What you need to know about the US-Canada trade war and tariffs

This post has been updated to reflect new developments. Attend our webinar series, Trade and Tariff Tuesdays, to hear Avalara experts discuss global trade issues and their businesses implications.

The United States and Canada were unable to reach a trade deal to prevent a 50% tariff on over $20 billion worth of Canadian goods from taking effect on August 22, 2026. Tensions between the two countries are escalating: Canada will impose retaliatory tariffs on U.S. imports starting September 8, 2026, and President Trump is threatening to increase tariffs on Canadian auto parts, cars, trucks, and steel in 2027.

The renewed uncertainty surrounding U.S.-Canada tariffs creates compliance challenges for cross-border businesses. Here’s what we know today. We’ll update this blog post as more information becomes available.

• U.S.-Canada trade turmoil is escalating. Trade negotiations between the two countries have broken down. The U.S. implemented a 50% tariff on a range of Canadian products effective August 22, 2026; Canada will impose retaliatory tariffs starting September 8, 2026; and Trump is threatening to increase tariffs on select Canadian imports starting January 2027. 

• USMCA’s future remains uncertain. The unwillingness of the U.S. to agree to extend the United States-Mexico-Canada Agreement (USMCA, or CUSMA, as Canada refers to it) triggers an annual joint review process. Businesses face prolonged uncertainty regarding duty-free status for many imports and U.S.-Canada cross-border compliance.

• Automation is critical for cross-border trade. With the fluctuation of U.S.-Canada tariffs, businesses should consider adopting automated tariff classification tools that will allow them to accurately calculate duties and avoid customs penalties.

Canada suspended trade talks with the United States on August 21, 2026, shortly before the 50% Section 338 tariffs on a range of Canadian products were scheduled to take effect. Prime Minister Mark Carney directed his negotiators to return to Ottawa and issued a statement explaining that “last-minute changes in the U.S. proposed terms were unfair, uneconomic, and called into question the reliability of any deal.”

And so, the U.S. implemented the 50% tariffs at 12:01 a.m. ET on August 22, 2026. The Section 338 duties apply to a range of products and impact roughly $20 billion (5%) of Canadian exports to the U.S., including goods that would otherwise qualify for duty-free entry under USMCA.

“Canada will match those tariffs dollar for dollar to protect our workers and businesses,” Carney said in his statement. These retaliatory tariffs will come into effect on September 8, 2026.

Trump responded to this news on Monday, August 24, by threatening to increase to 50% U.S. tariffs on all cars, trucks, automotive parts, and steel.

Here’s a timeline of major updates to U.S. tariffs on Canada, from most recent to oldest.

August 22, 2026. The 50% Section 338 tariffs established under Proclamations 11046, 11047, and 11048 take effect at 12:01 a.m. ET.

• Proclamation 11046 duties “offset Canadian discrimination against the commerce of the United States with respect to alcoholic beverages.” They apply to many alcoholic beverages and also assorted paper and wood products, like ice hockey and field hockey sticks.

• Proclamation 11047 duties “offset Canadian discrimination against the commerce of the United States with respect to dairy.” They affect many dairy products as well as certain sweeteners, glues, and other items.

• Proclamation 11048 duties “offset Canadian discrimination against the commerce of the United States with respect to motor vehicles.” They apply to a diverse assortment of products unrelated to the auto sector, including but not limited to clothing, plywood, radar apparatus, tableware, and vinyl tile floor coverings.

Additional details can be found at CSMS # 69606660 - GUIDANCE: Section 338 Additional Duties on Certain Goods of Canada.

August 18, 2026. President Trump issues a proclamation suspending the 50% duty that was scheduled to apply to a range of Canadian imports starting August 19, 2026. They’re currently scheduled to take effect at 12:01 a.m. ET on August 22, 2026. 

July 23, 2026. The Office of the United States Trade Representative (USTR) announces a new 10% tariff on Canada, implemented under Section 301 of the Trade Act of 1974. The new Section 301 tariff on Canada is in effect as of 12:01 a.m. ET on July 24, 2026.

July 20, 2026. President Trump invokes Section 338 of the Tariff Act of 1930 to impose a new 50% duty  a variety of Canadian imports, including many products that qualify for duty-free status under USMCA, effective August 19, 2026.

According to the presidential proclamations, the Section 338 tariffs are necessary due to Canada’s discrimination of American alcoholic beverages, dairy, and motor vehicles. The 50% tariffs will apply to many alcoholic beverages and dairy products as well as a host of other products — but not motor vehicles, which are already covered by Section 232 duties. 

Products not subject to the 50% tariff include imports subject to a Section 232 tariff, and some (but not all) products subject to the World Trade Organization Agreement on Trade in Civil Aircraft. 

The 30-day timeline allows time for negotiations. 

July 1, 2026. The U.S. declines to confirm its intention to renew USMCA. This decision triggers a mandatory annual joint review process until the agreement is extended or expires on July 1, 2036. For now, the agreement remains in force.

June 8, 2026. Section 232 tariffs are extended to new metals derivatives, while Section 232 duty rates for other derivatives are reduced. See CSMS #68855869 and this presidential proclamation for specifics.

April 6, 2026. Changes to the Section 232 tariffs on steel, aluminum, and copper take effect. The U.S. applies additional duties ranging 10% to 50% on the full customs value of certain imports of steel, aluminum, copper, and their derivatives. CSMS #68253075 offers more information. 

February 24, 2026. The U.S. imposes a 10% tariff on Canadian imports that don’t qualify for duty-free status under USMCA. The 10% tariff, established under Section 122, replaces duties levied under the International Emergency Economic Powers Act, or IEEPA. The U.S. Supreme Court ruled on February 20, 2026, that IEEPA does not authorize the president to impose tariffs. 

January 15, 2026. The U.S. sets 25% ad valorem duties on certain imports of semiconductors and their derivative products. See CSMS #67400472 for specifics.

November 1, 2025. The U.S. sets an additional 25% tariff on medium- and heavy-duty vehicles, an additional 10% tariff on buses and other vehicles classified in heading 8702 of the Harmonized Tariff Schedule of the United States (HTSUS), and an additional 25% tariff on the value of non-U.S. content of vehicles eligible for special treatment under USMCA. See CSMS #66665333 for more details.

October 14, 2025. The U.S. sets new duties ranging from 10% to 25% on imports of softwood lumber, upholstered furniture products, and completed kitchen cabinets, vanities, and parts.

August 1, 2025. The U.S. increases the IEEPA duty on Canadian products from 25% to 35%. Duty-free status for USMCA goods and the 10% tariffs on energy and potash remain unchanged. Additionally, the 50% tariff on steel and aluminum is extended to copper.

June 4, 2025. The steel and aluminum tariffs jump from 25% to 50%.

May 3, 2025. The U.S. implements a 25% tariff on certain automobile parts under Section 232, providing an exemption for the U.S. content of USMCA compliant auto parts. See CSMS #64913145 for more details.

April 4, 2025. The U.S. adds beer cans and empty aluminum cans to the list of products subject to the aluminum tariffs. 

April 3, 2025. The U.S. implements a 25% tariff on automobiles under Section 232, providing an exemption for the U.S. content of USMCA compliant vehicles. See CSMS #64624801 for more details.

April 2, 2026. Trump announced what he calls reciprocal tariffs on close to 60 countries. Duty rates range from 10% to 50% and are established under IEEPA. These reciprocal tariffs do not apply to Canada, which is already subject to IEEPA tariffs.

March 12, 2025. The U.S. implements a 25% tariff on certain steel and aluminum imports from all countries, including Canada. This also applies to certain derivative steel articles and certain derivative aluminum products. You can find more details in our blog post, Trump steel and aluminum tariffs: What you need to know.

March 6, 2025. President Trump pauses the tariffs for Canadian products covered under USMCA. He also lowers the additional tariff on non-USMCA energy products and potash from 25% to 10% effective March 7, 2025, at 12:01 a.m. ET. See guidance from CBP for more details.

March 5, 2025. President Trump pauses the tariffs on automobiles from Canada and Mexico after meeting with the big three auto dealers (Stellantis, Ford, and General Motors). “There is a one-month exemption on any autos coming through USMCA,” said White House Press Secretary Karoline Leavitt.

March 4, 2025. The U.S. imposes additional duty rates on products of Canada under IEEPA. Per U.S. Customs and Border Protection (CBP) guidance, the new tariffs affect the following Harmonized Tariff Schedule of the United States classifications (HTSUS codes, or simply HTS codes):

• 9903.01.10: A 35% additional ad valorem rate of duty on all imports of articles that are products of Canada except:
  • Products classifiable under headings 9903.01.11, 9903.01.12, and 9903.01.
  • Products for personal use in accompanied baggage of persons arriving in the U.S.
• 9903.01.13: A 10% additional ad valorem rate of duty on imports of energy or energy resources of Canada, as defined in section 8 of Executive Order 14156 as crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and certain critical minerals

Additional guidance is available in CSMS #64384496, CSMS #64384423, CSMS #64375535, and CSMS #65798609.

What’s a “product of Canada” for customs duties? 

A “product of Canada” means at least 98% of the total direct costs of producing or manufacturing the item were incurred in Canada, and “the last substantial transformation of the good occurred in Canada,” according to the Government of Canada.

“Made in Canada” means between 51% and 98% of the total direct costs occurred in Canada, and the last substantial transformation of the good occurred in Canada. The “Made in Canada” label should be accompanied by an appropriate qualifying statement, such as “Made in Canada with imported parts.”

Here’s a timeline of the most significant developments related to Canadian tariffs on U.S. goods, from most recent to oldest.

August 25, 2026. The Government of Canada publishes an updated list of U.S. products subject to counter tariffs effective September 8, 2028. “The new targeted counter tariffs are concentrated in sectors such as steel and aluminum, dairy, appliances, agricultural equipment, pulp and paper, plastics, and electronics,” it explains. “In certain sectors, such as steel and aluminum, existing counter-tariffs will increase from 25 percent to 50 percent to match U.S. rates. Other existing counter-tariffs, including against U.S. autos, will also continue to apply.”

There are 893 entries, including forklift trucks (15%), a variety of fish products (25%), and milk and cream (50%).

August 21, 2026. Prime Minister Carney ends negotiations with the U.S. and says Canada will match the new tariffs “dollar for dollar.” 

July 20, 2026. Carney issues a statement in response to President Trump’s proclamations imposing 50% tariffs on alcoholic beverages, dairy products, and a host of other Canadian products. He explains that Canada has been working to resolve the trade dispute with the U.S. and to modernize CUSMA over the past 18 months, and that Canada is “ready to intensify those discussions in the coming weeks.” Elsewhere, Carney said Canada “will not hesitate to defend our interests if we have to.”  

December 26, 2025. Canada imposes a 25% tariff on the full value of certain steel derivative products from all countries, including the United States. See this Government of Canada notice for more details.

September 1, 2025. Canada removes all Canadian counter tariffs on U.S. goods covered under CUSMA, except for its tariffs on steel, aluminum, and autos. 

A statement released by Prime Minister Mark Carney notes that “the actual U.S. average tariff rate on Canadian goods is 5.6% and remains the lowest among all its trading partners, and more than 85% of Canada-U.S. trade is now tariff-free.”

June 30, 2025: Canada rescinds its Digital Services Tax “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States.” The two countries were looking to reach a deal by July 21, 2025.

April 9, 2025. Canada responds to Trump’s auto tariffs with a 25% tariff on all vehicles imported from the U.S. that are not compliant with CUSMA, and a 25% tariff on non-Canadian and non-Mexican content of CUSMA compliant vehicles imported into Canada from the U.S. 

March 13, 2025. Canada implements 25% reciprocal tariffs on steel and aluminum in response to the U.S. tariffs on steel and aluminum. Affected products include:

• $12.6 billion CAD in steel products

• $3 billion CAD in aluminum products

• $14.2 billion CAD in additional imported U.S. goods (including tools, computers and servers, display monitors, sport equipment, and cast-iron products)

March 4, 2025. Canada imposes 25% counter tariffs on $30 billion CAD in goods in response to Trump’s first wave of tariffs. The counter tariffs apply to a wide variety of products, including apparel, appliances, beer, coffee, cosmetics, footwear, motorcycles, orange juice, peanut butter, spirits, wine, and certain paper products.

The additional 25% tariff does not apply to goods classified under Chapter 98 of the Schedule to the Customs Tariff, except tariff items 9804.30, 98.25, 98.26, 9897.00.00, 9898.00.00, and 9899.00.00.  

The premiers of Canada’s provinces generally stand with Prime Minister Carney.

Canadian provinces responded to the 2025 U.S. tariffs with force. Provincial measures against the U.S. trade policies included canceling contracts with U.S. businesses, pulling U.S. products from shelves, raising tolls on U.S. vehicles, and even new export taxes.

Manitoba extended tax payment deadlines until June 20, 2025, for the February, March, and April 2025 return periods. Businesses adversely affected by the tariffs could defer payments of the provincial sales tax and the health and post-secondary education tax. 

New Brunswick said it would sign no new contracts with American companies and would seek new markets for items traditionally exported to the U.S., such as lumber and seafood. On March 4, 2025, Premier Susan Holt told CTV News her province has been preparing for Trump’s tariffs for months. “The president might not realize that we supply American defense with jet fuel,” she said. “If you go to the base in Maine ... those planes don’t get in the air without Canadian jet fuel.”

The Government of Newfoundland and Labrador looked for new markets for local businesses and encouraged residents to avoid purchasing American products.

Nova Scotia doubled tolls for U.S. commercial vehicles at the Cobequid Pass effective March 4, 2025. It also limited provincial procurement for American businesses (they can no longer bid on provincial businesses). 

Doug Ford, the Premier of Ontario, told reporters he’d “do everything — including cut off their energy with a smile on my face,” in response to the U.S. tariffs. “They rely on our energy; they need to feel the pain. They want to come at us hard, we’re going to come back twice as hard.” 

On the evening of March 6, 2025, Ford said Ontario would impose provincial tariffs on electricity delivered to Michigan, Minnesota, and New York, the three biggest customers for Ontario power. The 25% surcharge took effect March 10 but was suspended the following day and is no longer in play.

Quebec announced a 25% penalty for American firms bidding on Quebec government contracts. Like Ontario Premier Doug Ford, Premier François Legault considered shutting down power exports to the U.S.

In a Facebook statement, Saskatchewan Premier Scott Moe said, “Canada’s response needs to be economically sound and reasoned,” and that his cabinet would “consider all options.” On March 6, 2025, Saskatchewan said it would stop purchasing U.S.-produced alcohol and would reduce purchases of other U.S. purchases and contracts.

Finally, fewer Canadians are traveling to the U.S. According to research from the University of Toronto’s School of Cities, Canadian visits to U.S. cities declined by approximately 42% between April 1, 2024, to March 31, 2025, and April 1, 2025, to March 31, 2026.

Given the frequency and rapidity of the U.S.-Canada tariff changes since the start of President Trump’s second administration, automation is key to compliance.

Avalara Cross-Border automates tariff code classification and delivers real-time calculation of customs duties and import taxes for our customers. We keep our finger on the pulse of tariff policy changes and update our systems to keep businesses compliant.

“Our talented team of content researchers and content engineers work around the clock to ensure the vast array of trade content we deliver to our customers is both timely and accurate,” says Craig Reed, GM of Cross-Border at Avalara. “Despite the dizzying pace of change, our team has been on top of it. Whether it’s restrictions content, tariffs, classification codes, or other trade content, we provide our customers with the tools and services they need to be in compliance, all powered by our powerful AI and automation engines.”

Contact us today to learn how we can help you stay ahead of tariff changes.

What’s the latest on U.S.-Canada trade negotiations and tariffs?

Trade negotiations between Canada and the United States ended without a deal. The Section 338 tariffs took effect at 12:01 a.m. ET on August 22, 2026.

What are the current U.S. tariffs on Canada?

U.S. tariffs on Canada are in flux. The 10% Section 122 tariffs on many Canadian imports expired on July 24, 2026, and were immediately replaced by a 10% Section 301 tariff. New Section 338 tariffs on alcoholic beverages, dairy, and a variety of other Canadian products took effect on August 22, 2026. Other U.S. tariffs on Canada include Section 232 duties on steel, aluminum, and copper. 

Are U.S. tariffs on Canadian goods stackable?

Some tariffs are stackable, and some tariffs do not stack. The 10% Section 122 tariffs that expired on July 24, 2026, do not stack on top of Section 232 tariffs. The 50% Section 338 tariffs do not apply to energy, potash, products subject to tariffs under Section 232, or certain other goods, such as fish or critical minerals.

Does Canada charge tariffs on U.S. goods?

In response to the 2025 U.S. tariffs on Canadian goods, Canada implemented counter tariffs on a variety of U.S. goods, including apparel, appliances, and alcohol. Canada repealed most of the 2025 tariffs as of September 1, 2025, however duties on steel, aluminum, and automobiles remain in effect. Canada will implement new retaliatory tariffs starting September 8, 2026.

What is USMCA?

USMCA stands for the United States-Mexico-Canada Agreement, a free trade agreement that went into effect on July 1, 2020, and will remain in force until July 1, 2036. USMCA replaced the North American Free Trade Agreement (NAFTA), which had governed trade between the three countries since 1994. In Canada, USMCA is known as the Canada-United States-Mexico Agreement, or CUSMA. 

Where can I find more information about tariffs?

For more information about the changing tariff landscape, check out the following blogs:

• Tariffs in 2026: How new trade rules impact your business
• The difference between IEEPA tariffs, Section 122 tariffs, Section 232 tariffs, and Section 301 tariffs
• The end of de minimis: New US entry process, EU duties
• How to request IEEPA tariff refunds