U.S. And Canada Escalate Their Trade War. Trump Announces Hike To Auto Tariffs.

Trade tensions between the U.S. and Canada are escalating further after talks between the countries fell apart and President Donald Trump announced new tariffs on Canadian goods.

CNBC noted that the Canadian dollar fell on news of the impasse. Tariffs will be applied to about $20 billion worth of goods including dairy, wine, wood products, furniture, cement, ceramics, and other areas.

Trump later expanded the measure, saying in a social media post that "On January First, 2027, Tariffs on all Cars, Trucks, both large and small, Automotive Parts, and Steel, will be increased to 50%."

"Canada has been ripping off the United States of America for years. Their ridiculously high tariffs on our Farmers and farm products has made life impossible for these great American Patriots, and has long created a 60 Billion Dollar Deficit between our two Countries. Not sustainable, and NOT ANYMORE!" Trump said when announcing the decision.

To justify the Canadian tariffs, Trump is citing a 96-year-old law. Section 338 of the Tariff Act of 1930 does give the president power to impose tariffs if it is found that another country has discriminated against U.S. goods.

According to an analysis by Law360, it doesn't appear that the law has ever actually resulted in any implemented tariffs; rather, it often was used as a threat to address trade grievances with other countries.

The markets reacted to Trump's implementation of the tariffs, driving the Canadian dollar lower by 0.55 percent versus the U.S. dollar early Monday.

Canadian Prime Minister Mark Carney promised to retaliate against U.S. goods, saying the country would target sectors such as steel, dairy, agricultural equipment, paper and electronics. The retaliatory tariffs would likely come sometime in September.

Earlier this year, much of Trump's original tariff policy was undone by the U.S. Supreme Court. In that instance, Trump had used the 1977 International Emergency Economic Powers Act (IEEPA) to implement sweeping tariffs unilaterally.

In ruling against Trump, the Supreme Court wrote that the president had not identified "clear congressional authorization" to issue tariffs. It noted that the IEEPA "contains no reference to tariffs or duties." The court defeat meant the U.S. government had to refund tens of billions of dollars to companies because the tax was illegal.