Canada braces for 50% US tariffs, with negotiators still far apart

Canada faces a new round of 50% US tariffs this week that businesses said could cause job losses in some already struggling industries, while complicating broader negotiations over the future of North America's free trade agreement.

US President Donald Trump last month invoked Section 338 of a Depression-era US law called the Tariff Act of 1930 to impose duties starting on Wednesday on a range of Canadian imports including wine, furniture, dairy products, cement, clothing, fishing rods, hockey equipment and some other goods.

That provision permits the US president to impose punitive tariffs of up to 50% against trading partners deemed to have discriminated against US goods.

Trump's unprecedented use of this power is part of his hardline approach towards trade with Canada since he returned to the presidency last year. Canada is the No. 2 trading partner of the United States, behind only Mexico.

The tariffs would cover nearly $20 billion of Canadian goods, amounting to about 5.2% of the $383 billion worth of goods the United States imported from Canada in 2025, according to US Census Bureau data.

Asked about the looming tariffs and prospects for a deal, Prime Minister Mark Carney declined on Monday to discuss details of what he described as intense and delicate negotiations with the United States. Carney said he expects to speak with Trump before the deadline.

Canada's minister responsible for US trade relations, Dominic LeBlanc, and its chief trade negotiator, Janice Charette, have stepped up talks with their US counterparts.

Canada and the US are still far from reaching a draft trade deal despite regular meetings, LeBlanc told an advisory committee on Friday, according to a source briefed on the matter.

Auto tariffs on Canadian-made vehicles have emerged as a key sticking point in the talks, two automotive industry sources told Reuters on Monday.

Unlike many of Trump's earlier tariffs, the new duties would apply even to products that qualify for preferential treatment under the US-Mexico-Canada Agreement, which has shielded much of Canadian trade from tariffs, posing an added risk to Canada's economy.

Last month, Trump refused to extend the USMCA agreement for another 16 years, subjecting the pact to annual reviews, a process that is likely to prolong the trade uncertainty which has sapped investment and job growth in Canada.

Individual sectors could face the brunt of these tariffs, leading to more job losses and lower growth. Canada's struggling wood product sector and the wine industry, already affected by raging wildfires in the country's west, could be hit hard by the new tariffs.

'Economically noncompetitive'

Alain Ouzilleau, owner of Cabico Ltd, a custom kitchen cabinet brand in Canada, said that if the tariffs are imposed the consequences for the industry could be severe.

"A 50% tariff is simply not something that manufacturers can absorb, nor can we reasonably expect our US customers to absorb it. ... It could make certain Canadian-made products economically noncompetitive in the US market virtually overnight," Ouzilleau said.

Small and medium-sized businesses could be particularly vulnerable because many rely heavily on tariff-free access to US customers.

"If the tariffs come into effect ... they will cause massive dislocation for small businesses that rely on US clients and American buyers that rely on Canadian suppliers," said Dan Kelly, president of the Canadian Federation of Independent Business.

Broader talks at stake

The tariffs would still maintain Canada as one of the lowest tariff rate countries to export to the United States, according to Joseph Steinberg, a University of Toronto economics professor. Steinberg said the greater concern is whether another escalation in the US-Canada trade dispute halts talks over the broader USMCA agreement and what happens to the affected sectors.

"In the macroeconomic sense, the tariffs are actually not that big of a deal," Steinberg said.

LeBlanc has met with US Trade Representative Jamieson Greer six times, including a virtual meeting on Sunday and a meeting on Monday, in four weeks as the two nations seek an agreement before Wednesday's deadline.

Greer has pressed Canada over its dairy system and the removal of US alcohol from stores in several provinces, issues that trade experts expect to feature prominently in any agreement.

Doug Ford, the premier of Canada's largest province Ontario and one of the most vocal opponents of Trump's tariffs, said last week that he would bring US alcohol back on shelves if Canada gets a fair deal. A new tariff, however, could dissuade the provinces from doing that.

Ted McKinney, CEO of the US National Association of State Departments of Agriculture, called dairy the most contentious agricultural issue.

"It is more than a sticking point," McKinney said. "It is probably the major issue."

The Tariff Act of 1930 and its Section 338 are best known for massive US tariff increases and subsequent retaliation that economic historians say worsened the Great Depression of the 1930s.