US President Donald Trump with Canadian Prime Minister Mark Carney
The US-Canada trade war has intensified, with both countries imposing fresh tariffs on a range of goods, including cars, building materials, household products and alcohol. The latest measures come after US President Donald Trump's threat to raise tariffs on Canadian imports, prompting Prime Minister Mark Carney's government to announce retaliatory duties on several US products. The two North American neighbours have been locked in a bitter economic conflict since Trump returned to the White House and launched his flagship trade policy. While the tariffs could raise costs for businesses and consumers, the impact could also extend to jobs, investment and cross-border trade, with the USMCA trade agreement between the US, Canada and Mexico also facing greater uncertainty.
Cars face higher tariffs
Trump has threatened to raise tariffs on Canadian vehicles from 25% to 50% from January 1, 2027. Cars, trucks and parts are among the main goods traded between the US, Canada and Mexico, with manufacturing and supply chains stretching across borders. Previous tariffs have increased costs for manufacturers, but dealerships have absorbed the "lion's share", Bernard Yaros, lead economist at Oxford Economics told BBC. "But that cushion is wearing thin," he adds. "The recently threatened 50% tariffs on Canadian autos, trucks, and car parts would feed through to consumer prices more readily than before." Yaros said higher import costs could push manufacturers towards luxury cars, SUVs and pick-up trucks, while a shortage of cheaper new vehicles could raise used-car prices. Carney has not matched Trump's 50% tariff threat, but Canada has had a 25% import tax on certain American vehicles since last year.
Building materials could raise housing costs
Steel, aluminium and lumber have already faced tariffs, while Canada has now matched US rates on metals at 50%. Carney has also imposed import taxes on US wood products such as plywood and screws used to fix timber together. Building firms could face higher costs and pass them on through higher prices, pushing up the cost of homes. The Forest Products Association of Canada said tariffs would "raise costs on both sides of the border". In the US, Bill Owens, chairman of the National Association of Home Builders (NAHB), urged Trump to exempt building materials because of an "ongoing housing affordability crisis". "Building material tariffs heighten market uncertainty, strain supply chains and increase construction costs," he says. The US imported $23 billion worth of wood products in 2024, with almost half coming from Canada, according to a US Congress report. Disputes over softwood lumber used in housebuilding stretch back decades.
Household goods also targeted
Canada has targeted carpets, washing machines, furniture, fridges, knives, forks and spoons. Bradley Saunders, North America economist at Capital Economics, said consumers could instead turn to domestic alternatives. He said Carney had targeted goods where Canadians could "shift to domestic suppliers instead". "Like hair care products, you really can just buy that domestically instead," he adds, as cited by BBC. Saunders said the move aimed to "minimise the impact on Canadian households as much as possible by picking very fungible goods". The Budget Lab at Yale expects marginal increases in furnishing and other household equipment costs for Americans, mainly because of tariffs on lumber and other materials.
US alcohol sales face another hit
Several Canadian provinces banned US alcohol sales last year after earlier tariffs, while the American wine and spirits industry said exports to Canada fell by more than 70%. Carney had asked provinces to restore US alcohol to their shelves during trade talks, but with talks collapsed, the ban is likely to return. Saunders said politicians had pushed "buy Canadian", which had been successful for spirits. "That's really had an impact on the American alcohol industry," he adds. Saskatchewan and Alberta are the only provinces that still sell American alcohol. Saskatchewan has announced a 50% charge on US-imported alcohol from September 8, when the wider Canadian tariffs take effect.
Jobs and wider economy
Tariffs can also affect jobs. Businesses with cross-border supply chains face higher costs, while uncertainty could delay investment and limit job creation. Saunders said job losses could have a bigger impact on households than higher prices. "If you're, let's say, a bespoke furniture producer in BC [British Columbia], you're now facing a 50% tariff on your exports to the US - that could really shut the business down. I think that would be more the direct impact on households as opposed to these retaliatory measures." Canada's forest industry employs almost 200,000 people and has urged the government to boost domestic demand through federal housing programmes to make greater use of Canadian wood. However, it said "no support package can replace reliable access to our largest export market". For US consumers, the latest Canada dispute is unlikely to have a major impact on living costs. But trade tensions could create longer-term economic effects and uncertainty around the USMCA, the free-trade agreement between Canada, the US and Mexico. Canada and Mexico want the USMCA extended for another 16 years, while the US has said it will not renew it in its current form. Although the deal remains operational, tariffs could put off talks.
