Tariffs first, electricity and critical minerals next: Canada may hit the US without hurting itself

Canada’s response to Donald Trump’s tariff escalation will likely begin with tariffs of its own, not a broader confrontation, but a calculated economic showdown.

Within hours, Ottawa is expected to announce duties on US steel, dairy, appliances, electronics and farm equipment. The measures will come after trade talks collapsed and Trump threatened to raise tariffs on Canadian automobiles, auto parts and steel to 50% from January 1, 2027.

Also read: Canada to announce retaliatory tariffs against US as Trump tells its leaders to 'fall in line'


The challenge for Prime Minister Mark Carney is to make the US feel the cost of its trade policy while limiting the damage to Canada, whose economy remains deeply dependent on the American market.

Ottawa’s first move: Targeted tariffs

Canada had initially planned “dollar-for-dollar” countermeasures against US goods. Carney has since indicated that Ottawa may shift towards more targeted retaliation aimed at protecting Canadian workers and businesses.

The list of possible targets includes steel, dairy, appliances, agricultural equipment, electronics, pulp and paper. The final measures are still being determined, but the logic is clear: Canada wants to impose pressure on American industries without triggering an indiscriminate tariff response that could further damage its own economy.

Canada sends about 70% of its goods exports to the United States. Financial analysts estimate that the latest US tariffs could reduce Canada’s GDP by between 0.3% and 0.6% in the short term.

The auto sector is especially exposed. Ontario is the centre of Canada’s vehicle manufacturing industry, with Ford, General Motors and Stellantis operating major plants in the province. Components and vehicles routinely cross the US-Canada border several times during production, leaving manufacturers on both sides vulnerable to higher costs and supply-chain disruption.

Carney has accused Washington of seeking to weaken Canadian industry and limit Ottawa’s economic independence.

“An attitude at the negotiation table that Canada is a subsidiary of the United States” is “not something we're going to accept,” he said.

Canada’s retaliatory tariffs are scheduled to take effect on September 8, according to the material provided, even as Ottawa is expected to announce the measures within hours.

Beyond tariffs, Canada has options

Canada’s immediate response is expected to remain focused on tariffs. But if the dispute escalates, Ottawa and provincial governments have identified other areas where the US could feel pressure.

Energy is the most significant. Canada supplies the vast majority of US natural gas and electricity imports and about 60% of US crude oil imports.

“I don't think they want us to stop sending any of that energy,” Carney said.

Energy restrictions are not part of the current countermeasures. However, Ontario Premier Doug Ford has said an electricity surcharge remains possible. During an earlier phase of the dispute, Ontario imposed a 25% surcharge on electricity exports to Michigan, Minnesota and New York before both sides stepped back.

Critical minerals and potash are other potential pressure points. Canada is a major supplier of potash, used in fertiliser, and has significant reserves of lithium, nickel and graphite. The United States is Canada’s top destination for overall mineral exports, while Washington is seeking more secure supplies of minerals used in manufacturing, military equipment and electronics.

“Everything's on the table,” Ford said. “I'll do whatever it takes.”

Canada has already demonstrated that consumer pressure can affect American businesses. Provincial bans on US alcohol remain in place in 11 of Canada’s 13 provinces and territories. US wine exports to Canada fell 78% year over year, a loss of $357 million in export value, while spirits exports fell by more than 70%.

Canadians have also reduced travel to the United States. They made 800,000 fewer trips in April than in the same month of 2024, contributing to an estimated C$3.3 billion loss in US revenue last year.

Also read: Canada rejected US tariff deal. Now comes the economic cost

Trump raises the stakes

Trump’s position has made the tariff dispute more confrontational.

He has threatened to raise tariffs on Canadian cars, trucks, auto parts and steel to 50% from January 1, 2027, while saying that products manufactured in the US would face zero tariffs.

“Canada has been ripping off the United States of America for years,” Trump said, accusing Ottawa of imposing “ridiculously high tariffs” on American farmers and farm products.

He also said: “Canada will be treated like a State no longer!”

The Trump administration has warned that Washington could respond if Canada retaliates. US Trade Representative Jamieson Greer said Canada had enjoyed “the most favourable access to the US market of any country”.

That makes Ottawa’s calculation more difficult. A weak response could encourage further US pressure. A sweeping response could intensify the economic damage to Canadian workers and businesses.

The pressure could reach US voters

Canada’s leverage also comes from its importance to individual US states. It is the top export customer for 26 states and ranks among the top three for 45 of the 50 states. Michigan and Maine, both important Senate battlegrounds, have particularly close commercial ties with Canada.

That connection could become more significant as the US midterm elections approach. The Yale Budget Lab, cited by the BBC, estimates that Trump’s global tariffs could cost American households about $1,100 annually. Further increases in the price of cars, building materials, food, energy and other goods could add to voter frustration.

“What is the message sent out to the workers in Michigan, Ohio, Kentucky, Alabama?” Carney said. “These workers depend absolutely on Canada, their largest consumer.”

For now, Canada’s strategy is to begin with targeted tariffs while keeping energy, minerals and consumer pressure in reserve.