In the US-Canada Trade Spat, Tariffs Are Not the Only Problem

After US-Canada trade talks collapsed Friday, the United States imposed a 50% tariff on a long list of Canadian goods via the never-used Section 338 of the Tariff Act of 1930. US Trade Representative Jamieson Greer went on TV first thing Monday in an attempt to calm financial markets with some basic tariff math. He said the new action hits a small percentage of Canadian imports into the US and an even smaller share of consumption, so there’s “no possible way it can really affect US well-being.”

Greer is basically right on the issue of the tariffs’ direct effects. The problem for both America’s chief trade negotiator and the US economy is that the new levies raise other issues that are much more important – and troubling.

But first, the tale of the tape. According to Michigan State University supply chain whiz Jason Miller’s analysis US International Trade Commission data, Canadian imports hit by the new duties totaled $20.2 billion in 2025 – just 5.3% of the $382 billion in goods the US imported from Canada last year and a little under 0.6% of all goods imports over the same period.

The tariffs omit most of the essential things that Canada supplies in large volumes: energy, fertilizer, minerals, seafood, and the goods – metals, automotive, wood, and more – already facing “national security” duties. And more than third of the US tariff list is just for show: Of the 554 items, 66 saw no Canadian imports at all last year, while another 136 were less than $1 million each. On a static basis, the 50% tariffs would yield about $10 billion in additional tariff revenue, which is around 3% of current collections. None of this will move the macroeconomic needle.

Some discrete pain will nevertheless occur, especially where Canada is a major source of imports. In 2025, for example, Canada supplied 73% of imported whiskey (other than Irish or Scotch), worth $221.5 million. Targeted Canadian plywood and veneer panels were more than 90% of US imports last year, and several other construction materials also had significant import shares. Newly tariffed dairy products, including high-demand whey proteins, were 45% to 95% of imports. Adding a 50% duty on top of existing tariffs will mean real pain for American buyers, maybe prohibitively so. Homebuilders, automakers and other US industries also lose out because the now-scuttled deal would have cut American lumber, steel, and aluminum tariffs that have significantly increased production costs.

Pain certainly lands on the Canadian side, too. Because most products the US targeted have substantial imported alternatives, Americans may switch away from Canadian items (albeit over time and at a cost). Moreover, as Bloomberg News reports, US tariffs disproportionately hit smaller companies in numerous industries, complicating mitigation efforts.

The real action, however, lies beyond the tariffs’ direct economic effects.

First, the spat injects significant new uncertainty into both the trillion-dollar bilateral relationship and the broader global economy. Escalation – the most common trade war fallout – is a real risk, with Prime Minister Mark Carney announcing dollar-for-dollar retaliation beginning Sept. 8 and President Donald Trump responding with a threat to hike duties on Canadian automotive goods to 50% on Jan. 1.

Cooler heads can still prevail, but both the Canadian and US sides see little chance for a quick resolution. And politics will discourage a ceasefire: The now-seething Trump has staked his reputation on countries backing down from a trade fight, but polls in Canada consistently show that fighting Washington is a political winner. It’s a tinderbox, with vocal match-throwers on each side of the border.

The US-Mexico-Canada Agreement also faces new risks. Trump’s “emergency” global tariffs and their replacements importantly exempted USMCA-compliant goods. This not only removed more than 80% of all Canadian imports from the new duties’ coverage but also was a strong indicator of the agreement’s durability. The Section 338 proclamations, on the other hand, feature no such carveout – a distressing sign of where things might be headed.

Trump’s future use of Section 338 – a vague, Depression-era statute with no precedent or implementing regulations – is the biggest risk of all. The law allows the president to impose tariffs of up to 50% on imports from any country he says “discriminated” against US commerce. It requires no investigation, injury finding, or published determination, and – as Trump just showed – the undefined “discrimination” can mean almost anything. A legal challenge to the new Canada tariffs is likely, and many scholars think the White House will lose. But litigation takes time, and a law that’s neutered in two years is a law that works for two years. Markets and trading partners must now wonder who’s next.

Finally, the conflagration is important for political and geopolitical reasons. The US midterm elections are rapidly approaching, and Trump’s chaotic tariffs, which affordability-obsessed Americans overwhelmingly dislike, are a key point of contention. Although the new Canada tariffs are small, the headlines certainly aren’t, and they land right as Trump is promising to lower beef prices by cutting tariffs.

The administration will also take a hit on the international stage. The Canada deal’s collapse will accelerate plans by nation to remove the United States from the center of the global trading system and, as the Washington Post reported, will reinforce negotiators’ view of the US as a bad-faith bargainer whose market isn’t worth the loss of sovereignty needed to enter it. What point is a deal when one party refuses to uphold the terms?

None of this means the US-Canada tariffs are a full-blown crisis – yet. A deal could arrive in the coming weeks, and things could return to almost normal. In the meantime, uncertainty – and the risk of a spiraling conflict that cripples one the world’s most integrated multinational supply chains – will weigh on both economies. Just as importantly, resolving this conflict won’t fix its underlying cause, which is not a capricious, tariff-loving president but US trade laws that let him wreak economic havoc without congressional oversight. Bills to repeal Section 338 are sitting dormant in the House and the Senate. Until they advance, we’ll await the next country found guilty of “discrimination” by a president who gets to define the word.