A trade war between the U.S. and Canada is escalating after Prime Minister Mark Carney walked away from negotiations rather than accept a growing list of demands from the Trump administration.
Why it matters: Canada is one of America’s largest trading partners, meaning a prolonged tariff battle could raise prices for businesses and consumers on both sides of the border while adding another source of inflation pressure.
- New 50% U.S. tariffs took effect Saturday on a range of Canadian products, including everything from hockey sticks to Crown Royal whisky, after negotiations between the two countries broke down.
- Canada is now preparing its response. Carney said Ottawa would impose tariffs targeting U.S. steel, dairy products, appliances, agricultural equipment, pulp and paper, and electronics beginning September 8.
Strong stance: “We cannot accept what they’ve offered, and we will not give what they’ve asked,” Carney told reporters Saturday. “Our goal has always been to get the best deal for Canadians, never a deal at any price or any time frame.”
- The tough stance appears to have broad support at home. An Angus Reid Institute poll found more than 75% of Canadians believed Carney was right to walk away from negotiations, even as nearly 90% expressed concern about the economic consequences.
The big picture: Political tensions between the longtime allies have been building amid Trump’s tariffs and repeated comments about Canada becoming the 51st state. With Carney enjoying strong approval ratings and Canadians supporting a tougher approach, Ottawa may have little political incentive to quickly back down.
Impact on Mortgage Rates: A prolonged trade war could complicate the outlook for rates. Tariffs can increase the cost of imported goods and add to inflation, potentially pushing Treasury yields and mortgage rates higher. At the same time, a severe hit to economic growth could eventually have the opposite effect.
The bottom line: What started as a trade negotiation is increasingly looking like a trade war. With 50% U.S. tariffs already in place and Canadian retaliation coming September 8, neither side appears ready to blink.