The United States and Canada have repeatedly come close to a full-scale trade war since President Donald Trump returned to office. Trump has often stepped back from some of his strongest threats against Canada, but that period of relative calm has now ended.
“The bigger deal is uncertainty,” said Scott Lincicome, vice president of general economics at the Cato Institute, according to the New York Times. Canadian Prime Minister Mark Carney said Canada could announce new tariff measures shortly after Labor Day. The planned response could target US agriculture, steel and electronics, according to the New York Times. Senator Peter Welch, Democrat from Vermont, called the new tariffs a “slap in the face” to farmers and others in his state who do business across the border, according to the New York Times. Welch said business relationships built between the US and Canada over decades were now facing uncertainty. He also said long-term negotiations over a trade deal appeared to be on hold.
The new tariffs cover only a small part of the overall trade between the US and Canada. But economists warn that the impact could grow quickly if Canada retaliates and the Trump administration responds with even more tariffs. The biggest economic risk could come if Canada responds with tariffs of its own. Some Democrats in Congress have warned that Trump’s threats against Canada could hurt American businesses and workers. That could push up prices, increase costs for businesses, slow investment and put more pressure on US economic growth. The dispute also comes when inflation remains above the Fed’s target and the US economy is already facing pressure from high debt, elevated fuel costs and weak manufacturing.
America’s federal debt reached $40 trillion this week, increasing concerns about the country’s financial position.
Lincicome said prolonged uncertainty and retaliatory tariffs could lead to “slightly less investment, slightly less economic activity. The impact would not only be about prices. Companies may delay expansion plans, hiring or other spending when they cannot predict future trade costs. Businesses that operate on both sides of the US-Canada border could be particularly exposed to the uncertainty. The potential Canada trade war is happening at a difficult time for the US economy. Those debt concerns have contributed to higher government bond yields.
