The breakdown over the weekend of last-minute trade negotiations resulted in the imposition by President Trump of 50% tariffs over some $20 billion in imports from Canada. But the ultimate impact of that action on the U.S. economy and trade between the two countries might be less severe than the high level of the tariffs suggests — at least in the short term.

Trump’s latest round of tariffs on Canadian imports apply to furniture, dairy, wine, clothing and cement. All are products for which the U.S. has domestic alternatives or can redirect sourcing, according to Marcos Carias, North American economist with trade credit insurance provider Coface.

Categories exempt from the action include crude oil, potash fertilizer, nickel, cobalt and lithium — “inputs the U.S. depends on too heavily to tariff,” Carias says. (Canadian crude accounts for 63% of U.S. crude oil imports, so a steep rise in tariffs for that category would have a marked effect on U.S. gasoline prices. And Canada’s estimated 1.1 billion metric tons of potash reserves — about one-third of the world’s total — far exceed the 220 million in the U.S.)

Bottom line, just 5.2% of Canadian exports to the U.S. are affected by Trump’s 50% tariffs. “The White House is being very careful to avoid critical items for the U.S. economy,” Carias says.

That’s not to say that the tariffs are without any significance at all. Several key trade issues that could impact future negotiations, and further undermine relations between the trading partners, remain unresolved. The U.S. continues to bicker with Canada over the latter’s automotive trade policy, claiming that Canada singles out U.S. vehicle imports with higher tariffs and quotas than those imposed on other countries. The Trump administration also alleges unfair treatment by Canada of U.S. dairy products.

Another area of concern is critical minerals. The U.S. wants to lessen its dependence on China for imports of rare earth metals and other minerals that form an essential part of high-tech products for electric vehicle batteries, defense systems and the energy sector, to name but a few key sectors. For that reason, it’s keen to acquire preferential access to Canadian critical mineral stores, even as it invests in development of its own domestic sources.

On the other hand, Trump seems to be targeting Canadian industrial categories with particular economic and cultural sensitivity, such as dairy, wine and hockey equipment, “increasing the political visibility of the measures despite their limited macroeconomic significance,” according to analysis by Coface.

Products that qualify for duty-free treatment under the United States-Mexico-Canada Agreement are not exempt from the latest round of tariffs, a sore point first called out by Canada Prime Minister Mark Carney when Trump imposed universal tariffs on steel, aluminum and automotive products last year, citing section 232 of the Trade Expansion Act of 1962. The USMCA remains in full effect until 2036, with provisions for annual review by the three countries, even though Trump has refused to engage in formal talks for a 16-year renewal of the pact.

The U.S. and Mexico have already concluded three rounds of negotiations in recent months over bilateral trade issues. Talks between the U.S. and Canada have been slower to move forward. Mexico, Carias says, has opted for “a much more cooperative disposition,” striking a conciliatory tone in public and private. Canada, by contrast, has been taking more of a hardline approach to negotiating with the Trump administration. In 2025, he says, it was the only country other than China to impose retaliatory tariffs against the U.S., an action it later reversed but was nevertheless seen to be “highly symbolic.” And Carney has pledged to match the new Trump tariffs “dollar for dollar.”

Canada’s message to the U.S., says Carias, is that “we’re ready to negotiate, but we’re not coming to this as pushovers. We have things we care about.”

In announcing the 50% tariffs on Canada, Trump invoked section 338 of the 1930 Tariff Act, the Great Depression-era law known more familiarly as the Smoot-Hawley Tariff Act. It’s the first time he has cited that measure as justification for imposing tariffs, and Coface says the action’s legality is likely to be tested in court.

Tariffs levied under section 338 require a finding of unreasonable or discriminatory practices on the part of a U.S. trading partner. And while that provision might prove to be a more solid basis for imposing tariffs than the International Emergency Economic Powers Act (IEEPA), which the U.S. Supreme Court struck down as justification for tariffs earlier this year, there’s still a question of “where you draw the line,” Carias says. 

The same goes for Trump’s reliance on section 301 of the Trade Act of 1974, as authority for tariffs imposed on nearly all U.S. trading partners for their alleged failure to curb forced-labor practices by China and other countries.

“The whole tariff story doesn’t end the day they go in and are collected,” says Carias. “You have to wait for them to be validated legally. With all of these [actions] coming, the path of these instruments in court is as important to follow as when and if they get applied.”