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The Canadian dollar fell on Monday morning after trade talks between Ottawa and Washington broke down, with both sides facing higher prices for a wide range of imports.
The United States on Saturday imposed 50% tariffs on about $20 billion worth of imports from Canada, its second-largest trading partner after Mexico. Affected products include dairy products, wine, wood products, ceramics, and many other sectors.
Canadian Prime Minister Mark Carney said Canada would retaliate “dollar for dollar” with tariffs starting Sept. 8, targeting sectors such as steel, dairy products, farm machinery, paper and electronics. More details will be announced “in the coming days,” Carney added.
The Canadian dollar was down 0.55% against the US dollar as of 4:30 a.m. ET. It also fell against the euro, British pound, and Japanese yen.
“Canada, a smaller, more open economy, has more to lose from this, but Prime Minister Mark Carney appears to have opened the door to further fiscal stimulus to support affected businesses,” ING Bank foreign exchange strategists said in a note Monday.
Bradley Saunders, North America economist at Capital Economics, told CNBC that Canada faces a bigger impact on growth and inflation than the United States.
“Higher levy rates mean the industries most at risk could be crippled,” Sanders said in an email, stressing that goods covered by the currently renegotiated United States-Mexico-Canada Agreement (USMCA) no longer have exemptions like previous tariffs.
Although the affected products represent only about 0.6 per cent of Canada’s gross domestic product (GDP), “the collapse in exports is enough to bring already sluggish GDP growth back to zero,” he said.
“This would be especially true if a decline in U.S. demand for finished goods such as furniture and appliances has a knock-on effect on upstream primary industries that are already struggling under the weight of Section 232 tariffs.”
Sanders added that the situation could get worse if U.S. President Donald Trump retaliates against Canada’s countermeasures, estimating that extending 50% tariffs to 20% of Canada’s exports of U.S. goods could reduce Canada’s gross domestic product (GDP) by about 2%, pushing it into recession territory.
“We were attacked.”
Negotiators have been working hard over the past week to forge a deal, with officials suggesting they were close to a deal. But by the weekend, the rhetoric had soured, with both sides blaming the other for failing to reach an agreement.
Secretary Carney said the United States had “asked too much and given too little.”
“We were not prepared to violate Canada’s sovereignty or undermine our key industries,” he said.
Asked by reporters why it feels like Canada is in a trade war, Carney said: “Because we’ve been attacked. When you’re attacked, you’re at war. We’re attacked.”
“Canada wants the benefits of being a nation, not a nation!!!” President Trump said in a post on Truth Social on Sunday. “They have also imposed huge tariffs on our great farmers for years. No more!!!”
