US President Donald Trump to impose 50% tariff on some Canadian products
US President Donald Trump is imposing a new tariff of 50% on most Canadian products in response to what it called Canada's "discriminatory treatment" of US cars, alcohol, and dairy, according to the White House.
Reuters reported that Trump signed three proclamations to impose the tariffs under a nearly century-old trade law, Section 338 of the Tariff Act of 1930, which allows for tariffs of up to 50% on imports from specific countries.
The announcement on Monday will take effect on August 19 and apply regardless of whether goods qualify under the US-Mexico-Canada Agreement. However, energy, potash, fish, critical minerals and products already covered by Section 232 tariffs are exempt.
Market reaction
At the time of writing, the USD/CAD pair is up 0.38% on the day at 1.4075.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.