By Alex Kozul-Wright
United States President Donald Trump has announced that he will raise import tariffs on most Canadian goods to 35 percent, even though Canada has agreed to rescind its planned digital services tax as the US demanded.
This comes as Trump sends “tariff letters” to a host of countries this week, notifying them of planned US trade levies to take effect on August 1 if trade deals are not struck before then.
What has Trump announced for Canada?
In late June, Trump threatened to end trade talks with Canada over its plans to push ahead with a new digital services tax, which would hit US technology companies financially. The US president said it was “a direct and blatant attack on our Country”. Canada quickly agreed to withdraw the tax.
But, in a letter released on his social media platform on Thursday this week, Trump nevertheless told Canadian Prime Minister Mark Carney that a new 35 percent tariff – an increase from the 25 percent rate originally imposed in March – would go into effect on August 1 and would rise if Canada retaliated with new tariffs of its own.
What do the US and Canada trade?
Canada is America’s second-largest trading partner, after Mexico. In 2024, Canada bought $349.4bn of US goods and exported $412.7bn, according to US Census Bureau data. The upshot is that Canada runs a $63.3bn trade surplus with the US.
Canada’s key exports to the US include oil and mineral fuels, cars and auto parts, as well as industrial machinery and nuclear reactors. On the other hand, it imports large amounts of transportation equipment, industrial chemicals and manufacturing technology from the US.
What US tariffs does Canada already face?
In his inaugural address after taking over the US presidency on January 20, Trump announced a 25 percent tariff on all Canadian goods and a 10 percent tariff on Canadian energy resources, claiming that Canada had a “growing footprint” in the production of fentanyl, a highly addictive and often deadly opioid drug.
He claimed Canada was not doing enough to prevent the flow of fentanyl into the US.
Those tariffs were paused for 30 days following assurances from Canada that appropriate action would be taken to curb the flow of fentanyl, but were then reimposed in early March after Trump declared that Canada had failed to do enough. They are now rising again, to 35 percent.
Canada, the biggest foreign supplier of steel and aluminium to the US, was also badly hit by Trump’s separate 25 percent tariffs on steel and aluminium, which he imposed globally in March. Trump doubled that for all countries to 50 percent in June, saying the measure would protect and bolster the US metals sector.
In March, Trump also announced a separate 25 percent tariff on imported cars and car parts. He said this would “take back” money from foreign countries that have been “taking our jobs” and “our wealth”.
Sectoral tariffs, on things like cars and industrial metals, are separate from country-wide levies.
For his part, Canadian Prime Minister Mark Carney described the auto tax move as a “direct attack” on Canadian workers.
Until the start of Trump’s second term as US president in January this year, Canada had enjoyed years of free trade relations with the US. It is understood that Mark Carney is still trying to find ways to satisfy Trump so that a 2018 free-trade deal between the US, Mexico and Canada (USMCA) – agreed during Trump’s first term in office – can be put back on track.
USMCA came into force on July 1, 2020, replacing the 1994 North American Free Trade Agreement (NAFTA). It is supposed to be reviewed every six years, and since Trump returned to office, it has been blighted by disputes and non-compliance issues. Some trade commentators have suggested the agreement won’t be extended next summer.
Trump’s Canada announcement this week also came after officials in Ottawa denounced yet another separate US plan to impose a 50 percent import tariff on copper earlier this week. Canada is one of the largest suppliers of the metal to the United States.
Why is Trump levying all these tariffs on Canada?
The Trump administration claims its tariffs on Canada are designed to force Ottawa to crack down on fentanyl smuggling into the US, despite only a modest flow of the drug over the border. Trump has also expressed frustration with his country’s trade deficit with Canada, which largely reflects oil purchases.
“I must mention that the flow of Fentanyl is hardly the only challenge we have with Canada, which has many Tariff, and Non-Tariff, Policies and Trade Barriers,” Trump wrote in the letter.
Besides more than 20 similar letters to other US trade partners so far this week, Trump says he will soon announce new tariffs for the European Union, too. As with Canada’s letter, Trump has promised to implement these new import levies from August 1.
Do Trump’s justifications for tariffs on Canada hold water?
Canadian government data shows that less than 0.1 percent of all seizures of fentanyl entering the US, from 2022-2024, were made at the Canadian border.
Almost all of rest was confiscated at the US border with Mexico. Carney has also publicly committed to “stop the scourge of fentanyl” in North America, and said his government wants to work alongside the US to protect communities in both countries.
Instead, in his first speech as prime minister, Carney said he believed that “the Americans want our resources, our water, our land, our country”.
He has had to push back on Trump’s taunts of making Canada the “51st state of America”. Indeed, Carney predicated his recent election win on the idea that Canada should keep its “elbows up”, as he put it.
During a meeting with Trump at the White House in Washington, DC, in May, Carney said: “Having met with the owners of Canada over the course of the campaign these last several months, it’s not for sale – won’t be for sale – ever.”
In recent months, Carney has also been strengthening ties with the United Kingdom and the EU in a bid to diversify its exports from the US.
Hours before Trump’s latest letter, Carney posted a picture of himself with British Prime Minister Keir Starmer on X, saying, “In the face of global trade challenges, the world is turning to reliable economic partners like Canada.”
What was the Canadian digital tax row about?
The US is home to some of the world’s biggest technology companies, including Apple, Alphabet/Google, Amazon and Meta. A new 3 percent digital services tax to be levied on tech companies deriving revenues from Canadian users, due to take effect in late June this year, could have cost those companies $2bn in additional taxes.
Trump called the new tax “a direct and blatant attack on our Country” in a Truth Social post in June. He added that the US would be “terminating ALL discussions on Trade with Canada, effective immediately”.
A few days after Trump suspended trade negotiations, Carney rescinded the tax in an effort to resume talks.
As such, Trump’s latest tariff letter to Carney has come in spite of what many had seen as a thawing of relations between the two leaders, who remain locked in trade negotiations.
How has Trump treated other countries?
So far this week, Trump has sent tariff letters to 23 heads of state, notifying them of new trade tariffs. On Wednesday, he told Brazil that he plans to impose a 50 percent tariff because of its “witch-hunt” against former President Jair Bolsonaro.
Bolsonaro, who is accused of plotting a coup, refused to publicly concede the 2022 presidential election, which he lost to current President Luiz Inacio “Lula” da Silva. Trump was similarly indicted in relation to efforts to overturn his own election loss in 2020.
Elsewhere, Trump’s tariff letters reflect his administration’s failure to finalise dozens of trade agreements that he claimed would be easy to negotiate. Shortly after unveiling his April 2 “Liberation Day” trade levies, Trump announced a 90-day pause to try and work out these agreements.
But on Monday, the president was forced to extend this pause again until August 1. For the most part, Trump says he is trying to rebalance large trading deficits, whereby the US imports more than it exports. However, some targeted countries – including Brazil – have trade imbalances in the US’s favour rather than their own.
Other than Brazil, recipients of tariff letters on Wednesday included the Philippines, Moldova, Sri Lanka, Brunei, Libya, Algeria and Iraq. They were notified of tariffs as high as 30 percent.
The rates Trump said would be imposed on Sri Lanka, Moldova, Iraq and Libya were lower than those he initially announced in early April. Tariffs on goods from the Philippines and Brunei were higher. The rate for goods from Algeria remained the same.
On Monday, he notified Japan, South Korea and a dozen other economies of tariffs ranging from 25 percent to 40 percent.
In an interview with NBC News on Thursday, Trump said: “We’re just going to say all of the remaining countries are going to pay, whether it’s 20 percent or 15 percent. We’ll work that out now.”
Currently, the global baseline minimum tariff rate for nearly all US trading partners is 10 percent.
How have markets reacted to the tariff letters?
While the White House unfurled a stream of tariff announcements this week, financial markets have generally shrugged off Trump’s threats. The S&P 500 – the stock market index tracking the performance of the 500 largest companies in the US – and the tech-heavy Nasdaq Composite both closed at record highs on Thursday.
Experts say that recent gains in the S&P 500 suggest many investors think that Trump will ultimately back down on his tariff increases.
Financiers have established a name for the president’s policy flip-flopping – it’s called TACO: “Trump Always Chickens Out”. Washington, so the theory goes, does not have a high tolerance for economic pressure and will back off when tariffs cause pain.
Source: Al Jazeera
