Published: July 16th, 2025
While it may have seemed like the US global trade assault had ended, US President Donald Trump launched a new attack this week on its Northern Neighbour's exports, levying a new 35 percent tariff on Canadian goods.
The White House sent an official communique to Canadian Prime Minister Mark Carney, in which Trump said the decision was triggered by Canada's foot-dragging on US demands to take action on the illicit fentanyl trade, much of which the US says is made in Canada. He also pointed to Canadian inaction on current tariffs against US imports, including a punishing 400% duty on American dairy products.
The new rate is set to enact on August first, and the US says the percentage figure could go higher if Canada retaliates in kind.
In a note to investors published Monday, RBC's forex strategy unit noted that current US trade negotiations with Canada need to be resolved by the end of July, according to a timetable set by Washington.
‘The timing of the new tariff strongly suggests Trump is unhappy with the pace of progress in discussions with Ottawa, putting Canada next in the trade dispute crosshairs.’
The White House move follows a snap decision late last week to hit Brazil with a 50 per cent duty.
Recently-elected prime minister Carney will have been trying to sidestep another trade conflict with Washington, but Trump's latest move makes that approach untenable.
Following the release of the letter to the press, the Canadian Dollar sank broadly lower, falling against most other G10 majors.
‘The loonie is stalling as trade uncertainty intensifies,’ RBC analysts wrote. ‘The performance seen this week consolidates CAD's status as the worst-performing G10 against the Greenback this year.’
So far, however, RBC says the losses for CAD have been relatively modest and could have been worse, given the size of the US tariff.
In May, a note to investors from Morgan Stanley said the Wall Street bank had turned CAD seller given a backdrop of trade uncertainty.
‘The challenging global trade environment paired with downside growth risks from below the border bodes poorly for the Canadian Dollar,’ Morgan analysts wrote. ‘A US slowdown would have negative spillovers for the Canadian economy, exposing it in ways that other G10 economies won't experience.’
Tightly interlinked trade between the two countries becomes a risk rather than benefit in this scenario, according to Morgan Stanley. While American economic prints continue to point to robust growth in the face of elevated trade uncertainty, Morgan economists believe signs of a slowing economic pulse will soon appear.
Canada's economy depends on US imports and supply chains. If trade relations between the two countries sour further under Trump, any slowdown south of the border would weigh heavily on Canadian domestic growth.
The potential for additional weakness in Canadian output has central bankers in Ottawa watching for signals to cut interest rates again, which could undermine the Loonie's interest rate support.
‘Recent comment from the Bank of Canada (BoC) points to some members of the Governing Council favouring a cut at the next meeting rather than holding course,’ notes Morgan Stanley.
The BoC's April meeting summary suggested policy setters were watching for weakening business and consumer confidence data.
A February 2025 note to investors from Deutsche Bank predicted that the Canadian Dollar could test new all-time lows this year if the new Trump administration levied its proposed 25 percent import tariff on Canadian goods.
The pre-inauguration threat made by Trump via X and his own Truth Social network sent the Loonie hurtling Earthward. Canadian officials have responded angrily, with then Prime Minister Justin Trudeau saying that Canada would respond ‘dollar for dollar’ with retaliatory tariffs of its own.
Deutsche analysts wrote that the very real prospect of an escalating US-Canada trade war would be a ‘worst-case scenario’ for Canada's domestic economy and CAD.
‘Should American tariffs go ahead, it's natural to assume Ottawa will fight back with tariffs of its own, and in product categories similar to those targeted in the previous 2018 Trump tariff battle. What's different today is that the Canadian government has also mooted the idea of export taxes on commodities. In a trade battle with the US this could give Canada real leverage, despite its much smaller economy.’
Deutsche analysts believed the impact on Canadian aggregate demand would be ‘significant, probably damaging enough to push Canada into a recession.’
In that scenario the Bank of Canada would have to respond strongly, forcing central bank policymakers to cut rates more deeply and for longer than previously expected. The result could be a weakened Loonie.
Trump was and remains keen to make good on his threat. He repeatedly singled out Canada and Mexico on the campaign trail as priority targets for new tariffs. He argued that lax border enforcement by both countries has exacerbated illegal immigration to the US.
Canadian households and businesses will continue to tolerate a period of uncertainty, which could create headwinds that dampen economic growth.
Prior to Canada's expected Spring federal election, polls suggested the Liberal government of Justin Trudeau will fall to a populist-led conservative party.
Pierre Poilievre, head of Canada's conservative opposition party, had positioned himself in broad alignment with Trump and the MAGA movement south of the border – not least on the issues of cryptocurrencies.
Poilievre has branded himself as the pro-crypto candidate for Prime Minister, however it didn't help him beat Trudeau replacement Mark Carney, who went on to win the election, albeit by a narrow margin.
‘We need to let ordinary people take back control of their money. To do that in a time of expanding government oversight we need to make crypto fully legal and create conditions that will allow it to thrive,’ Poilievre said in a recent post on X. He pledged to help ordinary Canadians ‘take back control over the money you've earned through your hard work from politicians and bankers.’
He had also said that a vote for him will help make Canada ‘the blockchain capital of North America.’
