U.S. Imposes 50% Tariff on Select Canadian Products

• The U.S. Administration invoked Section 338 of the Tariff Act of 1930 to announce a 50% duty on a wide swath of products representing roughly 5% of Canadian exports to the U.S. 
  • The items affected include alcoholic beverages, cement, dairy products, wood and paper products, hockey sticks and other items. 
• The new tariffs are in response to "Canadian discrimination against the commerce of the United States" with respect to autos, dairy and alcoholic products. 
  • Specifically, the tariffs are in response to provincial bans on the sale of U.S. alcohol, Canadian tariffs on U.S. made automobiles, and the ongoing disputes over U.S. market access to the Canadian dairy market under the supply management system. 
• The tariffs are due to come into effect in 30 days, on August 19th.

Key Implications

• After a period of calm, tariffs are back in the headlines. The USMCA negotiations linger in the background, but U.S. administration officials have previously voiced their irritation on Canada's trade actions outlined above. The other shoe appears to have dropped.
• Importantly, unlike the Liberation Day tariffs that were gradually walked back, the new tariffs are highly targeted. The new batch looks to affect the Canadian economy with minimal impact on U.S. industry and consumers.
• The 30-day implementation period does, in theory, leave time and room for negotiation. Given the backdrop of the USMCA negotiations, it's reasonable to wonder just how long these tariffs will be in effect.
• Trade Representative Jamieson Greer is due to testify before the Senate Finance Committee on Wednesday before heading to Mexico to continue trade negotiations. There is scope for some additional clarity on the timing and potential conditions for the removal of the tariffs.
• Given the targeted nature of these tariffs, it suggests that products were selected where demand is going to be highly responsive to the new duties. For Canada's economic outlook, it's also important to note that businesses have been operating under a cloud of uncertainty for over a year, and although the new announcements are likely to dent confidence further, a repeat of the scale of the confidence shock from 2025 remains a tail risk. Given the circumstances, should the tariffs be maintained it would likely take between 0.3 to 0.6 percentage points off GDP growth over the next year, absent any major changes to business behaviour or government response. We believe that the ultimate impact would likely track closer to the lower range of these estimates.
  • This analysis is based on the experience of the steel sector. Exports of iron and steel, and their products, are down roughly 50% relative to pre-tariff levels as U.S. demand has shrunk. Given the targeted nature of these tariffs, it suggests that products were selected where demand is going to be highly responsive to the new duties. 
• Businesses are likely to front-run the tariffs ahead of the August 19th deadline. This will increase the volatility in the trade data. The data are unlikely to reflect the full effect of the tariffs (if they come into force) until September, so the full macroeconomic impacts will start to show through in late-26. 
• Markets responses have remained muted thus far. The loonie is down 0.2% since yesterday, while rate expectations for the Bank of Canada (BoC) are relatively unchanged. What is important is that the downside economic risks from trade the BoC has continually cited remain ever-present.  
• For the U.S., the Section 122 tariffs that were levied to replace the IEPPA tariffs (see commentary) are due to expire on Friday. With the conclusion of the Section 301 tariff investigations into forced labour, we can likely expect new tariff announcements in the coming days as the administration rebuilds its tariff wall (for more details see our recent report). 
  
   

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