US-Canada tariff history: The 2018 trade dispute, retaliation, and fallout

From a steel standoff in 2018 to a lumber feud spanning decades, here's how US-Canada tariff battles have shaped trade relations over the years

US President Donald Trump’s 25 per cent tariffs on Mexico and Canada are set to take effect on Tuesday, March 4, prompting Canada to announce countermeasures, further intensifying global trade tensions. Additionally, Trump said on Monday that the US would increase tariffs on Chinese goods to 20 per cent, up from the 10 per cent announced in February, raising concerns that the ongoing trade dispute could drive inflation and slow economic growth.  

 

Confirming the tariffs on neighbouring countries, Trump said, “No room left for Mexico or for Canada. No, the tariffs, you know, they’re all set. They go into effect tomorrow.”

 

 

This latest round of tariffs adds to the long and intricate trade history between the United States and Canada, which has seen both collaboration and disputes over the years. The trade relationship between the United States and Canada has a long and complex history, marked by periods of cooperation and conflict. A notable example of such tensions emerged in 2018, during Donald Trump’s presidency, when the US imposed tariffs on Canadian steel and aluminum, triggering a significant trade dispute.

 

Historical context of US-Canada tariffs

Tariffs have played a central role in US-Canada trade relations since the 19th century. Early agreements like the Canadian-American Reciprocity Treaty (1855-1866) fostered trade by reducing tariffs, but its termination led Canada to adopt protectionist policies. Over time, both nations pursued free trade agreements, culminating in the North American Free Trade Agreement (NAFTA) in 1994. However, tensions resurfaced in 2017 when President Trump described NAFTA as "the worst trade deal in history" and pushed for its renegotiation.  READ: Trump asks farmers to sell in US as he proceeds with Canada, Mexico tariffs

 

Trump’s tariffs on Canada (2018)

In May 2018, citing national security concerns under Section 232 of the Trade Expansion Act, the Trump administration imposed a 25 per cent tariff on Canadian steel and a 10 per cent tariff on aluminum imports. The move was part of Trump’s broader protectionist agenda aimed at reducing trade deficits and boosting domestic industries. However, Canada opposed these measures, with Prime Minister Justin Trudeau calling them “totally unacceptable” and an “affront” to the US-Canada partnership.

 

US-Canada tariff war: Key events during this period include:

• May 31, 2018: The US formally announced tariffs on Canadian steel and aluminum imports.
• June 1, 2018: Canada retaliated by imposing tariffs on $12.6 billion worth of US goods, including steel, aluminium, and consumer products like ketchup and lawnmowers.
• June 7, 2018: Tensions escalated at the G7 summit in Quebec, where Trump called Trudeau “dishonest” and “weak”.
• July 1, 2018: Canada's retaliatory tariffs took effect, mirroring the rates imposed by the US.

 

Canada’s retaliation to Trump’s tariffs

Canada’s countermeasures were carefully designed to maximise political impact while minimising harm to its economy. The Canadian government targetted US products from politically sensitive states, such as Wisconsin (cheese) and Kentucky (bourbon), aiming to pressure US lawmakers to oppose Trump’s tariffs. This strategy highlighted Canada’s ability to respond proportionally while maintaining a strong negotiating position.

 

Resolution and aftermath

The tariff dispute strained relations between the two countries but also accelerated negotiations for a new trade agreement. In November 2018, Canada, the US, and Mexico signed the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA. However, Trump's tariffs remained a sticking point until May 2019 when both countries agreed to lift them as part of USMCA's ratification process.

 

Economic impact of tariff disruption

The tariffs disrupted supply chains and increased costs for industries reliant on steel and aluminium. In Canada, sectors like manufacturing faced higher input costs, while in the US, retaliatory tariffs hurt exporters of targeted goods. A broader analysis suggests that such trade measures often fail to achieve their intended goals; for instance, they did little to reduce trade deficits or revive manufacturing jobs in either country.  READ: China targets US agri, food products in response to Trump tariff threats

 

The 2018 tariff dispute underscored the fragility of even close economic partnerships during periods of nationalist economic policies. While the USMCA eventually restored some stability to North American trade relations, it also highlighted how quickly protectionist measures can escalate into broader conflicts.

 

Early trade relations and tariff disputes

>Pre-20th century: US-Canada trade relations were initially shaped by the Reciprocity Treaty (1854–1866), which reduced tariffs on natural resources. However, its termination led to a period of protectionism.

>Smoot-Hawley Tariff (1930): During the Great Depression, the US imposed high tariffs, including on Canadian goods, prompting Canada to retaliate with its own tariffs. This escalated trade tensions.

 

Post-war liberalisation

>General Agreement on Tariffs and Trade (GATT): Both nations became founding members of GATT in 1947, which aimed to reduce global tariffs and promote free trade.

>Auto Pact (1965): The Canada-US Automotive Products Agreement eliminated tariffs on automobiles and parts between the two nations, fostering integration in the auto industry.

 

The Canada-US Free Trade Agreement (CUSFTA)

>Negotiations and implementation: In 1986, Canada and the US began negotiating a bilateral free trade agreement to reduce barriers. The agreement was signed in 1987 and took effect on January 1, 1989.

>Key provisions: CUSFTA eliminated most tariffs on goods traded between the two nations over ten years and included mechanisms for resolving trade disputes.

>Impact of the agreement: The agreement boosted bilateral trade, with Canadian exports to the US growing from $101.6 billion in 1989 to $438.3 billion by 2018.

 

Free-trade zone in North America

>Formation of NAFTA (1994): Following CUSFTA’s success, Canada joined negotiations with the US and Mexico to create the North American Free Trade Agreement (NAFTA). This agreement expanded tariff eliminations across North America.

>Trade growth: NAFTA further accelerated trade between Canada and the US, creating one of the largest free trade zones globally.

 

Continued tariff disputes

Despite free trade agreements, disputes over specific industries persisted:

1. Softwood lumber disputes: These disputes date back to the early 1980s, with the US imposing countervailing duties on Canadian lumber exports, citing unfair subsidies.

2. Agricultural products: Issues like dairy supply management in Canada often led to friction.

3. Steel and aluminium: Before 2018, steel and aluminium were contentious areas but did not yet see major tariff impositions.

 

Before 2018, US-Canada tariff relations evolved from protectionism to liberalisation under frameworks like CUSFTA and NAFTA. However, recurring disputes in specific sectors underscored ongoing challenges in achieving complete tariff harmony. These historical developments laid the groundwork for later tensions, such as those seen during the steel and aluminium tariff disputes in 2018.  (With agency inputs)