What the new tariffs mean for Canada

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 happened when Canada retaliated?

Canada’s counter-tariffs took effect at 12:01 a.m. on September 8, covering approximately C$27.6 billion of US-origin imports. The measures apply rates of 15%, 25%, or 50%, depending on the tariff classification, and affect products including steel, aluminum, dairy, appliances, agricultural equipment, pulp and paper, plastics, electronics, furniture, clothing, and selected consumer goods.

The response is designed to match US tariffs dollar for dollar and rate for rate. Existing Canadian counter-tariffs, including those on selected US automotive products, remain in place. Goods already in transit on September 8 are exempt, while the new duties apply only to products that qualify as US-origin goods under Canada’s CUSMA marking rules.

Canadian importers can seek remission where essential inputs cannot reasonably be sourced domestically or from non-US suppliers. That should limit some of the damage to Canadian manufacturers, although the application process may still create delays, cash-flow pressure, and uncertainty.

How has the US responded?

Washington escalated again within hours of Canada’s counter-tariffs taking effect. The US announced outright import bans on selected Canadian alcoholic beverages, dairy products, motorcycles, mopeds, and related goods. Those restrictions are scheduled to begin on September 29. Unlike a tariff, an import ban removes access to the US market entirely for the affected classifications.

The alcohol restrictions cover a wide range of packaged products, including beer, wine, cider, whisky, vodka, rum, brandy, and other spirits. The dairy-related restrictions include selected whey products, while the motor-vehicle action covers motorcycles and mopeds. Businesses must still verify exposure against the detailed US tariff classifications rather than relying on broad product descriptions.

The US also changed the composition of its existing 50% tariff basket. Effective September 15, products including rock salt and cement will be removed, while ATVs, additional cheeses, paper products, aluminum goods, wood products, furniture, lighting, and other classifications will be added.

The removal of rock salt and cement suggests that Washington is responding to domestic substitution constraints. US buyers rely heavily on some Canadian products that are difficult or costly to replace, so keeping them under a 50% tariff would impose a large domestic cost without generating much negotiating leverage. The revised list appears more calibrated toward products for which alternative US or foreign suppliers may be available.

Are tariffs now the only source of pressure?

No. The US has also directed the Office of the US Trade Representative and the General Services Administration to remove US$50 billion of Canadian-origin products from federal procurement schedules. The practical exposure will depend on implementation details, existing contracts, product eligibility, and whether the US action applies to new awards, renewals, or both.

This broadens the dispute from border taxes into market access. Canadian engineering, technology, infrastructure, aerospace, and manufacturing companies with US government customers could face additional uncertainty even where their products are not directly included in the Section 338 tariff lists.

The procurement action could also have a larger confidence effect than its immediate trade value suggests. Tariffs change the price of access, while procurement exclusions affect whether Canadian suppliers can compete for contracts at all. That distinction could influence investment and location decisions among firms serving the US public sector.

How much will the effective tariff rate increase?

The original estimate that the average effective US tariff rate on Canadian imports could rise above 5% now needs to be recalculated. The September 15 removals and additions change the covered trade weights, while the September 29 import bans will eliminate rather than tax selected trade flows.

(The estimate predates the US tariff-list changes scheduled for September 15 and the import bans scheduled for September 29. The effective rate will be updated once revised trade weights are available.)

The observed effective tariff rate may not rise as sharply as the statutory changes suggest. Heavily tariffed trade will fall, switch suppliers, or stop entirely, reducing the import value on which tariffs are collected. Import bans will create economic damage without generating tariff revenue, making the effective tariff rate a less complete measure of trade restrictiveness.

What is the likely impact on Canadian growth?

The first-round national impact should remain contained, but the risk has increased since the original tariff announcement. Canada’s counter-tariffs raise costs for domestic importers, while the US import bans prevent affected Canadian producers from selling covered products into their largest foreign market. The September 15 expansion also changes which industries are directly exposed.

The new import bans are more damaging for affected exporters than a 50% tariff. Under a tariff, some trade can continue if exporters reduce margins or buyers accept higher prices. Under a ban, covered trade falls to zero unless the restrictions are removed, reclassified, or successfully challenged.

The national GDP effect will depend on the value of newly banned and added products, companies’ ability to redirect exports, and the duration of the dispute. The wider concern is now the impact on investment. Businesses cannot plan efficiently when tariff classifications, access conditions, and procurement eligibility can change within days.

What is the likely impact on inflation?

Canada’s counter-tariffs create a direct inflation channel because Canadian importers pay the surtax at the border. The final cost will be divided among US suppliers through lower export prices, Canadian firms through reduced margins, and consumers through higher retail prices. Substitution toward Canadian and non-US suppliers should offset part of the impact.

A Bank of Canada staff study of the 2025 counter-tariffs found that prices of tariffed retail goods rose by approximately 6% relative to comparable un-tariffed products after three months. The estimated peak contribution to CPI was around 0.3% points, although the current package covers a different mix of consumer goods, industrial inputs, and capital equipment.

The inflation effect is unlikely to appear in full immediately. In-transit exemptions, existing inventories, fixed-price contracts, remission applications, and supplier substitution should delay pass-through. Appliances, furniture, clothing, dairy, and electronics could show earlier retail effects, while tariffs on metals, machinery, and agricultural equipment may first appear through producer costs, weaker margins, or delayed investment.

The net macroeconomic effect is therefore mildly stagflationary: weaker activity alongside higher prices. The consumer impact should remain moderate if the measures are short-lived, but the industrial cost could become more persistent if firms cannot find practical substitutes for US inputs.

What does this mean for the Canadian dollar?

The escalation is negative for CAD through three channels: weaker expected exports, lower business confidence, and a greater risk that firms redirect investment toward the US. Import bans and procurement restrictions also increase the tail risk of a more persistent separation between the two economies.

However, USD/CAD is not driven by Canadian developments alone. Broader US dollar weakness, lower US yields, softer US data, and the US policy premium can offset Canada-specific pressure. That explains why trade escalation may cause CAD to lag other G10 currencies without producing a sustained rise in USD/CAD.

Our fair-value models continue to point toward USD/CAD near 1.37 over the coming quarters. The latest escalation increases the risk of temporary moves above fair value, but a sustained break above 1.39 would likely require a broader tariff expansion, weaker Canadian data, lower energy prices, or renewed US dollar strength.

What should clients watch next?

The next deadlines are September 15, when the revised US tariff basket takes effect, and September 29, when the import bans begin. Companies should verify exposure against the updated tariff classifications, review contracts and inventory positions, and evaluate whether remission or alternative sourcing is available.

Clients should also monitor implementation of the US federal procurement restrictions, any additional Canadian response, company announcements on production and investment, and contacts between the two governments. USTR and Canadian Trade Minister Dominic LeBlanc have reportedly remained in contact, leaving open a narrow route back to negotiations even as the public measures escalate.

The dispute has entered a more dangerous phase. The August measures taxed a narrow share of trade at extremely high rates. The latest US actions now combine tariffs, outright import bans, and procurement restrictions.

The national impact may remain manageable if both sides return to talks quickly. If the measures persist, the larger cost will come through business confidence, investment, supply-chain changes, and the gradual erosion of dependable North American market access.

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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.