The proposed tariffs add another layer of complexity to trade policy, which has seen multiple shifts under Trump’s leadership. Only a day prior, Trump had announced a temporary one-month pause on tariffs for Canadian and Mexican products that align with the US-Mexico-Canada Agreement (USMCA), a move that had given some industries relief. However, the latest development has brought back uncertainty for investors, businesses, and consumers.
Canadian Trade Minister Mary Ng responded strongly to Trump’s accusations, refuting his claims that Canada tariffs on US products are unfair. She emphasized that the reciprocal tariffs on dairy and lumber were “completely unjustified” and warned that these measures could have negative repercussions for both economies.
The financial markets reacted sharply to Trump’s announcement. Stocks initially dropped but later recovered after Federal Reserve Chair Jerome Powell provided a mostly positive economic outlook. The Dow Jones Industrial Average ended the day up by 222 points (0.5%), while the S&P 500 rose 0.6%, and the Nasdaq Composite Index increased by 0.7%.
However, since Trump took office, the markets have experienced increased volatility. The Nasdaq has entered a correction phase, experiencing a 10% decline from its most recent peak. Market analysts suggest that the unpredictable nature of Trump’s trade policies has contributed to economic uncertainty.
“The market is having trouble digesting the multidimensional chess that Trump and his team are playing,” said Michael Block, market strategist at Third Seven Capital. “This approach is not going well for the grand master. He might be trying to confuse world leaders, but the market is saying stop confusing us—we don’t like this.”
The Canada tariffs on US dairy products have long been a contentious issue. Canada imposes a 241% tariff on milk imports, which kicks in only after US dairy exports exceed a certain quota. This measure is designed to protect Canadian farmers and maintain stability in the domestic dairy market. However, American dairy farmers argue that it unfairly limits their access to a key export market.
Becky Rasdall Vargas, Senior Vice President of Trade and Workforce Policy at the International Dairy Foods Association, acknowledged the Trump administration’s effort to push back against Canada’s trade policies. Still, she warned of the consequences of an extended tariff war.
“U.S. dairy is grateful for the Trump Administration’s efforts to hold Canada accountable on these protectionist measures,” Vargas stated. “At the same time, a prolonged tariff war with our top trading partners will create uncertainty and additional costs for American dairy farmers, processors, and rural communities. We urge Canada and the United States to negotiate a resolution as quickly as possible.”
In 2023, a trade dispute panel ruled in favor of Canada, asserting that these tariffs did not violate the USMCA agreement. The ruling was criticized by some US lawmakers, including Wisconsin Senator Tammy Baldwin, who argued that the decision placed American dairy farmers at a disadvantage.
“Wisconsin dairy farmers work hard every day to bring world-class products to market, and they deserve a level playing field with their global competitors,” Baldwin said in response to the ruling. “This decision contradicts the agreement our country made with Canada and puts our ‘Made in Wisconsin’ dairy products at risk.”
Despite the tensions, Canadian dairy imports do not constitute a significant portion of US trade, and a reciprocal 241% tariff on milk exports is unlikely to have a massive economic impact on either nation.
Another major trade issue is the Canada tariffs on US lumber, which have been a longstanding point of contention. Trump has repeatedly criticized Canadian softwood lumber tariffs, arguing that the US should impose similar taxes in retaliation.
Trump’s new executive order states that the United States has “an abundance of timber resources that are more than adequate to meet our domestic timber production needs.” However, experts caution that tariffs on Canadian lumber could have serious implications for the US housing market, potentially increasing construction costs and exacerbating the housing affordability crisis.
Canada supplies about 30% of the softwood lumber used in the United States annually, and economists warn that American mills lack the capacity to meet the growing demand. If tariffs are imposed on Canadian lumber, homebuilders may struggle with higher costs, which could trickle down to consumers in the form of higher housing prices.
“The US may have an abundance of trees, but that does not mean we have the industrial infrastructure to process all the lumber we need,” said a spokesperson from the National Association of Home Builders (NAHB). “Raising tariffs on Canadian softwood lumber will only drive up home construction costs, making housing less affordable for American families.”
The growing trade tensions between the two countries raise questions about the future of US-Canada economic relations. Trump’s aggressive stance on tariffs signals that further economic battles could be on the horizon, which may impact multiple industries beyond dairy and lumber.
While some American industries may benefit from protectionist policies, many businesses reliant on trade with Canada are worried about potential economic instability. Analysts and industry leaders urge both nations to seek a diplomatic resolution rather than escalating the situation further.
