In recent months, the U.S. has escalated its trade conflict with Canada. On August 22, 2026, the U.S. imposed a 50% tariff on $20 billion dollars of Canadian goods. On September 8, Canada retaliated by enacting tariffs on a similar value of U.S. goods. On September 29, the U.S. responded by imposing import bans on 1 billion of Canadian goods.
These new trade barriers include both tariffs and import bans. What are these policies? What are their economic impacts? Which goods are the targets? Who are the winners and losers? Is the U.S. better off as a whole? This article will address these questions.
Tariffs and bans
A tariff is a tax imposed by the government of a country on goods imported from another country. An import ban is a complete government restriction on imports of specific goods.
Economic impacts
The economic impacts of trade wars are complex and broad reaching. There are three direct effects. First, tariffs increase the costs for importing businesses who pay the tax on imports. In most cases, these businesses then pass on this higher cost to consumers in the form of higher prices for their goods.
Import bans also increase the cost of goods. This cost increase occurs because bans eliminate market competition and reduce the availability of goods.
Second, tariffs increase the expenses incurred by domestic businesses who rely on imported intermediate goods. Intermediate goods are goods used to produce other goods. Examples include raw materials such as steel and parts such as plastic components.
Third, tariffs often result in retaliation from the trading partner. As a result, tariffs reduce demand for a country’s exports when their trading partners impose their own tariffs in retaliation. For example, U.S. tariffs reduce demand for U.S. exports in Canada when Canada retaliates.
Target goods
The goods affected by the recent U.S. tariffs, Canadian counter-tariffs, and U.S. import bans span a range of industries.
Examples include:
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- Industrial materials such as steel and aluminum, lumber and wood products, pulp and paper, and plastics
- Agriculture and food such as dairy and molasses
- Direct-to-consumer goods such as alcoholic beverages, appliances, electronics and motorcycles
Winners and losers
The U.S. initiated the trade war with Canada. So, it’s worth asking, who are the winners and losers in the U.S.?
Losers:
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- Businesses who import final goods subject to the U.S. imposed tariffs and import bans
- Businesses who import intermediate goods such as raw materials and parts subject to the U.S. imposed tariffs and import bans
- Businesses who export goods that are subject to the retaliatory tariffs imposed by Canada
- Consumers who face higher prices passed on from the three types of businesses described above
Winners:
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- The U.S. government who collects the revenues from the U.S. imposed tariffs
- A small subset of U.S. businesses who can now compete in the U.S. market with the higher priced taxed imports
Is the U.S. better off?
Is the U.S. better off as a whole because of the tariffs and bans? In other words, what are the net effects if we add together the effects on winners and losers?
From this macro view, the net effect of the trade war on the U.S. is negative. In other words, the negative effects exceed the positive effects.
Furthermore, from this macro view, tariffs result in a transfer of money from U.S. businesses and consumers to the U.S. government in the form of the tax revenues.
When tariffs continue over time, the increased costs to businesses and increased prices to consumers put upward pressure on inflation. Inflation then further erodes the purchasing power of consumers and businesses.
What’s next?
You may wonder then, why would the U.S. government impose these new tariffs and bans if the aggregate economic effects are negative? Will the U.S. Supreme Court rule that the recent U.S. tariffs against Canada are illegal? Future posts will explore these questions.
For more information:
Citation:
Smith, Pamela J. (2026, November 2). Escalating trade war between allies: United States vs. Canada. The Curious Trade Economist. https://pamelajsmith.com/trade/escalating-trade-war-between-allies-united-states-vs-canada/2026/