On the menu today: A review of the disputes that lead to another escalating round of tit-for-tat tariffs with our second-largest trading partner, Canada.
Arguing with the Neighbors
The Trump administration had no choice but to impose additional 50 percent tariffs on a wide variety of goods from Canada, because of that country’s perfidious treatment of U.S. exports. The White House explains:
Canada imposes certain tariffs and quotas on cars imported to Canada from the U.S., but not on imports from other countries. Canada also administers these quotas in a way that compels U.S. auto companies to invest in production in Canada instead of the United States.
From April 2025 through March 2026, Canadian imports of U.S. motor vehicles decreased by approximately 22 percent, or $5.6 billion, compared to the same period in 2024-2025. Exports of motor vehicles from other countries to Canada have increased to meet the demand previously filled by U.S. exports.
All but two Canadian provinces and territories have halted the purchase, distribution, or retailing of U.S. alcoholic beverages, and have not imposed similar restrictions on other countries.
From March 2025 through February 2026, Canadian imports of U.S. alcoholic beverages decreased by about 81 percent, or $582 million, compared to the same period in 2024-2025.
As part of its complicated and protectionist dairy system, Canada established tariff-rate quotas on U.S. cheese that are much more restrictive than the tariff-rate quotas imposed on similar imports of cheese into Canada from the EU, despite Canada having trade agreements with both the U.S. and the EU.
It is accurate that Canada only applies tariffs to U.S. cars. Imports represent approximately three quarters of Canada’s new vehicles market; the top country of origin, as of 2025, was the U.S. with $11.6 billion worth of sales. (That’s in U.S. dollars, not Canadian dollars.) The next four most popular countries of origin for imported cars are Mexico, Japan, South Korea, and Germany.
Back on February 1, 2025, near the very start of Trump’s second term, the president announced he was imposing a new 25 percent tariff on goods from Canada and Mexico. Under the U.S.-Mexico-Canada trade agreement (USMCA) signed into law by Trump in his first term, most products from those countries faced no tariffs.
In March 2025, Canada imposed what it called retaliatory tariffs of 25 percent on U.S. aluminum and steel products, and then the following month imposed a 25 percent tariff on U.S. automobiles. That helps explain why Canadian imports of U.S. motor vehicles decreased by approximately 22 percent from April 2025 through March 2026; when you make a product more expensive, people are less interested in buying it.
(An interesting question will be how many people reacted to this newsletter and its headline and stopped reading somewhere around here.)
There are, of course, some glaring problems with the administration’s arguments. First, for all the talk of Canada unfairly obstructing U.S. exports to its country, the U.S. exports about $30 billion worth of goods to Canada, month after month, and that figure has gradually increased over the past decade.
Canada consistently is one of our top two trading partners. Total U.S.-Canada trade was $872.3 billion in 2025; the total U.S. economy size that year was $30 trillion. It is difficult to argue that getting American goods onto Canadian shelves to reach Canadian consumers is a major obstacle to U.S. economic growth. It’s not nearly as big a problem as, say, high gas prices, or the likelihood of the most expensive national average for gasoline in the month of August ever.
On April 3, 2025, shortly after Canada’s “retaliatory” tariffs on U.S. automobiles, Trump imposed 25 percent tariffs on auto imports. Canada exports cars to the U.S., as well; in 2025, Canada exported $24 billion in cars to the United States.
In its announcement of the new tariffs on Canada, the Trump administration complained, “Over the past year and a half, only two countries have chosen to retaliate against President Trump’s tariffs rather than negotiate a deal with the United States: the People’s Republic of China and Canada.” A key word there is “retaliation.” This all started with Trump imposing those new 25 percent tariffs on Canadian goods back in February 2025.
As for the White House claims about dairy tariffs, CBS News points out that, yes, Canada imposes tariffs on American dairy products, but Canadians still buy a ton of our milk and cheese:
Canada’s published tariff lists for 2020 and 2025 show tariffs on U.S. dairy products have remained unchanged from the end of his first term through the end of President Biden’s term. For example, both lists show the same tariff rate of 245.5 percent for any cheese products above the duty-free limit.
Canadian Ambassador to the U.S. Kirsten Hillman told told CBS News the dairy tariffs are in place to “protect our farmers and families.” Canada is the second largest importer of U.S. dairy, purchasing about $1.1 billion worth in 2024.
The U.S. sold roughly double the amount of dairy to Canada as Canada sold to the U.S. last year, according to trade data from the U.S. Census Bureau.
Again, the administration is behaving as if American dairy producers’ ability to get their products on Canadian store shelves to be sold to Canadian consumers is seriously impeded. But earlier this year, USDA Foreign Agricultural Service reported, “U.S. dairy exports to Canada have increased nearly 80 per cent since 2020.” We’re left wondering just what the problem we’re trying to solve here is, and why the right solution would be a broad-based trade war with our second-largest trading partner that raises prices, while the country’s top concern is affordability and the cost of living.
Hey, how is the U.S. auto industry responding to another round of a trade war with our neighbor to our north? With dread, according to the Wall Street Journal:
Detroit’s carmakers in particular could see some of their most profitable products walloped if Trump follows through on a threat to double tariffs on cars and auto parts from Canada to 50 percent from 25 percent.
Stellantis assembles the Chrysler brand’s popular Pacifica minivan just across the border in Windsor, Ontario. General Motors produces pickup trucks at a factory in Oshawa, Ontario. Ford is set to begin making F-Series Super Duty trucks later this year at a plant near Toronto in Oakville, in addition to at a factory in Kentucky. And Ford and GM each produce engines in Canada for trucks and SUVs sold in the U.S.
Say, is there anything important going on in Michigan between now and November 3? Do you think Mike Rogers wants the president making life more difficult for automakers between now and then?
When the U.S. president says, “What I’d like to see — Canada become our 51st state,” and when he repeatedly calls the Canadian prime minister a “governor” . . . do you think that makes the Canadian government more likely to reach a deal amenable to American producers, or less likely? Do you think scoffing at the idea of Canadian sovereignty makes the Canadian government less likely to dig in its heels, or more likely?
As some of my former colleagues were fond of pointing out, other nations have nationalism, too. If you constantly insult another country, you should not be surprised when their electorate and their elected officials grow more defiant and uncooperative.
It didn’t get much attention, but Wilbur Ross, Trump’s commerce secretary in his first term who helped negotiate USMCA, gave an interview to Fortune magazine, laying out how Trump, by being who he is and speaking about trade partners the way he does, makes reaching a deal much more difficult than it has to be:
The current negotiations are all the more difficult because of the fundamental shift in sentiment — and as a result, political will — of Canadians toward their American neighbors, Ross said.
“The Canadians have adopted a very negative attitude toward the U.S. in general, and we can argue, is that justified? Is it not? It doesn’t matter. There’s been a real sea change [and] that’s gonna be a complication because—almost independently of whatever proposal the U.S. might make—there’s probably a political advantage to people in Canada who oppose it,” Ross told Fortune in an exclusive interview. . . .
“[Trump] sometimes speaks metaphorically, and I think what was at the core of the 51st state was another way of articulating Canada’s dependence on the U.S.,” Ross suggests. “Just mechanically, how would we ever do that? If you put it up for a plebiscite, at least at present, I don’t think there’s any chance the Canadian public would vote for it. Would you invade them? I don’t see it.”
There’s also the question of why Trump is escalating his fight with Canada when there’s still an unresolved conflict with Iran, Trump’s CIA director felt the need to fly to Moscow to discourage any additional hybrid war or aggression against NATO, and a bunch of other real crises are going on.
In the last 24 hours, Trump has shared on Truth Social a chart declaring he is the greatest president, above George Washington, Abraham Lincoln, and, er, Woodrow Wilson; posted an AI-generated image of him walking arm-in-arm with Dolly Parton; declared the Strait of Hormuz “U.S. territory” again; and enthusiastically announced that “the U.S. Geological Survey has officially designated the former Lake Ontario to be renamed as Lake America in all official USGS electronic documents.”
He is, as the kids say today, “crashing out” — raging, fuming, lashing out, flitting from one concern to the next, frustrated that so many of his efforts have come to naught.
ADDENDUM: I don’t think you can find anyone who is saying that if she runs for president, Alexandria Ocasio-Cortez is a “shoo in” to win the Nevada caucus. But that didn’t stop Politico’s Playbook newsletter from falsely attributing that viewpoint to me.
Writing a morning newsletter is tough, isn’t it, guys?