the North American Free Trade Agreement (NAFTA) in 2020 under the Trump administration and introduced stricter rules of origin and higher thresholds in certain areas. Yang said the United States now seeks further revisions through the joint review mechanism, reflecting its increasingly stringent demands regarding North American supply chains and trade rules.
Under the USMCA, the parties must conduct their first joint review six years after the agreement enters into force. If they fail to reach a consensus, annual reviews will take place over the following 10 years. If no consensus is ultimately reached, the agreement will expire in 2036. Yang said the joint review is no longer merely a mechanism for assessing the implementation of a free trade agreement. It is increasingly becoming an important negotiating tool for the United States to pressure Canada and Mexico into adjusting their trade and supply chain policies.
Negotiations between the United States and Canada had initially made some progress. In July, however, the United States invoked Section 338 of the Tariff Act of 1930 to impose a 50% tariff on certain Canadian products. It also provided a 30-day grace period, seeking to use the deadline to pressure Canada into making concessions. Subsequent negotiations again broke down, causing the tariffs to take effect and U.S.-Canada relations to deteriorate rapidly.
Yang said a 50% tariff is exceptionally high and will raise business costs while severely disrupting bilateral trade. The United States and Canada are therefore unlikely to maintain their reciprocal tariffs for an extended period. They may eventually return to the negotiating table and seek tariff reductions. The more consequential issue, however, is the lasting damage that the tariff conflict has inflicted on bilateral trust.
Canada Faces U.S. Policy Risks: Reducing Single-Market Dependence Becomes Crucial
Yang said the return of the Trump administration has severely damaged trust between the United States and Canada. Even if the two countries resume negotiations and continue to uphold the USMCA, their relationship is unlikely to return to its previous form. Canada has traditionally maintained close economic and trade ties with the United States and remains highly dependent on the U.S. market and supply chains. It will inevitably take a more cautious approach to future shifts in U.S. policy.
In addition to de-risking its economic ties with China and other markets, Canada must account for U.S. policy risks. It should actively reduce its dependence on any single market, expand its network of trade and supply chain partners, and develop more independent economic and trade leverage.
Yang emphasized that the implications of the U.S.-Canada tariff conflict extend beyond when the 50% tariffs will be lifted. The dispute also highlights the policy risks arising from deep economic and trade dependence. Canada must determine how to preserve cooperation within North American supply chains while diversifying its markets and supply networks and maintaining policy flexibility.
Author: CIER Editorial Team
Date: September 1, 2026