U.S. Economy Could Feel the Sting From Trade War With Canada

The United States and Canada are locked in a serious trade fight that could hurt everyday Americans. On Saturday, the U.S. put new tariffs — extra taxes on imported goods — of 50 percent on about $20 billion worth of products from Canada. Canada threatened to strike back with its own taxes, and that back-and-forth could push prices higher for people in both countries.

President Trump has used tariffs many times since returning to office, raising and lowering them quickly and often. For a while, the tension with Canada had calmed down. But that changed on Saturday when the new 50 percent tariffs went into effect, sending the two neighboring countries toward a dangerous trade war. Experts say this kind of uncertainty makes it hard for businesses to plan ahead.

Tariffs are taxes that importers — the companies that bring foreign goods into the country — must pay when they buy products from another nation. Those extra costs often get passed on to regular shoppers in the form of higher prices. Items covered by the new tariffs include Canadian-made hockey sticks, furniture, and dairy products, all of which could become more expensive for Americans to buy.

Even so, the new tariffs only cover a small share of all the trade between the two countries. A researcher at the Yale Budget Lab said the tariffs would raise the average tax rate on Canadian goods from about 5.3 percent to about 7.6 percent. That may not sound like a lot, but experts warn the situation could get worse if both sides keep retaliating, or hitting back, against each other.

Scott Lincicome, an economist at the Cato Institute, said the biggest problem right now is uncertainty. When businesses do not know what the rules will be from one week to the next, they tend to invest less money and slow down their activities. He said the trade fight could lead to 'slightly less investment, slightly less economic activity' as long as this confusing situation continues.

Canada's Prime Minister Mark Carney made it clear his country was not going to back down. He threatened to announce new Canadian tariffs on American goods just after Labor Day, targeting areas like agriculture, steel, and electronics. At one point, Carney even said Canada was 'at war' — strong words that showed how serious the conflict had become.

The U.S. trade representative, Jamieson Greer, said on Saturday morning that no new talks with Canada were planned and that the U.S. was moving forward with its tariffs. That made a quick deal seem unlikely, at least for the moment. Still, some economists said a deal could happen soon, since Trump has made last-minute agreements with other countries before.

Joe Brusuelas, a chief economist at RSM US, warned that Canada might target industries where it would hurt the U.S. the most — like the auto industry. Cars and car parts move back and forth across the U.S.-Canada border all the time, so tariffs on them could raise prices on new vehicles. Higher car prices would add to the inflation — or rising prices overall — that Americans are already dealing with.

The trade fight is happening at a tough time for the U.S. economy. America's national debt hit $40 trillion this week, and bond markets have been shaky. A war with Iran has also pushed fuel costs higher around the world, and the president recently had to ease tariffs on beef imports after rising meat prices started hitting American wallets.

Some members of Congress spoke out against the new tariffs. Senator Peter Welch of Vermont said the duties were a 'slap in the face' to farmers and business owners in his state who rely on trade with Canada. He warned that long-standing business relationships built over many years were now at risk, adding that 'cross-border business relationships, built over decades, are in the lurch.'

Despite all the tension, some people in Washington and on Wall Street still believe the worst can be avoided. They note that Trump has often started with tough threats and then pulled back after getting something he wanted. As economist Brusuelas put it, everyone has now learned the usual pattern of how these negotiations tend to go — even if the ride can be bumpy.