US-Canada Trade War Reshapes Trade, Jobs And Investment

The trade dispute between the United States and Canada continues to put pressure on businesses, workers and consumers on both sides of the border, with no immediate resolution in sight.

The dispute escalated after President Donald Trump returned to the White House and introduced a broad tariff programme. Canada was among the first countries targeted and has responded with counter-tariffs on selected US goods.

The US has imposed tariffs affecting Canadian steel, aluminium, lumber and automobiles, including an additional 50% levy introduced last week on about C$28 billion ($20 billion; £15 billion) of Canadian goods.

Canada has responded with what it describes as a "dollar-for-dollar" and "strategic" retaliation.

The effects have been uneven. Ontario and Quebec have faced particular exposure to US tariffs, while some Canadian companies are attempting to expand into markets beyond the US.

Ontario And Quebec Face Heavy Exposure

Ontario has been particularly affected by tariffs on automobiles, vehicle parts and steel. Several auto parts and assembly plants in the province have announced layoffs and production reductions, while tens of thousands of manufacturing jobs are estimated to have disappeared since early 2025.

Quebec has also experienced pressure in its metals sector. Data released in July showed that metal exports from the province fell 36% between February 2025 and February 2026, alongside a 3.6% decline in employment in the sector.

The Royal Bank of Canada has identified Ontario and Quebec as the provinces most exposed to US sectoral tariffs. Newfoundland and Labrador, New Brunswick, Alberta, Saskatchewan and Prince Edward Island are among those considered less exposed.

A further $20 billion of Canadian goods became subject to additional US tariffs on 22 August. The measures are expected to affect every Canadian province to some degree, although British Columbia, Quebec and Ontario are expected to bear the greatest impact.

The tariff burden is also changing Canada's position relative to other US trading partners. RBC data showed that Canada's average effective US tariff rate was 2.9% in June, the lowest among major US trading partners. Following the latest measures, it has risen to 5.7%.

That compares with 6.2% for the UK, while China's average effective US tariff remains substantially higher at about 20.5%.

Canada's Retaliation Targets US Exporters

Canada's counter-tariffs are expected to have a smaller overall effect on the US economy because of the relative size of the two economies. However, their impact is concentrated in particular states and industries.

Canadian tariffs covering C$28 billion of US goods are due to include products ranging from steel and furniture to cosmetics and toilet paper.

Statistics Canada data indicates that Ohio is particularly exposed, with C$3.2 billion, or 12%, of its exports expected to face Canadian tariffs. Illinois and Pennsylvania also rank among the states facing significant exposure.

The measures have particular implications for industries in those states. Ohio's steel sector and washing-machine manufacturers are among those affected, while Illinois faces tariffs on farm and construction equipment, including products relevant to manufacturers such as John Deere.

Scotiabank economist Derek Holt said Canada's measures appeared to be "very deliberately oriented" towards some swing states that could influence the balance of power in the US midterm elections.

That interpretation is an assessment by Holt rather than an established explanation for Canada's tariff policy.

Businesses Look Beyond The US

Canada's dependence on the US makes the dispute particularly consequential. More than 70% of Canadian exports go to the US, reflecting decades of close economic integration and trade agreements between the two countries.

The tariff dispute is nevertheless prompting some Canadian companies to look for customers elsewhere.

Prime Minister Mark Carney has pledged to double Canada's non-US exports over the next decade. Bank of Canada data indicates that Canadian firms have increased exports to countries outside the US since Trump's return to the White House in January 2025.

Matteo Sgaramella, owner of Toronto-based menswear company Outclass, told the BBC that he had begun attending trunk shows in Paris rather than New York as part of efforts to develop European business.

"The reception has been amazing," Sgaramella said, adding that some European stores were particularly interested in supporting Canadian products because of the trade dispute.

"We're kind of seen as the one country that's kind of standing up to the Americans right now," he said.

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Diversification is more difficult for manufacturers whose supply chains and customer bases are deeply tied to the US. A Canadian Chamber of Commerce report identified Oshawa, London and Kitchener-Cambridge-Waterloo as particularly vulnerable regions in Ontario.

"These cities remain heavily tied to the US market, while growth in exports outside the US has been limited or insufficient to offset broader weakness in trade activity and local economic conditions," the report said.

Despite the trade pressures, Canada recorded C$96.8 billion in foreign direct investment in 2025, its highest annual inflow since 2007.

Canada's economy also grew at an annualised rate of 3.3% in the second quarter of 2026, supported by stronger exports and domestic investment. The performance has reduced immediate concerns about a recession.

The Canadian government is seeking to build on that investment performance by hosting its first Canada Investment Summit in Toronto in September, bringing investors, chief executives and business leaders together for two days.

Tariffs Put Pressure On Jobs And Household Budgets

The employment consequences are emerging alongside the broader trade disruption.

Bank of Canada data shows that about 55,000 Canadian manufacturing jobs were lost between January 2025 and January 2026. Employment has increased in Canadian industries less exposed to US tariffs, but further losses remain a risk following the latest 50% US measures.

Calgary economist Trevor Tombe estimates that 90,000 jobs across Canada could ultimately be lost if the new tariffs remain in place.

The US has also experienced employment effects. The non-partisan Center for American Progress has estimated that the Trump administration's so-called "Liberation Day" tariffs contributed to job losses in manufacturing, transportation and warehousing.

The impact extends beyond employment. The US-based Tax Foundation estimates that an American household could pay an average of $840 more this year as a result of tariffs imposed by the Trump administration on goods from a range of countries, including Canada.

Canada's retaliatory measures have been designed to concentrate the costs on selected US imports and limit their direct effect on Canadian consumers. However, economists expect Canadian businesses to face higher production costs because many of the targeted imports are industrial supplies from the US.

The emerging picture is therefore uneven. Canada is attempting to reduce its dependence on its largest trading partner, while manufacturers on both sides of the border face higher costs and disruption. The longer the dispute continues, the greater the pressure on companies to adjust supply chains, markets and investment decisions.