U.S. President Donald Trump’s retaliation for Canada’s counter-tariffs is expected to have a small direct impact on the economy, say experts — but the move raises the stakes for future trade negotiations while boosting economic uncertainty.
On Tuesday, the trade war took a new turn as Trump announced an import ban of certain Canadian products and removed some tariffs, while introducing new levies on other goods.
Trump also said on social media Tuesday that he would bar Canadian companies from participating in a U.S. government procurement program.
Set to take effect on Sept. 29, the new import ban on motorcycles, dairy products and certain alcoholic beverages covers only 0.25 per cent of Canada’s exports to the U.S., according to a written analysis by Stephen Brown, economist at Capital Economics.
The products subject to the ban had been previously hit with 50 per cent tariffs.
“The prospect of the U.S. and Canada resolving their trade differences soon seems slim,” said Brown, adding that the Canada-United States-Mexico Agreement (CUSMA) could fall apart entirely.
As a result of the escalating trade war, Brown says he believes there is a risk that Canadian GDP could stagnate or even shrink in the fourth quarter of 2026.
Derek Holt, economist at Scotiabank, called Trump’s threat to prevent Canadian businesses from supplying U.S. government agencies “immaterial” in a note to clients published Wednesday.
Trump specifically cited the Multiple Award Schedules program, which covered roughly $50 billion (U.S.) in purchases last year.
“We figure that the share of this program attributable to Canadian firms is between a few hundred million dollars per year and the low single-digit billions,” he said. “That’s chump change.”
As of Wednesday afternoon, Canada had not announced plans to retaliate further.
“At this point, we believe that the likelihood of further Canadian escalation is low,” TD economist Andrew Hencic said in a note to clients.
“Prime Minister Carney has already pivoted to a focus on domestic issues, highlighted by next week’s investment summit, followed by a fall budget and ongoing initiatives on major projects.”
This is a developing story.
