On September 8, the United States issued a series of new trade measures against Canada. These are President Trump’s response to Canada‘s retaliation over the new U.S. tariffs imposed in late August after Canada walked away from the trade negotiations table.
In a trade war, this kind of tit-for-tat retaliation leaves both sides wounded. It’s not clear at the moment if Canada plans to retaliate further. However, the new U.S. actions are incremental enough that they may precipitate a period of calm until after the federal budget and the U.S. mid-term elections in November.
A quick recap
Been sleeping through the trade war, so far? Let’s catch you up. The Trump administration is using tariffs as an economic weapon against Canada (and other countries). There are different types of tariffs and it’s easy to get lost (they are outlined in more detail here).
In 2025, the tariffs on Canada were about key industrial sectors: autos, steel and aluminum, and softwood lumber, primarily. In these areas, Trump wants to de-industrialize Canada and bring that production south of the border. Canada retaliated with its own tariffs to level the playing field and ensure production would not leak to the U.S.
This precipitated the new “section 338” tariffs, based on the infamous 1930 Smoot-Hawley Tariff Act. Trump’s usage is ostensibly responding to alleged discrimination in alcoholic beverages and motor vehicles (essentially Canada’s counter-measures on the first round of sectoral tariffs) as well as dairy (allegedly due to Canada’s supply management system).
The section 338 tariffs went into effect in late August, and go after sectors far beyond where the U.S. government alleged discriminatory behaviour. The tariffs apply to a wide range of agricultural commodities and forestry products, as well as consumer electronics, clothing/textiles, furniture, sporting goods (hockey sticks) and essential oils.
Canada retaliated as of September 8 with counter-tariffs that mostly line up in the same areas as the section 338 tariffs. President Trump responded the same day with the current tariff escalation.
Trump is seeking a new legal basis in section 338 to use trade as an economic weapon, for use at his sole discretion. He is essentially setting up a shakedown for access to the U.S. market. The earlier 2025 Trump justification for using tariffs to respond to “international emergencies” was struck down by the U.S. Supreme Court in February.
The Canada-United States-Mexico Agreement (CUSMA) served as a shield for Canada from those broader Trump tariffs, which hit other countries in 2025. That shield is now gone, as Trump rejected a renewal of the CUSMA in July, and was demanding concessions from both Canada and Mexico to continue the agreement.
It’s important to remember that the “trade deal” Canada walked away from at the end of August was itself just an appetizer, not the full meal of CUSMA renegotiation. The U.S. has wanted concessions from Canada at every stage, and Canada had already conceded in areas like eliminating its proposed Digital Services Tax.
Trump’s new trade escalation
In its latest trade declarations, the Trump administration has shifted from 50 per cent tariffs to outright bans on certain imports under section 338. The most significant is alcoholic beverages, which are excluded for retail-ready packaged products (cans and bottles), although bulk shipments are not excluded. Some other products like whey, molasses and non-alcoholic beer, which had previously been at the 50 per cent tariff, would also be excluded from U.S. imports.
For products that were already facing the painful 50 per cent tariff, the damage is done. Outright bans will not do much more additional damage, at least if there are reasonable cost local alternatives.
In addition, the U.S. is banning import of motorcycles and mopeds. These had not previously been tariffed under section 338, and this appears to be a naked attack on Quebec’s industry. More broadly, Trump intends to exclude products made in Canada from U.S. government procurement opportunities.
Trump also increased the list of products under the section 338 tariffs, and these would require 30 days before they are implemented. The main new category is cheese and related products, as well as water craft. The remainder are largely extensions of the product lines that were already targeted. These include paper and wood products, iron steel, and aluminum products.
In the fine print, the September 8 announcement also removed some products from the section 338 tariffs. These include road salt, cement, lead, fishing rods, bedsheets, and toilet paper. There has clearly been some pushback at the state level about the increased costs associated with the 50 per cent tariffs.
This should give us a clue about targeted strategic retaliation. For example, imagine if the Canadian government reinstated the 50 per cent tariff as an export tax for road salt and cement, and just for fun, a 200 per cent export tax on toilet paper. Canada has some leverage here, and as the show says, winter is coming.
An analysis in the Globe and Mail found that the value of previously-tariffed goods removed from the tariff (concrete, road salt, etc) is roughly the same value as the goods added to the list this week. In other words, the new measures are essentially a wash economically.
Canada still has a lot more firepower available should we want to entertain a much more intensive trade war. For example, oil and gas, electricity and potash are often cited as areas that have been specifically not targeted for tariffs by the United States due to their importance to the U.S. economy.
That said, I suspect this will be the end of the tit-for-tat retaliation. The new U.S. measures are largely incremental in their economic impact and well within Canada’s ability to provide targeted supports where needed.
A pause over the next couple of months until after U.S. mid-term elections would also be welcome for many Americans. Trump’s trade wars have posed real economic costs and major divisions are appearing among U.S. states and within the Republican party.
Refocusing the federal agenda
The good news is that the Canadian economy is still doing much better than anyone anticipated at the outset of this trade war in early 2025. Canada is taking a hit to exporters affected by the tariff and non-tariff measures, but this is narrowly concentrated in certain sectors. But GDP and employment numbers have been solid, and even Canada’s merchandise trade balance has been in surplus, largely due to high oil prices from the Iran War.
Canada is also paying more for U.S. imports due to its counter-tariffs. Ideally, Canada’s counter-tariffs level the playing field with the U.S. tariffs, so that Canadian producers are not disadvantaged vis-à-vis U.S. producers, but also create incentives to replace U.S. imports with domestic production (and where necessary, other countries).
The key policy area to consider is whether targeted support to businesses and workers adversely affected by the U.S. tariffs are sufficient. Channelling sufficient resources in those areas should be accompanied by detailed sectoral strategies to boost domestic self-reliance. For workers, the federal government has only announced some modest changes that tinker around the edges of the unemployment insurance system.
The federal government’s macroeconomic strategy has been to counter a potential negative hit on our trade balance with increased domestic (public and private) and foreign investment. This week’s investment summit is timely for its potential medium-term macroeconomic impacts, largely through the channel of foreign investment.
The big danger is that the federal government starts (misguidedly) pushing privatization of public assets as an investment channel. It’s highly problematic to the extent that foreign entities could have controlling stakes in key public infrastructure like airports and other major capital assets.
In addition, the feds’ “all of the above” investment play emphasizes the same old big resource projects that would deepen our reliance on fossil fuels at a moment when climate breakdown is happening on a global scale. It’s not obvious that foreign investors will even blink at some projects that have long been deemed uneconomic due to the ongoing global energy transition.
The current moment needs a clear, progressive alternative to privatization and extraction. A new trade and industrial policy that accepts a return to free trade with the United States is no longer on the table. Even if there is a political shift in Congress in 2026 and the Presidency in 2028, protectionist sentiments are now baked into the U.S. political system.
Nostalgia is not a strategy, as PM Carney has said. However, Carney’s strategy is itself a form of nostalgia for the golden age of neoliberalism twenty years ago—the same agenda that led to the rise of Donald Trump.
About the author
Marc Lee
Marc Lee is a Senior Economist with the Canadian Centre for Policy Alternatives. Marc joined the CCPA’s British Columbia office in 1998, and is one of Canada’s leading progressive commentators on economic and environmental policy issues. From 2009 to 2015, Marc led the CCPA’s Climate Justice Project (CJP), which published a wide range of research on fair and effective approaches to climate action through integrating principles of social justice. Marc continues to write about climate and energy policy, strategies for affordable housing, federal and provincial budgets and macroeconomics. Marc has an MA in Economics from Simon Fraser University and a BA in Economics from the University of Western Ontario. Marc is a past chair of the Progressive Economics Forum, a national network of heterodox economists. He also served as a Visiting Professor at Simon Fraser University’s School of Public Policy in 2024 to 2025.
