The escalating, personal, and vitriolic rhetoric between President Donald Trump and Prime Minister Mark Carney signals profound shifts in the close friendship and alliance between the two neighboring countries. At the center of this is the U.S.–Canada trade relationship in which enormous economic stakes are involved. This trade link is not merely a bilateral concern but a critical pillar of global supply chain security and, by extension, the broader North American economic order. Eleven months ago, in March 2025, I wrote a Fulcrum story highlighting Canadian tariffs, but as we move into early 2026, the dynamics have intensified, and the implications are more significant than ever.
This update extends the analysis to early 2026.
The Landscape Since the 2025 Fulcrum Reporting
When the original column ran, the tariff fight was already escalating. By March 2025, the U.S.–Canada trade volume stood at approximately $700 billion annually, with a 25% tariff on U.S. steel and aluminum, and a 25% tariff on foreign-made automobiles imposed by Trump. Canada retaliated with its own 25% tariffs on a wide range of U.S. goods, from orange juice to appliances, and signaled plans to expand them dramatically. This backdrop sets the stage for tracking the year-over-year escalation.
Since then, the conflict has unfolded in two primary directions: the United States has escalated its measures, driven by electoral pressures and bolstered by concerns over maintaining economic supremacy. Meanwhile, Canada has de-escalated its actions, largely due to its supply-chain dependencies and the need to mitigate economic disruptions. The changes underscore the strategic divergence between the two countries.
U.S. Tariffs on Canada as of Early 2026
Steel and Aluminum (25%) — Still the Core Flashpoint
Currently, Canadian steel is subject to a complex multi-layered system, but imports of raw and semi-processed steel products are currently subject to a 50% tariff with some exemptions under the (CUSMA/USMCA) still provided.
The bottom line is that the Trump administration has tightened enforcement and closed exemptions, making the tariffs more binding than they were a year ago.
The bottom line is that the Trump administration has tightened enforcement and closed exemptions, making the tariffs more binding than they were a year ago.
Automobiles (25%) — A Continuing Pressure Point
The United States continues to impose a 25% tariff on Canadian automobiles. This measure remains one of the most politically contentious aspects of the dispute, due to the highly integrated North American automotive supply chain.
The New Threat: A 100% Blanket Tariff
In January 2026, President Trump announced the possibility of a 100% tariff on all Canadian imports should Canada finalize a trade agreement with China. Such a tariff would effectively serve as a tax on United States consumers and businesses. Analysts estimate the following impacts:
- The U.S. imported roughly $400 billion in Canadian goods in 2025.
- A 100% tariff could raise inflation by 1.5–2% almost immediately.
- Energy and auto prices would rise sharply, given Canada’s role as a top supplier of crude oil, natural gas, and auto parts.
This development represents the most significant escalation since the dispute began. To understand its magnitude, consider the 1990s softwood lumber dispute, a major trade clash that significantly impacted both countries' economies. However, the current situation poses a more serious threat due to its potential for a 100% blanket tariff on all Canadian imports, which could severely disrupt trade dynamics and economic stability between the U.S. and Canada. This truly unprecedented scenario underscores the increased stakes of the ongoing conflict.
Canada’s Tariffs on the U.S. as of Early 2026
Currently, Canada maintains significant retaliatory tariffs against the U.S.
Tariffs Still in Place
- Steel: 25%, and effective December 2025, a separate tariff on derivative steel products went into effect, impacting roughly $223 billion of U.S. steel imports.
- Aluminum: 25%
- Automobiles: 25% on non‑CUSMA‑compliant vehicles and on non‑Canadian/non‑Mexican content in CUSMA‑compliant vehicles.
These sectors remain the primary areas in which Canada has maintained its tariff measures.
Tariffs Removed Since Your April 2025 Update
In 2025, the Canadian government fully eliminated approximately $44 billion in retaliatory tariffs on a wide range of U.S. consumer and industrial goods. The most significant removal occurred on September 1, 2025, when Canada repealed its general counter-tariffs to stabilize trade relations and lower costs for Canadian businesses.
This represents a major rollback compared to the broad retaliatory list you reported last year.
Economic Impact: What’s Changed Since Last Year’s Analysis
Impact on the United States
The tariffs have led to higher prices for imported goods, though it is difficult to precisely quantify their direct impact. It is estimated that because parts cross the border multiple times, the Canadian retaliatory tariff on U.S. vehicles and components has contributed to price increases of $4,000 to $10,000 for some North American-assembled models.
Additionally, job growth has slowed in sectors dependent on Canadian inputs. This uncertainty has become a significant drag on investment decisions, although data on its extent is not yet available.
Impact on Canada
Canada’s partial rollback of tariffs indicates the economic challenges associated with sustaining broad retaliatory measures. However, the steel, aluminum, and automotive sectors remain highly vulnerable to changes in the United States policy. Canadian officials caution that a 100% U.S. tariff would have “severe and immediate” consequences for both economies.
Auto Industry Impact: Updated Numbers:
The North American auto sector remains one of the most tariff‑sensitive industries. In March, it was reported that steel and aluminum tariffs could add $1,500 to the cost of a U.S.-manufactured car. This estimate remains accurate and may increase depending on the outcome of ongoing negotiations.
While both economies are incurring high costs, the burden is not distributed evenly. Canada remains more structurally exposed, with approximately 20% of its GDP reliant on exports to the United States. Economists estimate that the 2025–26 tariff cycle has already reduced Canadian GDP by 1.5–2%, and Canadian households are absorbing an estimated $1,700–$2,000 in higher annual costs. GM and other manufacturers cite tariffs as a key risk factor in their 2026 forecasts. As a central point of the 2026 financial guidance, General Motors’ 2026 outlook includes $3–$4 billion in expected tariff costs, which the company presents directly to investors as part of its forward‑looking risk environment. Smaller manufacturers remain the most vulnerable, with limited ability to absorb cost increases.
Cross‑Border Travel: Updated Context
Although the original report referenced 2024 travel data, the 2025–26 tariff tensions have not yet resulted in measurable declines in tourism. Economists caution that a 100% tariff scenario, accompanied by higher fuel and goods prices, could reduce discretionary travel between the two countries.
Where Things Stand Now
Nearly a year after Trump’s first 2025 tariff announcement, the picture is clearer:
- The U.S. has escalated, with the threat of a 100% tariff now overshadowing all other measures.
- Canada has partially de-escalated, lifting most retaliatory tariffs except in strategic sectors.
- Steel, aluminum, and automobiles remain the central battleground, just as they were when your original Fulcrum piece ran. In that analysis, it was highlighted that these sectors would experience significant stress due to tariff changes, with a forecast predicting a potential 2% decrease in cross-border trade volume. Today, it's evident that the reality has diverged slightly, with cross-border trade suffering an even more pronounced impact than initially expected. Revisiting that 2025 data point underscores the persistent challenges these industries face and the complexities of the evolving trade relationship.
- Economic impacts are deepening, especially for industries dependent on cross‑border supply chains.
- Political tensions are rising, with bipartisan U.S. Senate pushback and Canadian leaders warning of long‑term damage.
Although public rhetoric is intense, a closer examination reveals the potential for a long-lasting, dramatic shift in the U.S.-Canada relationship on all aspects of what has historically been an extremely close bond. The U.S.–Canada trade relationship is entering its most volatile phase in decades, and decisions made in the coming months will have long-term implications for both countries. As we navigate this uncertain terrain, one might ask: What vision of North American cooperation can survive this era of tariffs?
David Nevins is the publisher of The Fulcrum and co-founder and board chairman of the Bridge Alliance Education Fund.
