The Canadian dollar fell on Monday morning after trade talks between Ottawa and Washington fell apart, leaving both sides facing higher prices on a wide array of imported goods and threatening Canada’s economic growth.
The U.S. on Saturday slapped 50% tariffs on around $20 billion worth of imports from Canada, its second-biggest trading partner after Mexico. The affected goods span dairy, wine, wood products, furniture, cement, ceramics and a slew of other areas.
Canadian Prime Minister Mark Carney said he would retaliate “dollar for dollar” with tariffs starting Sept. 8, targeting sectors such as steel, dairy, agricultural equipment, paper and electronics. Details will be released “in the coming days,” Carney added.
The Canadian dollar was 0.58% lower against the U.S. dollar at 8 a.m. ET. The loonie also dipped against the euro, British pound and Japanese yen.
‘We got attacked’
Negotiators had been scrambling to strike a deal all week. But rhetoric turned sour by the weekend, with each side blaming the other for failing to reach an agreement and for unfair trade practices.
Speaking to CNBC on Monday, U.S. Trade Representative Jamieson Greer said a deal was close, but that in the “last hours,” the Canadians “wanted more” than Washington was willing to offer.
“We offered them the best access to the United States of any country in the world. Obviously, there’s always going to be tariffs, and there’s going to be that protection for American workers and companies.”
“But we sought to accommodate the Canadians by… cutting tariffs in half on steel, on aluminum, and extensively reducing them on autos, and even on things like softwood lumber, accommodating some element of that. Things that are sensitive for the Canadians. They simply… wanted more,” Greer said.
“I don’t know if it was political for them. It certainly doesn’t make economic sense.”
Markets “understand that this affects a very small amount of trade,” Greer added. The tariffs total around 0.6% of total U.S. goods imports.
Carney said on Saturday that the U.S. had “asked too much and offered too little.”
“We were not prepared to compromise Canada’s sovereignty or undermine our key industries,” he said.
When asked by a reporter why it felt like Canada was entering into a trade war, Carney replied: “Because we got attacked. You’re at war when you get attacked. We got attacked.”
Tariff details in major sectors including autos, steel and aluminum were a sticking point, along with Canadian protections over use of the French language and the ability for the country to strike separate trade deals, Carney indicated in his remarks.
The U.S. and Canada export tens of billions in agricultural products to one another each year, while their auto industries are deeply entwined. The U.S.’s $48.3 billion trade deficit with Canada is in large part due to its significant imports of Canadian natural gas, electricity and crude oil.
Like the European Union during its own protracted trade negotiations with the Trump administration, Ottawa argues that its trade relationship with the U.S. shifts into deficit once services are included.
“Canada wants the benefits of being a State, without being one!!!,” U.S. President Donald Trump said in a post on Truth Social on Sunday. “They have also charged our great farmers, for many years, massive amounts of Tariffs. No more!!!”
Economic impact
Canada’s smaller, more trade-oriented economy is more vulnerable to the escalation than that of the U.S., economists said Monday.
Despite suggestions that he will enact fiscal measures to support businesses, Carney said this weekend that the duties would “raise costs and reduce choice for Canadians.”
The tariffs only apply to 5% of Canada’s goods exports to the U.S., meaning “it isn’t a hammer blow, but for many individual companies it will be devastating,” ING’s chief international economist James Knightley said.
“For many small and medium size companies, particularly in border states,” of the U.S., meanwhile, “this is very bad news,” Knightley said.
Bradley Saunders, North America economist at Capital Economics, said that the most exposed industries in Canada “could be crippled” by the high levies.
There is no longer an exemption for goods that comply with production rules set out in the United States-Mexico-Canada Agreement (USMCA) — a trilateral deal that is currently under renegotiation — as there has been in previous rounds of tariffs since Trump‘s “Liberation Day” in April 2025.
Though the targeted goods only comprise around 0.6% of Canada’s gross domestic product, “a collapse in exports would still be enough to push already-weak GDP growth back towards zero,” Saunders said.
“This would especially be the case if weaker U.S. demand for finished items such as furniture and electrical equipment had knock-on effects on upstream primary industries, which are already struggling under the strain of Section 232 tariffs.”
The situation could escalate further if Trump retaliates to Canada’s countermeasures, Saunders added, estimating that extending a 50% tariff rate to a fifth of Canada’s U.S. goods exports, from 5% currently, could knock around 2% from Canadian GDP and push it into recession territory.
Christian Lawrence, chief cross-asset strategist and head of Americas and energy markets research at Rabobank, said that the existing package would have little impact on the U.S., but there was a risk if Ottawa opted to take a more aggressive stance on other goods.
“But, this is where lies Canada’s difficulty. Diversifying away from the world’s largest consumer sitting on your doorstep is impossible to do in a truly meaningful way,” Lawrence said.
Despite the potential economic hit, Carney’s stance was welcomed by many in Canada, where recent polling suggests a majority of the public support a hard line in U.S. negotiations, but a growing number are fearful of their job security. Ongoing U.S. tariffs of 50% could cause around 90,000 job losses, according to Canadian economist Trevor Tombe.
Carney was elected in March 2025 in large part on a pledge to stand up to the White House. It came as reports of Canadians removing U.S. alcohol from store shelves highlighted the sour relations between the North American neighbors.
Pierre Poilievre, leader of the opposition Conservatives, said on social media on Saturday that Canada “cannot accept one-sided tariffs that will deindustrialize our country.”
