The economic relationship between the United States and Canada is one of the strongest trade partnerships in the world, shaped by geographical proximity, shared industries, and deep economic integration. Both countries are each other’s largest trading partners, with total trade exceeding $800 billion in 2023. However, despite this strong relationship, trade disputes between the two nations have emerged periodically, with tariffs playing a major role in shaping economic policies, business operations, and consumer costs.

One of the most significant recent trade tensions between the US and Canada occurred during the US-China trade war under the Trump administration in 2018, when the US imposed 25% tariffs on Canadian steel and 10% tariffs on aluminum, citing national security concerns under Section 232 of the Trade Expansion Act. These tariffs caused a sharp backlash from Canada, which responded with retaliatory tariffs on US goods ranging from agricultural products to household appliances. Although these tariffs were lifted in 2019 following negotiations under the USMCA trade agreement, US-Canada trade tensions have persisted, particularly in industries such as lumber, dairy, and electric vehicles.

By 2024, renewed tariff measures on specific Canadian exports—particularly lumber and dairy products—have strained economic relations, leading to increased costs for both American consumers and Canadian producers. The US government’s concerns over domestic industry protection, labor conditions, and competition from Canadian subsidies have fueled these trade restrictions, prompting Canada to seek alternative trade agreements and economic diversification strategies. This case study explores the effects of US tariffs on Canadian goods, the economic consequences for both nations, and the ongoing policy debates surrounding trade protectionism.

US Tariffs on Canadian Goods: A History of Trade Tensions

The US and Canada have shared a long history of trade disputes, with tariffs often used as a policy tool to protect domestic industries or address trade imbalances. The softwood lumber dispute, which dates back to the 1980s, remains one of the most prolonged economic conflicts between the two nations. The US accuses Canada of subsidizing its lumber industry, giving Canadian producers an unfair advantage over American sawmills. In response, the US has repeatedly imposed countervailing duties on Canadian softwood lumber, with the most recent tariff rates set at 8.59% in 2023, a reduction from 17.91% in 2021.

The steel and aluminum tariffs of 2018 were another flashpoint in US-Canada trade relations. These tariffs disrupted North American supply chains, increased production costs for manufacturers, and led to retaliatory Canadian tariffs on $12.6 billion worth of US goods, including whiskey, orange juice, and motorboats. While these tariffs were eventually removed under the United States-Mexico-Canada Agreement (USMCA), the impact on industrial production and cross-border investments continued for years.

Another contentious issue has been the US restrictions on Canadian dairy exports, particularly under the USMCA trade framework. The US dairy industry has long argued that Canada’s supply management system, which limits dairy production and imposes high tariffs on imported dairy products, creates an uneven playing field. In 2022, the US filed a trade complaint against Canada, alleging that its dairy quota system unfairly restricted American access to the Canadian market. While Canada has made minor adjustments to its dairy policies, ongoing trade disputes over agricultural protections persist.

The Biden administration’s recent push for “Buy American” policies has added further strain to US-Canada trade relations. New tariffs and subsidies designed to boost American manufacturing—particularly in electric vehicle production and critical minerals—have raised concerns among Canadian industries. As the US seeks to reduce dependence on foreign supply chains, Canada finds itself in a delicate position, balancing its role as a key US trade partner while also pursuing greater economic independence from American policy shifts.

Economic Consequences of US Tariffs on Canadian Industries

The economic impact of US tariffs on Canadian goods extends beyond individual industries, affecting employment, investment decisions, and consumer prices in both countries. Canadian producers often bear the brunt of trade restrictions, as tariffs increase the cost of exports to the US, reducing competitiveness in the American market. For instance, following the 2018 steel and aluminum tariffs, Canada’s steel exports to the US declined by 22%, leading to job losses and lower production in major steel-producing regions such as Ontario and Alberta.

The softwood lumber industry has also suffered due to repeated US tariff measures. Canadian lumber exports to the US account for over 70% of Canada’s total lumber production, making the industry heavily reliant on American demand. When US tariffs are imposed, Canadian sawmills cut production, lay off workers, or pass increased costs onto consumers. In 2023, US tariffs on softwood lumber added an estimated $1,200 to the price of an average American home, highlighting the broader economic effects of trade restrictions.

The US dairy market has also been affected by Canada’s retaliatory measures. American dairy farmers, particularly in Wisconsin and New York, have lobbied against Canada’s restrictive dairy import policies, arguing that limited market access reduces profitability for US producers. The USMCA agreement included provisions designed to increase US dairy exports to Canada, but disputes over quota allocations and regulatory barriers have continued, leading to frustration among American dairy producers.

For consumers, tariffs often lead to higher prices on goods, reduced product variety, and supply chain inefficiencies. American companies that rely on Canadian raw materials, such as homebuilders using softwood lumber or automakers sourcing aluminum and steel, face increased input costs, which are passed on to consumers. Similarly, Canadian businesses importing American products affected by retaliatory tariffs experience higher costs and reduced competitiveness in their domestic markets.

The Future of US-Canada Trade Relations

While tariffs and trade disputes have long been a feature of US-Canada economic relations, both countries continue to explore ways to strengthen trade ties while addressing industry-specific concerns. The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2020, remains the foundation of North American trade policy, promoting tariff-free trade on most goods while allowing for targeted protections in key industries. However, ongoing disagreements over softwood lumber, dairy, and industrial subsidies suggest that trade tensions will persist.

Canada has responded to trade volatility by diversifying its economic partnerships, expanding trade agreements with the European Union, the United Kingdom, and Asia-Pacific nations. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has opened new markets for Canadian goods, reducing reliance on the US as its primary trade partner. However, geographical and logistical factors still make the US-Canada trade relationship the most significant for Canadian businesses.

Future trade policies will likely focus on balancing domestic industry protections with global competitiveness. Both countries have a vested interest in strengthening North American supply chains, particularly in industries such as electric vehicles, renewable energy, and critical minerals. As the global economy shifts toward decarbonization and technological innovation, the US and Canada will need to navigate trade disputes while ensuring that cross-border economic integration remains beneficial for both nations.