A trade war between Canada and the US deepens rupture in what had been a close and durable alliance

TORONTO (AP) — For decades, Canada built much of its prosperity on privileged access to the United States. Now, after the collapse of trade talks, one of the world’s closest and most durable alliances has been fundamentally altered, with both countries facing the risk of a full-scale trade war.

Prime Minister Mark Carney acknowledged the break after last-ditch negotiations failed Friday, saying Canada had recognized that “America has changed” and that the countries would “not return to our old relationship.”

The United States imposed 50% tariffs on about $20 billion worth of Canadian goods early Saturday. Canada promised to match the import taxes dollar for dollar. Carney suspended negotiations and ordered Canada’s trade team home after accusing Washington of last-minute changes that were “unfair, uneconomic, and called into question the reliability of any deal.”

Carney foreshadowed the shift at the World Economic Forum in Davos in January, declaring that the world was experiencing “a rupture, not a transition” and urging countries such as Canada to reduce their vulnerability to economic coercion by strengthening their economies at home and diversifying abroad.

“The collapse of the tariff talks points to the fact that the old Canada-U.S. relationship is over and, for many Canadians, it also confirms the perception that Canada can’t trust the Trump administration,” said Daniel Béland, a political science professor at McGill University in Montreal.

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The pressure from Republican President Donald Trump has gone well beyond tariffs.

He has questioned Canada’s economic viability, repeatedly talked about making it the 51st U.S. state and used trade measures to press for more production in the United States. The threats and economic pressure have angered many Canadians and fueled a sense of betrayal in a country that had long regarded the U.S. as its closest ally.

Travel to the U.S. remains sharply below levels before the dispute, with Canadian-resident return trips in July down nearly 29% by car and 27% by air from July 2024, Statistics Canada said.

The failed trade negotiations underscored how far the relationship had shifted. Canada had been prepared to accept some U.S. tariffs in exchange for broader market access and greater certainty — a sharp break from decades of continental trade policy built around eliminating barriers and increasing integration.

Washington has portrayed its proposed terms as especially favorable to Canada. But for Canadians accustomed to preferential access under the 1989 Canada-U.S. Free Trade Agreement, the North American Free Trade Agreement and its successor, even reduced tariffs would mark a fundamental retreat from the old relationship.

The collapse also puts Carney’s approach to Trump to the test.

The prime minister’s “elbows up” posture — hockey shorthand for playing aggressively and refusing to be pushed around — has helped keep him popular at home. His decision to resist U.S. pressure could also resonate abroad with those impressed by his Davos call for countries to resist economic coercion and reduce dependence on great powers.

Provincial leaders had already been preparing Canadians for a permanent change. Saskatchewan Premier Scott Moe said “the old status quo is not possible.”

Ontario Premier Doug Ford, who leads Canada’s most populous province, said Carney had his “full support” for retaliation “tariff for tariff, dollar for dollar.”

Former Alberta Premier Jason Kenney, a prominent conservative and former federal Cabinet minister, said Canada was “not cravenly surrendering in the face of constant economic and political aggression” from Trump. Kenney noted that Canada, along with China, was among the few countries to retaliate against U.S. tariffs. “Damn right we are,” Kenney wrote.

The economic risks of fighting back and a shift seen as perhaps lasting beyond Trump

Nearly three-quarters of Canada’s goods exports go to the United States. The U.S. economy is roughly 10 times larger than Canada’s, limiting Ottawa’s ability to retaliate dollar for dollar without inflicting disproportionate damage at home.

Royal Bank of Canada economists estimate the tariffs directly affect about 0.4% of Canada’s gross domestic product and jobs because the trade penalties cover only about 5% of Canadian exports to America. The damage could grow significantly, however, if retaliation broadens, more sectors are pulled into the dispute or the standoff persists long enough to curb investment and disrupt integrated supply chains.

Béland said the countries were witnessing “the beginning of a full-scale trade war,” though he cautioned that the situation could change rapidly.

The dependence is not one-sided.

Canada supplies roughly two-thirds of U.S. crude oil imports, making Canadian energy critical to large parts of the U.S. economy. Trump has focused much of his pressure instead on autos, steel and aluminum, sectors where he wants more production moved to the U.S. That push has fueled resentment in Canada, where many see it as an effort to hollow out key industries.

Goldy Hyder, president and CEO of the Business Council of Canada, said businesses still view the U.S. as Canada’s most important trading partner but increasingly see the shift as lasting beyond Trump.

“There is a new trade and investment model, one that could well be kept in place by future U.S. administrations whether Democrat or Republican,” Hyder said.

Canada looks beyond the United States because ‘things will never be the same’

The breakdown adds urgency to Carney’s push to diversify beyond the United States. He has traveled abroad seeking investment and new trade ties, aiming to attract $1 trillion Canadian (US$730 billion) by 2030 and to double non-U.S. investment over the next decade.

In July, Ottawa and Alberta advanced plans for a new Pacific Coast oil pipeline to give Canadian crude greater access to Asian markets and reduce reliance on U.S. buyers.

In recent days, Manitoba Premier Wab Kinew had urged Canada to keep fighting rather than accept a weaker deal. He argued that Trump was vulnerable because the cost of living was the top election-year issue for U.S. voters and that America had grown weaker internationally, pointing in part to the confrontation with Iran.

“I think we should fight. I think we’ve got the upper hand,” Kinew said.

Kinew also questioned whether Canada should make lasting concessions to tariffs that may not outlive Trump’s presidency.

“I just wonder if accepting the idea of the Trump tariffs are here forever is the move,” he said.

The immediate question is how long the latest tariff confrontation will last.

Béland said the deeper change probably will, partly because U.S. protectionism is likely to remain influential under future administrations.

“The idea that things will return to ‘normal’ once Donald Trump leaves the White House is probably just wishful thinking,” Béland said. “It doesn’t mean the relationship might not improve in the future but that things will never be the same.”