Why Trump broke the trade compromise with Canada and where the conflict is headed
The US and Canada are entering a new phase of the trade war that began two years ago.
However, while in 2025 the dispute was about the price of Canada’s access to the US market, it is now gradually turning into a debate over the limits of Canadian sovereignty.
Read more about the dispute and its possible consequences in the article by Dmytro Sherenhovskyi, of the Dnistrianskyi Centre: The battle for exports and sovereignty: why Canada entered a trade war with Trump and what is at stake.
As recently as the end of last week, it seemed that another round of the Canada-US trade war would end much like many of Donald Trump’s other tariff disputes. The two sides would negotiate intensively for several days, the US president would postpone the introduction of another round of tariffs, American and Canadian negotiators would report "significant progress", and Trump would eventually announce another deal favourable to the United States.
However, on 22 August, the talks were abruptly halted, and the Trump administration announced 50% tariffs on Canadian goods worth around $20 billion in total.
That same day, Canadian Prime Minister Mark Carney withdrew the negotiating delegation from Washington and announced that, starting 8 September, Canada would respond to the United States "dollar for dollar".
Among the latest US demands were measures that would effectively limit Ottawa’s ability to conclude new trade agreements with other countries, primarily China.
At a press conference, Carney explained in detail why the talks had been suspended, but noted that the shift to this demand was the final straw.
Washington is increasingly trying to determine not only the terms under which Canadian goods can access the US market, but also what kind of trade, industrial and even foreign policy strategy Canada itself can pursue.
That is why, for Ottawa, this has become not so much (and not only) a question of tariffs, but also one of its sovereignty.
Meanwhile, Canada’s "accelerated pivot" towards Europe is gradually moving from political declarations into trade statistics. And it is no longer limited to the economy.
In June, Canada became the first non-European country to fully join the EU’s SAFE defence instrument.
At the same time, Ottawa is turning towards Asia. In 2026, Canada and China agreed to mutually reduce some tariffs on electric vehicles and canola, cautiously beginning to reset their economic relationship. In parallel, Ottawa is stepping up negotiations with India and ASEAN.
However, that businesses are not "fleeing" America. What is happening is diversification and risk hedging. And this is probably the most accurate description of Canada’s current policy.
Canada wants to reduce the share of its exports going to the United States from approximately 75% to below 50%.
The Canada-US trade war is taking place just two months before the 3 November midterm elections to Congress.
According to a Reuters/Ipsos poll conducted 14-17 August, the US president’s approval rating has fallen to 33%, the lowest level of his current presidency. Some 64% of Americans disapprove of his performance. Even more importantly, Democrats have for the first time in nearly a decade overtaken Republicans on the question of which party voters trust more to manage the economy.
Of course, saying that Trump will "lose the election because of Canada" would be a major exaggeration. But in a close election, even a local economic effect can matter.
In the short term, the tariff war will work against Canada, that is simply how the structure of its economy is set up.
But in the long-term, this raises the classic problem of coercion.