The measures, which took effect just after midnight on Tuesday, cover hundreds of US products and impose duties ranging from 15% to 50%, according to Ottawa.

The targeted goods include steel, furniture, clothing, appliances, electronics, agricultural equipment, and other manufactured products.

Ottawa’s countermeasures match, in broad dollar terms, the latest tranche of tariffs imposed by US President Donald Trump on Canadian goods worth USD 20 ‌billion.

The move represents a significant escalation in an 18-month trade dispute between two economies whose supply chains have been deeply integrated for decades.

Canadian Prime Minister Mark Carney has sought to present the tariffs as a targeted response rather than an attempt to sever commercial ties with Washington.

Ottawa has continued to signal that it is willing to negotiate, but Carney has rejected what he considers unacceptable US demands on Canadian industries and trade policy.

However, on Tuesday, there was a shift in Carney’s tone, with the former central banker now urging a further diversification away from Canada’s biggest trading partner while casting doubt on the viability of the US-Mexico-Canada Agreement (USMCA).

“We have everything we need to pivot and prosper. That pivot will come at a cost. There’s always a cost to action, but it doesn’t come close to the cost of standing still,” Carney said on a video posted on YouTube.

The latest confrontation follows the collapse of bilateral negotiations on August 21. Canadian officials said Washington had introduced demands late in the discussions that Ottawa could not accept, including restrictions affecting Canada’s ability to negotiate trade arrangements with other countries and issues involving Canada’s French-language and cultural protections.

Carney has warned that Canada cannot accept an agreement that undermines its economic sovereignty.

The Canadian government is nevertheless attempting to keep the latest retaliation focused. The new tariffs apply to approximately 6% of US exports to Canada, according to the Associated Press, limiting the immediate scope of the measures even as the political confrontation intensifies.

The US and Canada are each heavily dependent on the other. Canada sends roughly 68% of its exports to the United States, while a large share of manufacturing on both sides of the border relies on components crossing the frontier multiple times before a finished product reaches consumers.

That integration means tariffs can quickly become a cost for businesses on both sides rather than simply a penalty imposed on foreign producers.

Canadian importers could face higher prices for US-made goods, while American manufacturers that rely on Canadian customers may find themselves less competitive. Companies could respond by switching suppliers, passing higher costs to consumers, or relocating portions of their production.

The uncertainty is particularly acute in industries such as automotive manufacturing, where North American production networks have been built around decades of relatively frictionless cross-border trade.

Returning the favour, the United States announced a ban on a broad line-up of Canadian alcoholic beverages, motorcycles, and dairy products from import on Tuesday. The dairy ban covers whey protein, invert molasses, cane molasses, and non-alcoholic beer.

Furthermore, various cheese products were added to a list of products subject to a 50% Trump tariff. Some paper, aluminum, wood, furniture, lighting, and other products were also added to the list.

A US government official told Reuters that the Trade Representative Jamieson Greer had spoken with Dominic LeBlanc, Canada’s minister responsible for bilateral US trade.

While the talks lasted over the past couple of days, the pair were expected to speak again to find a breakthrough.

In a social media post on Tuesday night, while criticising the US measures, LeBlanc confirmed the news, stating that he was in contact with Greer regarding a path forward.

“As has been the case for the last 18 months, our first priority remains on protecting and supporting Canadian workers, farmers, families, and businesses from these unjustified actions,” he wrote.

For financial markets, the central concern is how long the confrontation lasts and whether it spreads to the wider US-Mexico-Canada Agreement (USMCA).

The trade agreement is already under annual review, while Trump has declined to extend its term for another decade. The uncertainty surrounding the pact is creating a difficult environment for businesses planning investment and supply chains across North America.

Michael Harvey, executive director of the Canadian Agri-Food Trade Alliance and a member of Carney’s advisory committee on bilateral US economic relations, warned of the danger of an escalating cycle.

“What we are worried about is an escalatory spiral,” Harvey said.

Agriculture is among the sectors exposed to the dispute. Canada and the US are major trading partners in food and agricultural products, with farmers and processors on both sides dependent on access to the neighbouring market. Retaliatory tariffs can therefore affect not only exporters but also wholesalers, retailers, and consumers.

Canada also faces a difficult economic calculation. The US remains by far its most important trading partner, meaning Ottawa has fewer options to absorb a prolonged breakdown in bilateral commerce than Washington.

While Canada has waged a trade war against an economy 13 times its size, Carney has become massively popular at home, with a new poll from Angus Reid on Tuesday showing that approval of the former central banker’s performance jumped 11 points to 62% from August’s ratio.

Canadian businesses and consumers have increasingly embraced locally produced goods, while provincial governments have taken different approaches to dealing with the confrontation.

Alberta Premier Danielle Smith, for example, has advocated maintaining close engagement with Washington and avoiding measures that could unnecessarily damage the province’s economy.

Saskatchewan Premier Scott Moe has similarly argued against using major exports such as oil and potash as weapons in the dispute.

Canada has been attempting to diversify its commercial relationships, including closer economic ties with Europe and Asian markets.

The worsening US dispute could accelerate those efforts, potentially changing the direction of Canadian trade and investment over the longer term.

For Washington, however, the tariffs also carry risks. American companies exporting into Canada face a substantial consumer market where higher prices could weaken demand. US manufacturers that depend on Canadian raw materials, components, or customers could see their costs rise.

The danger is that tariffs become embedded in business decisions. Companies may start redesigning supply chains not due to cheaper or more efficient alternatives, but to avoid political intervention. redesigning supply chains not because another source is cheaper or more efficient, but because it is less exposed to political intervention.

That could ultimately reduce the efficiency of North America’s manufacturing system and raise costs across the region.

According to Canadian and US government data, the North American nation has shipped almost 68% of total exports to the Uncle Sam this year, out of which roughly 80% moved duty-free due to exemptions under the USMCA pact.

However, the exemption will now be tested, as the latest Trump tariffs do not allow Ottawa to exercise USMCA clauses.

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As per the Chinese customs data, exports from the Asian giant surged 25% year-on-year in August in US dollar terms, matching forecasts and accelerating from the 23.9% growth seen in July.

However, the Xi Jinping administration still needs to address the dichotomy between resilient exports and weak domestic activity, as policymakers struggle to revive consumption and investment as they pursue a 4.5%-5% GDP growth target for 2026.

Imports, on the other hand, jumped 28.2%, compared with a 27.5% year-on-year increase in July and a forecast of a 30% rise.

In the first eight months of 2026, exports of high-tech products have gone up 42.9% in US dollar value terms. Semiconductor export ⁠values more than doubled even as volumes edged up just 4.1%, while car exports rose more than 50% in both value and volume.

As per Zhaopeng Xing, ANZ’s senior China strategist, strong demand for AI products as well as electric vehicles, solar cells, and lithium-ion batteries has offset the impact from weather events. Companies, however, are rushing to send goods to the United States due to tariff uncertainties from the Donald Trump administration.

Despite the sluggish domestic demand, China’s push to dominate key technologies has driven investor appetite for tech stocks, while surging AI-related demand has lifted a new generation of manufacturers.

Chipmaker CXMT has emerged as the biggest success story, with the business swinging to a first-half profit in its maiden earnings report since listing, as soaring semiconductor prices and strong demand for AI-driven computing lifted sales.

However, industries in the non-tech sectors have been grappling with producer price inflation and soft demand. While exports have emerged as the favorite option for Beijing to offset industrial overcapacity, both the United States and the European Union (EU) are now asking the Jinping administration to lower its trade surpluses.

China’s trade surplus rose to USD 119.09 billion in August, from July’s tally of USD 112.5 billion. The surplus in the first eight ‌months of this year has reached USD 805.51 ⁠billion, putting the annual number on track to top USD 1 trillion for the second year.

Trade surplus with the United States rose to USD 29.18 billion from USD 28 billion in July, with China’s exports to the world’s largest economy jumping 34.4% year-on-year, outstripping the 17.8% growth in imports.

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Had the trade deal ‌gone through, it would have cut the top-line tariff rate on Canadian cars and light-duty trucks from 25% to 15% and the tariffs on aluminium and steel from 50% to 25%.

However, last Friday, Washington and Ottawa were unable to reach an agreement on several contentious issues, including whether the US tariff relief should apply to medium- or heavy-duty trucks.

Trump’s threat also threatens to disrupt one of the world’s most integrated auto supply chains. While American auto production is heavily reliant on Canadian-made parts and vehicles, higher tariffs could raise car costs in the world’s largest economy, apart from hammering the continent’s auto stocks.

“Build in the U.S. and there are ZERO TARIFFS. Canada will be treated like a state no longer! On trade, and in other ways, also, they are among the worst nations in the world to deal with. They feel entitled, and yet, WE DON’T NEED CANADA; THEY NEED US!” Trump wrote in ⁠a post on his “Truth Social” account.

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Ebrard’s statement came just hours before the breakdown in negotiations between the Washington and Ottawa, a development which has now cast a shadow on the future of USMCA (United States-Mexico-Canada Agreement), that covers trade, digital commerce, intellectual property, and labor/environmental rules among the US, Mexico, and Canada.

“Mexico is pursuing its own track with the United States and would need to see the final published terms of any US-Canada arrangement before making a full assessment,” Ebrard said on Friday (August 21), just hours before Washington and Ottawa decided to move away from the negotiation table, resulting in Trump imposing 50% tariffs on a range of Canadian goods, a move that he kept previously on hold, as both sides were expecting a win-win deal on the trade front.

The failed negotiations between the US and Canada were focused on avoiding the new Section 338 tariffs and resolving a set of bilateral trade disputes, including Washington’s complaints about Ottawa’s dairy quota system, provincial restrictions on American alcohol sales, and retaliatory Canadian duties on some ‌US-built ⁠autos and steel.

The breakdown in negotiations also coincides with the broader 2026 review of the USMCA.

In July, the Trump administration declined to extend the pact for a fresh 16-year ⁠term, triggering a process of annual reviews while the agreement remains in force through 2036 unless the three countries later agree to extend it.

US Trade Representative Jamieson Greer aimed to secure interim arrangements with both Mexico and Canada this year, while deferring more complex issues such as automotive rules of origin, labor, and environmental standards until 2027.

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Switzerland and China have completed negotiations on an updated free trade deal that will increase the European major’s access to its third biggest trading partner.

Swiss president Guy Parmelin and China’s Commerce Minister Wang Wentao announced the conclusion of the talks after a meeting in Bern on Thursday (August 20).

Under the agreement, 99.8% of Swiss exports can enter the Chinese market duty free, upgrading an ⁠existing deal where the terms applied to only around half of shipments arriving from the European nation to the world’s second-largest economy.

Almost all Chinese exports to Switzerland are duty-free under the existing 2014 free trade agreement between the two countries, which was also Beijing’s first such deal with a European economy.

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Carney, while confirming the news from his end, sounded cautious as he remarked, ‌”Substantial progress has been made, although there is important work still to be done.”

Trump’s Truth Social post said that the Republican paused the tariffs “based on the fact that Canada and the USA, subject to the finalization of documents, have a DEAL.”

Trump and Carney spoke on Tuesday afternoon, their second conversation this week. Their negotiators, however, have been involved in weeks of intense, in-depth talks regarding the sticky points affecting the bilateral trade between the North American nations.

“While we continue this work, Canada remains focused on building a stronger, more independent, and more competitive economy at home,” Carney said.

US Trade Representative Jamieson Greer’s office said the deal will include “comprehensive market access for all American goods, economic security commitments, digital trade alignment, and other provisions.”

Through a proclamation posted ⁠on the White House website, Trump also announced that he had received Canada’s commitment to address Washington’s concerns regarding duties on dairy products, alcoholic beverages, and motor vehicles.

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According to data released by the Commerce Department, Uncle Sam’s trade deficit in goods and services fell 5.6% from the previous month to USD 73.3 billion, slightly above May’s revised level and broadly in line with market expectations.

Imports fell 1.8% to USD 388 billion, driven by a 2.5% decline in goods imports to USD 309 billion. Exports also eased, slipping 0.9% to USD 314.7 billion, with goods exports falling 1.9% to USD 206.9 billion after petroleum shipments retreated from record levels reached in May. Despite the monthly decline, both imports and exports of services hit record highs in June.

The figures come as the Donald Trump administration continues to pursue an aggressive trade policy aimed at reducing the US trade deficit through higher tariffs on imported goods. Last month, Washington imposed a fresh round of duties on products from more than 80 countries after the Supreme Court struck down an earlier version of the tariff regime.

While the administration views a smaller trade deficit as evidence of stronger domestic manufacturing, economists said the underlying picture remains mixed. Average monthly trade deficits since President Donald Trump returned to office have declined by around 6% compared with the previous 17-month period, but imports remain resilient in sectors where the US relies heavily on overseas suppliers.

ALSO READ |US tariff policy is causing enormous uncertainty: Dr Conor O’Kane

Demand for imported semiconductors used in artificial intelligence (AI) data centres, pharmaceuticals and other high-value products has remained strong. At the same time, businesses have continued to adjust purchasing patterns by stockpiling goods ahead of tariff changes, contributing to sharp month-to-month swings in trade flows.

Imports from China remain below pre-tariff levels, but shipments from Mexico, Vietnam and South Korea reached record highs in June, reflecting the continued diversification of global supply chains.

The broader geopolitical backdrop has also influenced trade. Disruptions caused by the conflict in Iran and the closure of the Strait of Hormuz reshaped global energy supply chains, boosting American petroleum exports while affecting shipments of fertilisers, packaging materials and helium.

Although the trade gap narrowed during June, it remained a drag on the US economy. Government data released last week showed that the widening deficit shaved a full percentage point off second-quarter economic growth, even as consumer spending and investment in AI infrastructure continued to underpin domestic demand.

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While the global merchandise trade grew 1.9% in the first quarter compared to the previous one and 3.2% compared to the same quarter in 2025, in value terms, the rato was up 2% quarter-on-quarter and 11% year-on-year.

“The pace of year-on-year growth in the first quarter of 2026 was particularly impressive considering that trade in the first quarter of 2025 was boosted by the frontloading of imports in North America ahead of expected tariff hikes. Strong trade in electronic components related to AI outweighed the negative effects of the outbreak of war in the Middle East, including disrupted shipments of goods through the Strait of Hormuz and dampened GDP growth in net fuel-importing countries due to higher energy prices. Figures on world trade in AI-enabling goods are not available in quantity terms, but the US dollar value of this trade was up more than 40% year-on-year in the first quarter,” the WTO noted.

ALSO READ | Energy shock bites: Iran war forces IMF to cut global growth outlook

The WTO’s most recent trade forecast, issued in the Global Trade Outlook and Statistics (GTOS) report from March 2025, predicted 1.9% growth in the volume of world merchandise trade in 2026 under a baseline scenario, less than the 3.2% increase recorded for the first quarter.

While the report estimated that the Iran war could shave 0.5 percentage points off world trade growth in a high energy price scenario, it also saw the continued strong AI-related investment potentially adding 0.5 percentage points to growth.

As per the WTO, these estimates were produced very early in the conflict, with only partial information on the extent of shipping disruptions in the Strait of Hormuz.

“Considering subsequent developments, WTO economists expect to see larger contractions in Middle East trade flows by the end of the year together with stronger growth in Asia and North America. The global impact, meanwhile, will depend on whether it will be the AI boom or the Middle East conflict that predominates,” the global trade body noted.

ALSO READ | Hormuz Plus One: Gulf Rewires trade around its riskiest chokepoint

The Middle East conflict has impacted the region’s merchandise trade flows. The region’s seasonally adjusted export and import volumes were down 9.7% and 11.9% year-on-year in the first quarter, with larger contractions expected in the second quarter.

The WTO Secretariat estimates, based on available reporting, that the volume of global crude oil imports from the Middle East was down roughly 45% in March. Similarly, imports of Liquefied Natural Gas (LNG) and fertilizers from the region were down 52% and 26%, respectively.

Meanwhile, AI-related investment spending lifted trade volumes in Asia and to a lesser extent in North America in the first quarter. Seasonally adjusted exports and imports of Asia were up 12.9% and 14.6%, respectively, compared with the first quarter of 2025.

ALSO READ | The Hormuz blockade is not just about the oil

“Asia’s strong year-on-year trade growth was in part attributable to very large quarter-on-quarter increases in both exports and imports in the first quarter of 2026 (5.5% and 7.2%, respectively), with exports driven not only by China but also by Singapore, the Republic of Korea, Thailand and Chinese Taipei. Much of the rise in Asia was due to intra-regional circulation of AI-enabling goods,” the WTO said.

“As for North America, its first quarter exports were up 7.0% year-on-year. North American imports were down 10.7% from the first quarter of 2025, which saw a surge of imports due to frontloading ahead of expected tariff increases. Quarter-on-quarter growth, however, remained strong at 3.4%. A 2.6% year-on-year decline in the volume of Europe’s exports, on the other hand, was also mostly related to frontloading of shipments of gold and pharmaceuticals to North America in the first quarter of last year. European import volume registered a modest 0.6% increase,” it noted further.

“In other regions, quarter-on-quarter export volume growth was moderate to negative in the first quarter (0.3% for South America, -2.5% for Africa, and -7.4% for the CIS region). However, the 22.5% cumulative increase in South America’s exports since the start of 2023 was greater than any region other than Asia (33.4%). South America’s 24.5% cumulative rise on the import side over the same period was also the second largest of any region, this time behind Africa (25.0%). Exports of South America, Africa, and the CIS region are expected to rebound in the second quarter as petroleum producers try to make up for reduced output from the Middle East,” the WTO said.

The value of merchandise exports in Q1 increased the most in Asia, rising 20% year-on-year. As per the WTO, the growth was driven particularly by exports of precious metals and gold, copper, machinery and electrical machinery, and ores, while exports of iron and steel, pharmaceuticals, and clothing dropped.

“Africa saw the second-highest increase, with 14% growth, supported by exports of precious metals and gold, copper, fertilizers, and ores, among others, though cocoa and fuels exports declined. South and Central America also grew by 14%, with increases in exports of oil seeds, precious metals and gold, meat, fuels, ores, coffee, and tea. The region saw declines in exports of fruits, electrical machinery, and vehicles. Only the exports of the Middle East and the Commonwealth of Independent States (CIS) showed declines, both falling by 1%. As the majority of merchandise imports from both regions consists of fuels, this trend correlates with the latest developments in world trade in fuels,” the trade body observed.

On the imports side, strong year-on-year increases were observed for Asia (+22%) and Africa (+15%). Regarding Asia, imports of precious metals/gold, copper, and machinery showed marked increases, while iron and steel imports went slightly down. African imports grew particularly for vehicles, machinery, and ships/boats, while aircraft and organic chemical imports fell.

ALSO READ | Panama’s water crisis, Hormuz’s instability squeeze global shipping

“North America’s merchandise imports in the first quarter decreased the most (-7%), with imports of precious metals, pharmaceuticals, vehicles, and articles of iron or steel recording particularly strong contractions. The value of Middle East imports also fell 6% due to a combination of rising prices and falling volumes,” WTO data said.

All the top five exporters in the first quarter of 2026 recorded nominal export growth year-on-year, with the Republic of Korea leading with +38.4%; followed by Hong Kong, China (+38.3%); the United States (+15.2%); and China (+14.7%). The European Union (+9.2%) recorded a modest growth rate.

Of the top five importers, only US merchandise imports declined (-13.6%), while imports of the other four increased in value terms: Hong Kong, China (+44.8%), the United Kingdom (+28.0%), China (+23.0%) and the European Union (+11.4%).

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The three-day talks, which do not include Ottawa, are also the first formal discussions on changes to the US-Mexico-Canada Agreement since the Trump administration decided not to extend the six-year-old regional trade pact on July 1.

As the USMCA faces the threat of being shut down within 10 years if the three countries don’t agree on changes, the US Chamber of Commerce has already urged Trump to keep intact the trade pact’s trilateral structure, tariff-free access and strong enforcement that underpin exchange of goods worth USD 1.6 trillion across the North America.

US Trade Representative Jamieson Greer has already laid out his administration’s number one priority: Making sure Washington, through the USMCA talks, lowers its trade deficits with Canada and Mexico, apart from reshoring ⁠more manufacturing to mainland America.

The United States’ trade deficit with Mexico, in 2025, grew by USD 28 billion, or 17%, to USD 197 billion, according to data from the US Census Bureau, which comes under the Commerce Department. The trade gap with Canada, on the other hand, fell by USD 12.9 billion, or 21%, last year to USD 48.3 billion.

“We want the outcomes to make sense. We want to have more auto manufacturing here, and we’re seeing it,” Greer told CNBC, citing moves by automakers to open new assembly capacity in the US, including Toyota’s expansion of a Texas plant to build trucks now assembled in Mexico.

General Motors will incur some USD 1.5 billion in expenses this year in part to move some vehicle production to the US. In 2025, the Detroit automaker has disclosed plans to build two Chevrolet SUV models in the world’s largest economy while shifting some of its manufacturing from Mexico from 2027 onwards.

“That’s the outcome that (Trump) wants. I think also if we can have an arrangement with Mexico, with Canada, that we are trying to emphasize Canadian, Mexican, and US content in goods traded in North America, that’s a good outcome because that helps get supply chains back here in North America,” Greer added.

During bilateral USMCA talks with Mexico in May this year, in a significant departure from the existing provisions, USTR proposed requiring that 50% of the value of North American-built vehicles originate in the United States. The demand will be a difficult one to meet for the automakers in terms of making logistical changes in their highly integrated regional supply chains.

Mexico’s new ambassador to the US, Roberto Lazzeri, said that the Latin American country was expecting to reach a new deal by the 2026-end, and that he thinks the United States and Canada are aiming for the same goal.

“Every moment that we’re losing, I think we are losing competitiveness, market share, and investment, so it’s in the best interest of all three of us to get to a position of resolution soon. Mexico shares the Trump administration’s goal of bringing more manufacturing to North America, including to the US,” said Lazzeri, a former investment banker and finance ministry official.

Talking about the new tariff warfare between the United States and Canada, the Trump administration’s new levies on nearly USD 20 billion worth of Canadian goods came as a response against Ottawa’s import taxes on American autos, steel, aluminum, and dairy, as well as provincial alcohol bans.

That move deepens a rift that has kept Canada largely sidelined in the USMCA negotiations, as Greer has said there has been little movement towards concessions.

Defending the Trump administration’s decision, Treasury ‌Secretary Scott Bessent, during an interaction with the Fox Business Network, accused the Mark Carney government of being “highly discriminatory” on dairy products, apart from ⁠pointing toward US alcohol and beverages being moved from Canadian shelves.

“This is really just ⁠reciprocity in terms of what they’ve done to our great US ⁠companies,” Bessent told the “Mornings with Maria” program.

Mexico has found appreciations for itself, with Greer lauding the Latin American nation for its “lack of retaliation to US tariffs” and “pragmatic” approach to negotiations that include working to align Mexico’s export controls with those of the Uncle Sam, steps to ⁠protect intellectual property rights (IPR) and moving to curb the export of avocados grown on illegally deforested land.

As per Greer’s office, the talks in Mexico City will dig into technical details of the US-Mexico trade in crucial sectors like autos, steel, aluminum, agriculture, and labor.

The discussions will also focus on “economic security,” USTR’s term for raising regional trade protections to keep China and other Asian countries from using Mexico and Canada to access the lucrative American market ⁠on preferential terms.

The China point will be a contentious one, given Beijing’s growing footprint in Mexico’s car market.

As per the new distribution figures, Chinese car sales rose 30% in the first half of 2026, despite 50% tariffs imposed in January, with Chinese brands raising their market share to 17% from 14% a year earlier.

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