The U.S.-Canada trade relationship just got a serious jolt.
On Thursday, President Donald Trump announced a new 35% tariff on Canadian imports starting August 1. The reason? Retaliation. Trump says Canada fired first, slapping tariffs on U.S. goods instead of cooperating. And now he’s promising even more pain if Ottawa fights back again.
Trump’s move isn’t just about tariffs, it’s a high-stakes power play. The letter posted to Truth Social frames the Canadian government as uncooperative, with Trump threatening higher levies for any further retaliation. He even tied the fentanyl crisis to trade, saying Ottawa must help stop the flow or lose tariff relief.
Here's what you need to know and why it matters:
1. A Flat 35% Tariff Hits August 1
President Trump announces 35% tariffs on ALL Canadian imports starting Aug 1, 2025, in letter to PM Mark Carney. Blames Canada for fentanyl flows & retaliatory dairy tariffs up to 400%. Ties to US national security & trade deficits. Offers adjustment if Canada cooperates on
— #Orla Joelsen (#@OJoelsen)
12:59 AM • Jul 11, 2025
Trump's announcement puts a blanket 35% tariff on Canadian imports starting next month. This is on top of the existing 25% tariffs from earlier this year over alleged fentanyl-related issues. Some Canadian energy resources are still seeing a lower 10% levy, but the new flat rate will hit everything else.
2. Higher Tariffs If Canada Responds
Trump warned that if Canada retaliates with new tariffs of its own, the U.S. will simply add that amount to the existing 35%. In other words: retaliate with 10%? Get hit with 45%. It’s an aggressive escalation clause that makes negotiation risky for Ottawa.
3. Exemptions, But Only If You're Playing Nice
Goods complying with the United States-Mexico-Canada Agreement (USMCA) may remain exempt, but Trump’s letter makes clear that "transshipped" goods attempting to dodge the higher tariff will be hit anyway. This is aimed at any creative routing to evade the penalty.
4. Digital Tax Was the Trigger
“Canada ‘caved’ to Trump’s digital services tax demands, White House says.” Honestly - I think that was always part of Carney’s plan. To ditch a tax created in the Trudeau era if need be to give Trump the “win” he needs to feel powerful. 😜 theglobeandmail.com/world/us-polit…
— #Lynda Steele 🇨🇦 (#@steeletalk)
6:23 PM • Jun 30, 2025
This latest clash follows Canada’s now-paused digital services tax, aimed at U.S. tech firms. Trump initially said this would kill all trade discussions, but Canada pulled back and talks resumed. Now, with a July 21 trade deal deadline approaching, tensions have flared again.
5. National Security & Fentanyl Framing
In the letter, Trump ties the tariffs to national security and the fight against fentanyl, accusing Canada of contributing to the drug crisis. He says resolving those issues could lead to tariff reductions, but also points to "unsustainable trade deficits" as a broader justification.
Here’s the Takeaway:
This 35% tariff isn’t just about Canada. It’s Trump flexing muscle ahead of wider trade renegotiations and using every tool, from fentanyl to deficits, to pressure allies. Markets haven’t fully reacted yet, but we should watch for possible fallout in CAD pairs, North American equities, and commodities tied to cross-border flow.
