Ongoing economic friction between the US and Canada continues to escalate, with fresh tariffs causing significant disruption to North American industries and shifting established trade patterns.
Eighteen months have passed since President Donald Trump re-entered the White House and introduced broad tariffs against trading partners, yet the trade standoff between the US and Canada persists. In the most recent development, the US implemented a 50% tariff on about C$28 billion ($20 billion; £15 billion) in Canadian goods last week, leading Canada to respond swiftly with equivalent counter-tariffs on US products.
Core Canadian industries hit hardest
Industries that have long anchored Canada’s economy—steel, aluminium, lumber, and automotive manufacturing—are currently bearing the brunt of the tariff conflict. Provinces such as Ontario and Quebec, which rely heavily on manufacturing connections with the US, have been most affected. Ontario, considered Canada’s industrial center, has faced rising layoffs and production slowdowns since early 2025, with losses in manufacturing employment reaching tens of thousands. Quebec’s metals sector has experienced a 36% decrease in metal exports from February 2025 to 2026, and sector job numbers have fallen by 3.6%, according to data released in July.
The Royal Bank of Canada has highlighted that Ontario and Quebec are the provinces most severely impacted by US trade tariffs. Other provinces, including Newfoundland and Labrador, New Brunswick, Alberta, Saskatchewan, and Prince Edward Island, are less exposed. While the August 22 implementation of new US tariffs will have some impact across all provinces, projections show that the largest burden will fall on British Columbia, Quebec, and Ontario.
US swing states placed under pressure by Canadian countermeasures
Despite the US economy being much larger than Canada’s, Canadian retaliation is targeting several vulnerable American states. Canada’s counter-tariffs on C$28 billion in US exports, effective as of September 8, are expected to hit Ohio the hardest, with 12% (C$3.2 billion) of its exports affected. Illinois and Pennsylvania are also targeted, with measures spanning from steel and machinery to farm equipment.
Highlighting the political context, economist Derek Holt of Scotiabank notes that Canada’s strategy “very deliberately” zeroes in on swing states as the US approaches midterm elections. The economic pain is expected to be most severe for Ohio’s steelmakers and the agricultural equipment sector in Illinois, which includes the John Deere operations.
Trade patterns adjust as tariff rates rise
Prime Minister Carney has recognized the critical nature of the trade dispute, pointing out that US tariffs on Canada were once some of the lowest globally, a situation that is rapidly changing. According to the Royal Bank of Canada, the mean effective US tariff on Canadian goods increased from 2.9% in June to 5.7%. This figure now edges ahead of Mexico and approaches the average imposed on the UK (6.2%) and Vietnam, with only China facing a steeper average effective tariff at 20.5%.
Canada’s trade with the US has been closely intertwined since the 1990s, as over 70% of Canadian exports are sent south. Now, facing ongoing tariffs, Canadian businesses are diversifying their markets. The Bank of Canada notes a rise in exports to non-US countries, and Prime Minister Carney has pledged to double overseas sales beyond the US within a decade. A case in point: Outclass, a menswear company based in Toronto, has begun cultivating business relationships in Europe, with favorable feedback from buyers in cities such as Paris.
However, shifting away from the US market is proving to be a difficult adjustment for many in Ontario’s traditional manufacturing belt—cities like Oshawa, London, and Kitchener-Cambridge-Waterloo have seen limited progress in making up for lost US sales, as outlined in a report from the Canadian Chamber of Commerce.
Layoffs and higher costs for households
Rising tariffs have led to significant job losses in both countries. In Canada, about 55,000 manufacturing jobs vanished between January 2025 and January 2026, based on data from the Bank of Canada. Should the current round of US tariffs remain, Trevor Tombe, an economist, estimates total Canadian job losses could rise to 90,000. The end of the USMCA agreement would likely deepen these losses, particularly in manufacturing industries that depend on cross-border commerce.
American sectors are contending with similar challenges. The Center for American Progress points to the “Liberation Day” tariffs imposed by the Trump administration, noting tens of thousands of lost jobs across US manufacturing, warehousing, and transportation over the past year.
Tariffs have also driven up consumer spending. The Tax Foundation calculates that average household costs in the US will rise by $840 this year due to price hikes from tariffs. In contrast, Canada’s approach to counter-tariffs is more selective to reduce consumer impact, yet higher manufacturing and supply expenses remain a challenge for businesses on both sides of the border.
Long-term effects and future outlook
Despite headwinds, Canada has demonstrated some economic resilience. In 2025, foreign direct investment climbed to C$96.8 billion, its highest level since 2007. Canada reported a 3.3% increase in GDP for the second quarter of 2026, easing near-term fears of recession. The government aims to build on this positive momentum by hosting the first-ever “Canada Investment Summit” in Toronto in September to attract additional international investors and business opportunities.
However, uncertainty persists as the outlook for the US-Canada trade relationship and the stability of the USMCA remain unclear. Both nations face difficult choices ahead, with no quick solution in sight, while critical industries and workers continue to bear the consequences.