US President Donald Trump said on Monday he will raise US tariffs on all Canadian-made cars, trucks, and auto parts to 50%, effective Jan. 1, after talks with Canada collapsed over the weekend. The deal on the table would have cut the tariff on Canadian light-duty vehicles from 25% to 15%, and the metals tariff from 50% to 25%, but negotiations broke down Friday. Meanwhile, Canada has answered President Trump’s latest tariffs in kind.

Canadian Prime Minister Mark Carney called the situation a trade war, and Flavio Volpe of Canada’s parts makers association warned that a real tariff on parts would halt US assembly plants that depend on them. Canada plans to impose tariffs on some US goods starting Sept. 8 in retaliation for a separate 50% tariff Trump has ordered on $20 billion worth of Canadian products.

The deal collapsed last Friday over several points of contention, including whether the US tariff relief would have applied to medium- or heavy-duty trucks.

Consequences for both parties

Canada has consistently been one of the top two US trading partners, and last year, US goods and services trade with Canada totaled $872.3 billion, down 4.6%. Canada exported more than three-quarters of its goods to the US and imported almost half of its goods from the US

On the other hand, US auto production is heavily integrated with Canada and Mexico (the long-lasting US-Mexico-Canada Agreement, which Trump did not renew last year, did not extend), and the tariffs, depending on the specifics, could have drastic impacts on American production.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said, “A threatened US tariff on Canadian auto parts will be paid by the US auto assembly. Without those specific parts, auto assembly throughout the US would halt.”

In a social media post, Unifor, the union representing Detroit Three auto workers in Canada, said the threat “is another attempt to force Canada into surrendering our auto industry and the good jobs that it supports.”

“The US administration fails to recognize that our highly integrated auto industry means ongoing instability hurts workers on both sides of the border and makes it increasingly difficult to build cars in North America,” Unifor continued. “That’s the opposite of what auto workers need right now.”

“Canadian and American auto workers have suffered the same fate, with plant closures and job losses because of significant non-North American imports. We need to resolve this together,” Unifor concluded.

Skepticism

Auto executives, speaking to Reuters on the condition of anonymity, raised skepticism about Trump’s threat, noting that the president has previously announced large tariffs that never materialized and that any tariff of that size would likely spark a massive Canadian retaliation.

They also noted that January was months after November’s midterm elections and that Trump’s threat could aim to restart talks.

In January, Trump said the US would decertify Bombardier Global Express business jets and threatened 50% import tariffs on all aircraft made in Canada until the country’s regulator certified a number of planes produced by US rival Gulfstream. Neither occurred, but the following month Canada certified several Gulfstream planes.

Automotive News Canada correspondent David Kennedy has his own thoughts about what happened. He called the 50% threat a bargaining tactic meant to pull Canada back to the table rather than a locked-in policy. “The January date reads as leverage, not certainty,” he commented.

Kennedy noted that Trump has singled out Canada for retaliation, even though Mexico is arguably a bigger trade friction point for the US when the numbers are run. He also said how close talks reportedly got last week and suggested the gap between the US and Canada may be narrower than the weekend’s rupture implies.

We will see in the coming days or weeks what will happen. It’s not the first time President Trump is bullying its most important trade partners and threatening its trade enemies. The fact that, for the first time, an important trade partner is biting back instead of obliging to the bullying can make a difference.

One thing’s for sure. The uncertainty caused by these sudden and often ill-considered measures will persist for a while, in an era when the automotive industry is shifting rapidly and not in the most harmonious way. But that seems to be of little concern to the current political decision-makers.

Canada’s answer

Canada is answering President Donald Trump’s latest tariffs in kind. On Wednesday, Prime Minister Mark Carney announced countertariffs matching the U.S. levies dollar for dollar, alongside new support programs for Canadian businesses caught in the escalating trade fight, according to Bloomberg.

The move marks a sharp reversal for Carney, who spent the past year rolling back retaliatory tariffs and offering concessions to keep talks alive. That strategy collapsed Friday, and Carney said Monday it’s now clear Washington aims to dismantle key Canadian industries, including steel, aluminum and autos.

Canada’s retaliation looks like this: Steel and aluminum tariffs jump to 50%, with the same rate applied to U.S. furniture, apparel, electronics and gaming consoles. The retaliatory tariffs cover roughly $20 billion in annual U.S. imports, about 6 percent of Canada’s goods imports from the U.S. last year.

Ottawa also unveiled a CN$7.5 billion ($5.4 billion) aid package with liquidity support, project grants and expanded jobless benefits for affected sectors.

Appliances, cheese, fish, seafood and certain steel and aluminum derivative products face 25 % tariffs; machinery, industrial tools and farm equipment face 15%. The new duties take effect Sept. 8.

In an interview in the Flemish newspaper De Morgen, America specialist Kenneth Manusama says that the latest escalation between Canada and the U.S. shows that President Donald Trump isn’t learning from its mistakes. “The United States is underestimating Canada already for the last year and a half.”

With the support of a serious part of Canada’s population, Carney has decided that he won’t be bullied by the U.S. “He also has serious ‘trump cards’ at his disposal; American companies will also deeply suffer under the high tariffs,” Manusama adds. “It’s not the first time that Trump has lost the ‘game of chicken’.”