What happened and when did the new US tariffs begin?

The United States imposed an additional 50% tariff on selected Canadian goods effective August 22, 2026, at 12:01 am ET, after negotiations collapsed following a three-day extension. The measures use Section 338 of the Tariff Act of 1930 and apply on top of ordinary customs duties. Goods already subject to specified Section 232 measures are excluded from the new Section 338 layer.

The tariffs were triggered by US complaints involving Canadian treatment of motor vehicles, alcoholic beverages and dairy products. However, the tariff schedules extend well beyond those three headline categories. Covered products include wine and other alcohol, dairy, furniture, cement, clothing, plastics, electrical machinery, wood products, fishing equipment, hockey equipment and other consumer and industrial goods. Exposure ultimately depends on the product’s eight-digit US Harmonized Tariff Schedule classification.

How large is the affected trade?

According to USTR, the measures apply to nearly US$20 billion of annual US imports from Canada. Based on the latest monthly Canadian export pace, we estimate that the covered trade represents approximately 4.2% of annualized exports to the US. The measures affect a relatively small part of the overall trade relationship, and more than 85% of Canadian exports should retain duty-free access under current CUSMA treatment. Their concentration, however, means the consequences for individual exporters could be much greater than the aggregate share suggests.

Do CUSMA-compliant goods receive an exemption?

No. The additional 50% Section 338 duty applies to listed Canadian products even when they qualify as originating goods under CUSMA. CUSMA treatment can still eliminate the ordinary base tariff, but it does not remove the additional Section 338 charge.

This is an important departure from earlier tariff rounds, when CUSMA compliance protected most Canadian exports from blanket US measures. The new tariffs further reduce the practical value of preferential market access for affected industries, even though CUSMA remains legally in force for wider trade.

Which businesses face the greatest pressure?

The tariffs reach across several manufacturing and consumer-goods industries, including plastics, electrical equipment, furniture, wood products, clothing, chemicals, dairy, alcohol, cement and recreational goods. Exposure varies by tariff classification, US revenue dependence and the availability of replacement suppliers.

At 50%, the additional duty could price some Canadian goods out of the US market. The risk is greatest for exporters with narrow margins, limited bargaining power and few practical destinations outside the US. American customers may seek discounts, postpone orders or source comparable products elsewhere.

The effects could also move through Canadian supply chains. Companies supplying materials, components or services to affected exporters may face weaker demand even when their own products are not directly tariffed.

Which regions are most exposed?

Our mapping of the official US tariff lines against Statistics Canada provincial trade data points to Quebec, British Columbia and Ontario as having the largest concentrations of covered exports.

Quebec’s exposure is concentrated in electrical equipment, furniture and other manufacturing. British Columbia is more exposed through wood products and related industries, while Ontario faces risks across a broader range of manufacturing and integrated supply chains.

National figures may therefore understate the local consequences. Communities that depend heavily on a factory, mill or export industry could experience reduced production, shorter working hours or delayed investment even if the effect on Canadian GDP remains modest.

What happens next with Canadian retaliation?

Canada has announced “dollar-for-dollar” counter-tariffs beginning September 8, 2026. The government has identified US steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics as the principal targets. Ottawa has not yet published the final product-by-product schedule, tariff rates or full set of exemptions.

The period before implementation offers another opportunity for negotiations and allows Ottawa to refine the scope of its response. Canadian companies can also assess their reliance on US inputs and prepare remission requests where practical alternatives are unavailable. Precise firm-level exposure cannot be calculated until Finance Canada publishes the tariff classifications, rates and exemptions.

How much will the effective tariff rate increase?

Our trade-weighted calculations suggest that the average effective US tariff rate on Canadian imports could rise from approximately 3% to above 5% once the new measures enter the data. Based on our trade-weighted calculations, that would place Canada above Mexico’s latest effective rate, although still below the roughly 7% average across all US import sources.

The recorded increase may be smaller than the mechanical estimate. A 50% duty is likely to stop or redirect some covered shipments, reducing the value of trade on which the tariff is collected. The statutory tariff, the estimated trade-weighted rate and the rate ultimately observed after companies adjust will therefore differ.

Canadian countermeasures will also raise Canada’s effective tariff rate on US imports. That calculation will depend on the final product coverage, rates, exemptions and trade values.

What is the likely impact on Canadian growth?

The national growth effect should remain contained if the dispute stays limited to the current product list. Exporters may accept lower margins, redirect shipments, reduce output or sell more goods inside Canada, so the value of covered trade should not be interpreted as an equivalent loss of GDP.

The larger risks come from persistence and escalation. Canadian counter-tariffs could increase input costs, while prolonged uncertainty could discourage hiring, investment and cross-border production. A short-lived dispute would mainly affect the industries directly exposed. Wider tariffs or a long interruption in negotiations would spread the drag through business confidence, investment and the annual CUSMA process.

What is the likely impact on inflation?

The US tariffs are primarily a growth shock for Canada because they tax Canadian products entering the American market. Canada’s counter-tariffs create the more direct inflation risk at home because Canadian importers will pay the duties on targeted US goods.

A Bank of Canada staff study of Canada’s 2025 counter-tariffs found that prices of tariffed retail goods rose by approximately 6% relative to comparable untariffed goods after three months, equal to roughly one-quarter pass-through from a 25% tariff. The study estimated that the measures added around 0.3 percentage points to CPI at their peak, with larger effects at appliance and electronics retailers. The findings are staff research and do not represent an official Governing Council forecast.

What does this mean for the Canadian dollar?

The trade rupture is negative for the Canadian dollar through weaker export expectations, lower business confidence and the risk of delayed investment. CAD may therefore lag other G10 currencies when tariff headlines dominate, especially if investors price a larger Canadian growth discount or further escalation.

However, the renewed US policy premium, softer US data and broader dollar weakness could offset Canada-specific pressure.

Our base case is that USD/CAD remains below 1.39 ahead of Canada’s second-quarter GDP release on August 28, despite periodic tariff-driven spikes. Our fair-value models point to approximately 1.37 over the next two quarters.

The main upside risks to USD/CAD are wider tariffs, failed attempts to restart negotiations, weaker energy prices or a clear deterioration in Canadian hiring and investment. Downside risks include a renewed negotiating window, tariff exemptions, softer US yields and a broader unwinding of the US dollar’s policy premium.

What should clients watch next?

Clients should watch for Canada’s final retaliation schedule, remission provisions for essential inputs, signs that negotiations are restarting and any changes to the US Section 338 product list. Company announcements on production, shipments, pricing and capital expenditure will show whether the disruption is remaining concentrated or spreading through supply chains.

Duration will determine the market impact. A brief dispute would produce serious losses for selected industries but limited national damage. A prolonged rupture would weigh more heavily on business confidence, Canadian input costs and investment decisions tied to North American market access.

The tariffs cover a small share of Canada-US trade but impose a severe burden on the products and communities directly affected. The national growth shock should remain manageable unless the dispute expands. Canadian retaliation creates an additional inflation risk, while CAD may lag other G10 currencies without necessarily pushing USD/CAD sustainably above 1.39.

What’s happening in markets this week?

Tuesday kicks off the week with Germany’s IFO survey and US consumer confidence data, offering fresh insight into growth momentum on both sides of the Atlantic. Wednesday is the week’s busiest day, featuring US GDP, core PCE inflation and other key economic releases, alongside Nvidia earnings, which will be closely watched as a barometer for AI and broader market sentiment.

Thursday shifts the focus to Asia with China industrial profits, the Bank of Korea’s rate decision and comments from BOJ’s Himino. Friday wraps up the week with inflation data from Japan, France and Spain, the US payrolls revision, Canada GDP, and the main event: Fed Chair Kevin Warsh’s Jackson Hole speech, where investors will be looking for signals on the Fed’s policy path. France’s Fitch sovereign rating review also remains on the radar.

Market snapshot

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Calendar: August 24 – 28

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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.

Methodology

Unless otherwise stated, estimates are Convera calculations using official US tariff schedules, US and Canadian merchandise-trade data, and Statistics Canada value-added-in-exports data accessed through Macrobond. Provincial exposure estimates reflect Convera’s mapping of covered tariff classifications to customs-basis trade data. Estimates may change as customs guidance, Canadian counter-tariff schedules and exemptions are published.