Trump's 100% Tariff Threat Puts $784 Billion in US-Canada Trade at Risk

On January 24, President Donald Trump threatened to impose 100% tariffs on all Canadian goods if Canada proceeds with its recently negotiated trade deal with China. Tariffs are taxes on imports that make foreign goods more expensive. A 100% tariff means doubling the price of everything imported from Canada before it even hits store shelves.

The threat came via Truth Social eight days after Canada announced a preliminary agreement to allow 49,000 Chinese electric vehicles at reduced tariffs in exchange for lower Chinese tariffs on Canadian canola. With $784 billion in annual bilateral trade at stake, this represents a significant escalation in US-Canada trade tensions.

Trump accused Canada of trying to become "a Drop Off Port" for Chinese goods entering the US. He warned: "China will eat Canada alive, completely devour it, including the destruction of their businesses, social fabric, and general way of life."

The timing is not coincidental. This threat comes five months before the mandatory USMCA review in July 2026 (USMCA is the United States-Mexico-Canada Agreement, the trade deal that replaced NAFTA). Trump is positioning tariffs as a bargaining chip for broader renegotiations of North America's trade architecture.

For everyday Americans, this means higher prices at the grocery store, car dealerships, and gas pumps. Canada is our largest trading partner, and making Canadian goods 100% more expensive would ripple through almost every sector of the economy.

What Happened: A Deal on EVs and Canola Triggers a Trade Crisis

On January 16, 2026, Canada announced a preliminary agreement-in-principle with China addressing multiple sectors. The deal allows 49,000 Chinese EVs to enter Canada annually at a 6.1% tariff rate (down from 100%), representing less than 3% of new vehicle sales. In exchange, China agreed to reduce tariffs on Canadian canola seed from 84% to approximately 15%, effective March 1, 2026. The agreement also reduces barriers for Canadian lobsters, peas, crabs, beef, pet food, and animal genetics, worth $2.6 billion in potential market access, and extends steel and aluminum tariff relief through the end of 2026.

Initially, Trump appeared supportive. On January 16, he told reporters, "If you can get a deal with China, you should do that." But eight days later, his position reversed dramatically. On January 24, Trump posted to Truth Social: "If Canada makes a deal with China, it will immediately be hit with a 100% Tariff against all Canadian goods and products coming into the U.S.A."

Ontario Premier Doug Ford immediately criticized the Canada-China agreement, calling for Canadians to "boycott the Chinese EV vehicles" and warning that "China now has a foothold in the Canadian market and will use it to their full advantage at the expense of Canadian workers." Ford's opposition reflects deep concern about Ontario's automotive sector, which faces existential challenges as the USMCA renegotiation approaches.

On January 26, Prime Minister Mark Carney attempted to defuse the crisis, stating that Canada has "no intention of doing that with China or any other non-market economy." Carney emphasized that the agreement is "entirely consistent with CUSMA" (Canada's term for USMCA) and does not constitute a free trade agreement (FTA). He characterized it as going "back to the future" for EVs and food products: a limited, sector-specific arrangement rather than full trade liberalization.

The Trump administration has provided no formal response through official channels. US Trade Representative Ambassador Greer called the deal "problematic for Canada" on January 17, but no formal White House press release has addressed the threat. The lack of formal process suggests Trump may be testing political waters while preserving flexibility to walk back or modify the threat.

What It Means: What Laws Let a President Impose Tariffs?

Legal Tools Available

Here's the key thing to understand: the Constitution gives Congress, not the President, the power to impose taxes on imports. But over the decades, Congress has passed laws giving presidents some authority to impose tariffs in specific situations. Each of these laws has different rules and limits.

If Trump proceeds with 100% tariffs on Canada, he has three main options.

Option 1: The Emergency Powers Law. There's a law called IEEPA (International Emergency Economic Powers Act) that lets the president take economic action during national emergencies. Trump has been using this law for tariffs because it lets him act immediately without conducting investigations or proving specific facts. He's already used it for "fentanyl tariffs" on Canada, Mexico, and China. But there's a catch: multiple courts have ruled Trump exceeded his authority, and the Supreme Court is currently reviewing whether this law even allows tariffs at all. During oral arguments in November 2025, several justices expressed deep skepticism. If the Supreme Court rules against using emergency powers for tariffs, Trump would lose his fastest and most flexible tool.

Option 2: The National Security Tariff Law. Another law, Section 232 of the Trade Expansion Act, lets the president impose tariffs on products that threaten national security. Trump has used this for steel, aluminum, and auto tariffs. But it requires the Commerce Department to investigate first. And using it to justify tariffs on all Canadian goods would mean arguing that maple syrup, lumber, dairy products, and energy imports all threaten national security. That's a stretch even for this administration.

Option 3: The Unfair Trade Practices Law. Section 301 of the Trade Act lets the president respond to unfair trade practices by other countries. It requires the US Trade Representative to investigate before imposing duties. This law was used against China for intellectual property theft, but justifying it against Canada would require proving Canada engages in "unfair" practices. Given that Canada operates under trade rules negotiated and signed by Trump himself, this argument lacks credibility.

Trump could also invoke what he calls "reciprocal tariff authority," the power to match whatever tariffs foreign countries charge us. He proclaimed this authority on "Liberation Day" in April 2025. But this claimed power has no clear legal basis in any law Congress has passed. Courts haven't ruled on whether it's valid.

The most likely scenario: Trump uses the emergency powers law despite pending Supreme Court challenges. It offers speed and flexibility, and even if courts eventually rule against him, the legal process could take months or years while tariffs remain in effect.

The USMCA's Rule About China Deals

There's a specific rule in the US-Canada-Mexico trade deal (USMCA Article 32.10) that restricts deals with China. It says: if any of the three countries wants to negotiate a full free trade agreement with a "non-market economy" like China, it must notify the other countries three months in advance. And if one country signs such a deal, the others can review it and potentially withdraw from USMCA entirely.

Canada argues this rule doesn't apply because its China agreement is not a full free trade agreement. Full trade deals typically eliminate tariffs across almost all products and create enforceable legal mechanisms. Canada's deal is much narrower: it just reduces specific tariffs on EVs and canola.

But Trump's interpretation may differ. His January 24 post suggests he views any trade liberalization with China as a violation. This interpretation stretches the rule beyond what it actually says, but legal precision isn't always what matters in politically-driven trade disputes.

Why the Supreme Court Case Matters

The Supreme Court heard challenges to Trump's emergency-powers tariffs in November 2025. The questioning revealed significant skepticism from multiple justices.

Here's the core issue: the emergency powers law says the president can "regulate" foreign commerce during emergencies. But "regulate" isn't the same as "tax." Tariffs are taxes. And the Constitution specifically gives Congress, not the President, the power to tax imports.

Justice Kagan pressed the government's attorney on whether "regulate" really means "tax." She noted that if it does, the president could impose a 100% tax on all foreign goods and essentially shut down international trade without Congress ever voting on it. Justice Gorsuch questioned whether accepting this interpretation would make the Constitution's assignment of tariff power to Congress meaningless.

If the Supreme Court rules that emergency powers can't be used for tariffs, Trump's options narrow considerably. He'd have to use laws that require investigations and fact-finding, which takes time and creates opportunities for legal challenges.

Congressional authorization for new tariffs seems unlikely. The Senate voted 51-48 in April 2025 to reject Trump's 25% Canada tariffs, with four Republicans (Rand Paul, Susan Collins, Lisa Murkowski, and Mitch McConnell) joining all Democrats in opposition.

The edge case to watch: Trump might argue that Canada's China deal itself is an emergency requiring immediate action. This would frame the tariff as a response to Canada breaking "North American trade solidarity." But this theory requires proving that 49,000 Chinese EVs in Canada represent an urgent threat to US national security. That's a difficult case to make when those vehicles represent less than 3% of Canadian new car sales.

Business Impact: Supply Chains, Costs, and the $1,300 Household Tax

What's Really at Stake

US-Canada bilateral trade totaled $784 billion in 2024. The US imported $412 billion from Canada (making Canada our third-largest source of imports) and exported $350 billion to Canada (making it our top export destination). Canada is the number one export market for 34 US states. Excluding energy, the US actually runs a $63 billion trade surplus with Canada, meaning we sell more to them than we buy.

A 100% tariff would effectively double the price of Canadian goods entering the US market. Most Canadian products would become uncompetitive. The immediate effects: supply chain disruption, price increases, and potential shortages as businesses scramble to find alternatives.

Automotive: The Most Connected Sector

Cars and car parts represent 21% of Canada's goods exports to the US. Here's why this matters: North American auto manufacturing developed over decades assuming free trade between the US and Canada. The supply chains are deeply intertwined. A single vehicle might contain parts manufactured in Canada, assembled in Michigan, painted in Ontario, and distributed from Ohio. Components cross the border multiple times during production.

The industry already faces 25% tariffs on completed cars (effective April 3, 2025) and 25% tariffs on auto parts (effective May 3, 2025). Those tariffs cost the American auto sector an estimated $188 billion annually. Doubling them would make the integrated North American supply chain economically impossible.

Just-in-time manufacturing makes this worse. Modern auto plants don't stockpile parts. They receive daily or even hourly deliveries to minimize warehouse costs. This means a disruption in cross-border parts could lead to assembly lines shutting down within days, not weeks. Ford, GM, and Stellantis have warned that tariffs "present risks to the future of the integrated North American auto supply chain." Stellantis has already halted production in Canada and Mexico and laid off 900 people at five US plants due to existing tariff uncertainty.

Energy: We Need Canada's Power

Energy represents 29% of Canada's exports to the US. Michigan's automotive manufacturing relies heavily on Canadian electricity for energy-intensive production. The Northeast, Midwest, and Mid-Atlantic regions depend on Canadian natural gas and hydroelectric power to keep the lights on.

A 100% tariff on Canadian energy would raise costs for energy-intensive manufacturing across the US industrial heartland. It could also strain grid reliability if utilities reduce Canadian energy purchases. Ontario has threatened retaliatory tariffs specifically on energy exports, which would compound the problem by reducing supply while US demand stays constant.

Agriculture: Disrupting Your Grocery Store

Canada exports dairy, meat, grains, and other food products to the US. A 100% tariff would make Canadian agricultural products uncompetitive, forcing US buyers to find other sources. But food supply chains don't change quickly. Switching suppliers requires new contracts, quality certifications, logistics arrangements, and relationship building.

The irony: Canada negotiated the China deal specifically to help its canola farmers. China imposed retaliatory tariffs on Canadian canola in 2019 during a diplomatic dispute. The January 16 agreement reduces those tariffs from 84% to about 15%, opening a $4 billion annual market. If the US responds with 100% tariffs on Canadian goods, Canadian farmers would lose access to the US market to gain access to China. That's a net loss since the US is Canada's largest trading partner.

What This Means for Your Wallet

The Tax Foundation estimates that Trump's current and threatened tariffs amount to an average tax increase of $1,000 per US household in 2025, rising to $1,300 in 2026. JPMorgan analysts characterize the effective US tariff rate climbing toward 18-20% (up from 2.3% before Trump's return) as "the largest tax increase since 1968."

These are not theoretical numbers. They represent higher prices for groceries, cars, building materials, and everyday goods. Here's how it works: Tariffs are paid by importers. Importers pass the cost to distributors. Distributors pass it to retailers. Retailers pass it to you. A 100% tariff on Canadian lumber raises the cost of building or renovating a home. A 100% tariff on Canadian dairy raises grocery bills. A 100% tariff on automotive parts raises both new car prices and repair costs.

The Tax Foundation estimates that current tariff policy eliminates the equivalent of nearly 450,000 full-time jobs when you account for reduced economic activity, supply chain disruptions, and retaliatory tariffs from trading partners. Adding 100% tariffs on Canada would multiply those employment losses.

The Board-Level Question: What Is Our Exposure?

For companies with cross-border supply chains, the Canada tariff threat raises urgent questions. Boards and investors need to understand:

• What percentage of our supply costs comes from Canada? If it's substantial, can we source domestically or from other countries? At what cost and timeline?

• Do we manufacture in Canada for the US market? If so, can we shift production to US facilities? What would that cost in capital investment and downtime?

• Are we dependent on Canadian inputs with no ready substitutes? Energy, certain raw materials, and specialty components may have limited alternatives. Can we stockpile? Can we absorb price increases?

• What do our contracts say? Do our agreements include clauses covering unexpected events (sometimes called "force majeure") that might address tariffs? Can we renegotiate pricing if input costs spike? Who bears the risk?

• What is our cash runway if profit margins shrink? If we can't pass costs to customers, how long can we absorb them? Do we have credit lines to bridge cash flow gaps?

These aren't questions to defer until tariffs take effect. The threat itself creates risk: suppliers raise prices in anticipation, customers delay purchases waiting for clarity, lenders tighten terms due to uncertainty. Smart management teams are running scenarios now.

Practical Takeaways: What to Do This Week

Review your supply chain for Canadian exposure. Map which products, components, and raw materials come from Canada. Quantify the dollar value and assess whether alternatives exist. Prioritize high-value, hard-to-substitute inputs for immediate contingency planning.

Audit your trade compliance documentation. If tariffs are imposed but contain exemptions for goods that qualify under USMCA, you'll need paperwork proving your products were made in North America (what trade lawyers call "rules of origin" requirements). Gather certificates of origin, supplier declarations, and production records now. Assembling them under time pressure invites errors.

Stress-test your contracts for tariff scenarios. Review terms with Canadian suppliers and US customers. Identify who bears the risk if tariffs are imposed. If contracts are silent on tariffs, consider whether renegotiation or clarification is prudent before disruption occurs.

Model the impact on pricing and margins. Run scenarios assuming 25%, 50%, and 100% tariffs on Canadian inputs. Determine whether you can pass costs to customers, how much margin compression you can absorb, and at what point products become unprofitable. Prepare pricing change notifications if tariffs materialize.

Engage industry associations and trade groups. The automotive industry's coordinated response through AAPOC and CVMA demonstrates the value of collective advocacy. If your industry depends on Canada trade, ensure your voice is part of the lobbying effort to prevent or mitigate tariffs.

Explore nearshoring or reshoring options. If tariffs appear likely to persist, evaluate whether relocating production to the US makes economic sense. Run build-versus-buy analyses accounting for capital investment, labor costs, regulatory compliance, and time to get operations running.

Monitor legal challenges and congressional response. The Supreme Court's emergency-powers ruling could invalidate tariffs or force Trump to use slower, more procedural mechanisms. Congressional opposition from border-state Republicans creates potential for legislative action. Track these developments; they affect both probability and timing.

Prepare customer and investor communications. If you're a public company or have institutional investors, anticipate questions about Canada exposure. Draft Q&A documents addressing how you're mitigating risk, what impact you expect on financials, and what your contingency plans are.

Consider strategic inventory builds. If you have warehouse capacity and cash flow, building inventory of Canadian inputs before tariffs take effect could provide a buffer. Balance carrying costs against the risk of supply disruption or price spikes.

Watchlist: Critical Dates and Decision Points

Looking Ahead: Trade Wars and the Reshaping of North America

Trump's 100% tariff threat represents more than a trade dispute over Chinese electric vehicles and canola. It signals a fundamental rethinking of North America's economic integration. For three decades, the assumption underlying NAFTA and USMCA has been that reducing barriers between the US, Canada, and Mexico benefits all three economies by creating efficiencies, enabling specialization, and increasing competitiveness against other global trading blocs.

That assumption is now in question. Trump's willingness to threaten America's largest trading partner with tariffs that would devastate supply chains on both sides of the border suggests that economic integration is no longer viewed as inherently valuable. Instead, trade is treated as a zero-sum competition where the goal is gaining the upper hand rather than mutual benefit.

The July 2026 USMCA review will test whether North American economic integration survives this shift. If Trump withdraws from USMCA or demands renegotiations so extensive that the agreement becomes unrecognizable, businesses will need to adapt to a new reality where cross-border trade carries political risk priced into every transaction. Companies that spent decades building North American supply chains may need to bring production back to the US, move it closer to home, or diversify suppliers to reduce exposure to trade policy volatility.

For Canada, the calculation is equally stark. If the US is no longer a reliable trading partner, diversification becomes essential. The China deal, even if limited to EVs and canola, represents a hedge against US unpredictability. Other agreements with the EU, UK, and Asia-Pacific countries may follow. Eurasia Group's assessment that "outside the US, no other country will be as profoundly affected as Canada" and that "its long-standing relationship with the US, based on ever-increasing economic integration and a rock-solid security partnership, is now history" may prove prescient.

The path forward will be determined in the next five months. If Trump backs down from the 100% tariff threat, it becomes a negotiating tactic that succeeded in extracting concessions. If he follows through, it becomes the opening salvo in a trade war that reshapes North America's economic geography. Either way, the message is clear: the era of taking US-Canada trade for granted is over.