Trump threatens to double auto tariffs as US-Canada trade tensions escalate

President Donald Trump has threatened to increase United States tariffs on Canadian automobiles and auto parts from 25 per cent to 50 per cent, effective from 1 January. The announcement marks a significant escalation in the ongoing trade dispute between the two nations, following the collapse of negotiations late last week. Trump accused Canada of ripping America off during a statement on Monday, signalling a hardline approach to the bilateral relationship. The proposed hike in duties comes as both countries continue to exchange sharp rhetoric, with each side blaming the other for the breakdown in talks and the subsequent suspension of diplomatic efforts to resolve their commercial differences.

The threat to raise automotive tariffs follows Prime Minister Mark Carney’s declaration that Canada would implement reciprocal tariffs on US goods on a dollar-for-dollar basis. Carney described the president’s latest levy threat as unsurprising, accusing him of attempting to destroy Canada’s auto industry. Despite the hostile tone, the Canadian leader stated that his government remains prepared to resume negotiations if the United States approaches the table with the right attitude. This exchange of words occurred after several officials from both countries confirmed that talks were suspended with no set date for their resumption. The situation represents a sharp reversal from earlier in the week, when both sides had appeared optimistic about reaching a new trade agreement before a US-imposed deadline expired.

Canadian officials have stated that the United States introduced last-minute demands that were deemed unacceptable, including a clause that would limit which countries Canada could sign trade deals with. In contrast, US officials maintain that it was Canada that introduced late changes to the agreement. US trade representative Jamieson Greer told CNBC on Monday that the Canadian side wanted more, suggesting that their demands were the primary obstacle to a deal. The collapse of these negotiations has led to growing tensions, with both governments publicly digging in their heels and refusing to back down from their respective positions on trade policy and market access.

Ontario Premier Doug Ford, whose province is home to Canada’s auto manufacturing industry, responded to the US threats with strong language, telling the president to kiss my ass. Ford suggested that Canada should charge the United States extra for its oil and gas, as well as electricity and critical minerals, and indicated he would speak with Carney about ways to fight back. Trump responded to Ford’s comments on Truth Social, accusing the premier of bluster and warning that the consequences for Canada would be far worse if they did not fall in line. The premier’s remarks highlight the political pressure within Canada to respond firmly to what is perceived as aggressive US trade tactics.

The trade war has raised concerns among businesses on both sides of the border, who warn they stand to be impacted by the new wave of US tariffs and the planned Canadian retaliatory measures. Canada accounts for 60 per cent of total US crude oil imports and close to 100 per cent of US natural gas exports, according to Canadian government data. The dispute also puts the future of the United States-Mexico-Canada Agreement, or USMCA, into question. During a mandatory review this summer, Canada and Mexico expressed a desire to extend the pact for another 16 years, but the US stated it would not renew the agreement in its current form. The pact underpins 1.6 trillion dollars in North American trade, making its stability crucial for the regional economy.

Experts have warned that the escalating tensions could have severe economic consequences. Tony Stillo, head of Canada economics at Oxford Economics, and senior economist Michael Davenport noted that while unlikely, the risk of the USMCA unravelling has increased. They warned that such a scenario would plunge Canada into recession and leave it on a permanently lower growth path. Carney has focused on supporting Canadian businesses impacted by the new 50 per cent US tariffs and is building infrastructure to diversify Canada’s trade, which has historically relied heavily on the US. He announced funding of 11 billion Canadian dollars to build six icebreakers at a Quebec shipyard for the Canadian Coast Guard, which will be used to open winter shipping routes through Canada’s northern and Atlantic waters.