As Canada takes on US tariffs, what's behind the David and Goliath fight? / Photo: © AFP/File
As Canada takes on US tariffs, what's behind the David and Goliath fight?
The United States and Canada have plunged into a trade war as Ottawa stands its ground in the face of President Donald Trump's latest tariffs, taking on the world's largest economy.
Washington slams its longtime ally as the only trading partner besides China to retaliate against Trump's duties. But Canadian Prime Minister Mark Carney said: "You're at war when you get attacked. We got attacked."
As new 50-percent US tariffs took effect on $20 billion in Canadian goods Saturday, Ottawa set out a "dollar-for-dollar" response Tuesday.
How much pain tolerance does each country have?
- How do the economies compare? -
The United States has a GDP of $32.5 trillion, in contrast with Canada's $2.5 trillion.
"This is not an equal fight," Christian Lawrence of Rabobank told AFP. "Exports to the US are 25 percent of Canada's GDP."
The United States is by far Canada's biggest trading partner.
US goods imports from Canada were just 11.5 percent of its total over the first half of 2026, although this outpaced imports from China.
Canada's imports from the United States, meanwhile, represented 58 percent of its overall figure.
- Who has more to lose? -
Hit by Trump's tariffs, Canada's economy has been recovering after contracting in late 2025.
"Canada cannot decouple from the US," Lawrence added. But it provides important goods to the US.
The "stagflationary impulses from weaker foreign demand and higher domestic prices are going to be disproportionately felt by Canada," warned ING chief international economist James Knightley.
Stagflation refers to a situation of slow economic growth, rising costs and elevated unemployment.
New US tariffs likely have a limited impact on economic growth, but professor Trevor Tombe of the University of Calgary estimates they could put nearly 90,000 Canadian jobs at risk.
Still, Canada's Finance Minister Francois-Philippe Champagne touted his country's strong credit rating and "fiscal discipline," saying it can support workers and firms as long as needed.
- What leverage does Canada have? -
Canada is an important supplier of energy and potash to the United States, which has avoided harsh tariffs on both types of products.
The Fertilizer Institute estimated last year that 85 percent of US potash imports, key to American farmers, came from Canada.
Most of US-Canada energy trade value meanwhile comes from US energy imports from Canada, at $111 billion in 2025, according to an analysis by the US Energy Information Administration. US energy exports to Canada totaled $26 billion last year.
And both countries have deeply integrated supply chains.
The Canadian Chamber of Commerce estimated last year that over 60 percent of goods the United States imports from Canada are intermediate goods like lumber, oil and steel -- which are used to make other products.
- Where will the US feel the pain? -
US importing businesses, particularly those close to the Canadian border, will likely feel the pinch from higher costs, Knightley of ING said.
Canadian provinces' removal of US alcohol from liquor stores also saw exports of US spirits drop by over 70 percent.
Similarly, Canadian visitor numbers to the United States plunged more than 25 percent from 2024 to 2025, Knightley noted.
This has weighed on leisure and hospitality employment in US border communities, found Philip Luck of the Center for Strategic and International Studies.
Trump also threatened to raise US tariffs on Canadian autos and parts to 50 percent from 2027, standing to hurt the sector -- auto parts cross borders multiple times before final assembly.
With high gasoline prices on voters' minds ahead of the US midterm elections, any restriction or tax on energy flows to the United States would weigh on American consumers, analysts said.
T.Hancock--TNT
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