Trump order lifts duties on non-CUSMA goods to 35 per cent; Carney freezes Windsor to Detroit bridge tolls as the loonie sinks to a two-year low
OTTAWA, July 18, 2026. President Donald Trump signed an executive order on Friday raising United States tariffs on Canadian goods to 35 per cent, an abrupt escalation that rattled financial markets, drove the Canadian dollar to its weakest level in two years and prompted an unusually direct retaliation from Prime Minister Mark Carney, who moved within hours to withhold Canada’s share of toll revenue from the recently opened Gordie Howe International Bridge linking Windsor and Detroit.
The new rate, up from the 25 per cent duty that had applied to Canadian imports failing to qualify for preferential treatment under the Canada United States Mexico Agreement, pushed the trading relationship between the two neighbours to its most adversarial point since the tariff war first erupted in early 2025. According to a Friday intelligence briefing published by The Rio Times, the order lands hardest on lumber and automotive parts, two sectors that sit at the centre of integrated cross-border supply chains and together employ tens of thousands of workers on both sides of the frontier.
Within hours the Canadian dollar slumped to roughly 0.72 against the greenback, its lowest reading in about two years, as currency traders priced in the risk of a prolonged standoff. The S&P/TSX Composite Index closed lower on the day, and business groups in Ontario and Quebec warned that manufacturers facing a 35 per cent wall at the border could be forced into layoffs within weeks. Some exporters, according to the same reporting, have already begun studying whether shipments could be redirected toward Latin American and other markets that carry no such penalty.
A calculated act of retaliation on the river
The single most striking element of Ottawa’s response was Carney’s decision to hold back toll revenue collected on the Gordie Howe International Bridge, the publicly financed span across the Detroit River that opened to traffic only this summer after years of construction. Carney vowed that Canada would keep billions of dollars in proceeds until the country recoups its investment in the crossing, a pointed reminder that Ottawa financed and built the bridge that now carries a large share of the two countries’ commercial traffic.
The move carries symbolic weight far beyond its immediate fiscal effect. When the two governments negotiated the arrangement to open the bridge, they agreed to split net toll profits for a 15-year period, with the American share directed into a fund earmarked for economic development on the Detroit side of the river. Earlier in the year, Trump had demanded that Canada hand over at least half of the bridge’s ownership as one of a series of cross-border ultimatums, before later claiming he had secured a far better deal for the United States and allowing the crossing to open on schedule. By freezing the revenue split now, Carney has turned one of Washington’s prior demands into a lever of his own.
Crucially, Carney stressed that Canada remains committed to the Canada United States Mexico Agreement, known in Canada as CUSMA and in the United States as the USMCA, even amid the escalation. That framing matters. It signals that Ottawa intends to treat the 35 per cent duty as a violation of the spirit of continental free trade rather than as a reason to abandon the pact, preserving the legal and diplomatic architecture through which any eventual settlement would have to be negotiated.
How the rate reached 35 per cent
The Friday order did not arrive without warning. Tariffs on Canadian goods that do not meet CUSMA rules of origin had already been sitting at 25 per cent, the product of successive rounds of pressure that began when the current administration first invoked national-security and border-related justifications for duties on its northern neighbour in 2025. Layered on top of that headline rate are sector-specific measures that predate Friday’s move, including tariffs imposed under Section 232 of the United States trade law on steel and aluminium, which Washington has maintained without granting an exemption for CUSMA-compliant metal.
Canada’s own posture has shifted repeatedly over the past year. After an intense initial phase of tit-for-tat measures, Ottawa lifted nearly all of its retaliatory counter-tariffs on American consumer goods through orders in council that took effect on September 1, 2025, retaining duties only in the politically sensitive steel, aluminium and automotive sectors. That decision was designed to lower the temperature and to spare Canadian households from higher prices on a wide range of imported products. Friday’s escalation now tests whether that conciliatory approach can survive a fresh 10-point jump in the American rate.
The government has spent the intervening months building a financial backstop for the industries most exposed to American duties. In May, Ottawa launched a credit programme worth roughly one billion Canadian dollars aimed primarily at companies that manufacture and export steel, aluminium and copper products. In June, the finance minister announced that Canada would extend key steel and aluminium tariff measures for a further year, including a tariff-rate-quota regime governing imports from non-CUSMA partners and horizontal tariff relief for eligible steel and aluminium products, a package intended to protect domestic producers from diverted global supply while the dispute with Washington drags on.
The dispute now entering its second year began in early 2025, when the administration first invoked emergency economic powers and border-security concerns, including the flow of fentanyl, to justify duties on Canadian and Mexican goods. What started as a 25 per cent headline rate, punctuated by pauses, carve-outs and partial reversals, proved remarkably durable, surviving multiple rounds of negotiation and a change of government in Ottawa that brought Carney to office. Friday’s move to 35 per cent extends that trajectory rather than breaking from it, confirming that tariffs have become the administration’s instrument of first resort rather than a last-ditch threat.
The stakes are magnified by the sheer depth of integration between the two economies. The United States absorbs roughly three-quarters of Canadian merchandise exports, and entire industries, from automotive assembly to energy to agriculture, have been organised for decades on the assumption that the border is a formality rather than a barrier. A tariff of 35 per cent does not merely raise the price of finished goods; it disrupts supply chains in which components, raw materials and sub-assemblies cross the frontier repeatedly, accumulating duties at each passage and unravelling the logic of continental production that has underpinned North American manufacturing since the original free-trade agreements of the 1990s.
Stakeholders brace for the shock
Reaction across Canadian industry was swift and grim. Manufacturing associations in Ontario and Quebec, the two provinces most dependent on automotive and forestry exports, warned that a 35 per cent duty is not a cost that can be absorbed quietly. In the automotive parts sector, where components frequently cross the border several times before a finished vehicle rolls off an assembly line, even a partial tariff compounds at each stage, inflating the landed cost of a vehicle and threatening the just-in-time logistics that make the continental industry competitive.
Forestry producers face a distinct but equally serious problem. Canadian softwood lumber already carries combined United States anti-dumping and countervailing duties, and layering a broad 35 per cent tariff on non-CUSMA-qualifying shipments risks pricing Canadian mills out of the American housing market at a moment when United States homebuilders are themselves straining against elevated construction costs. Industry voices in British Columbia and across the Prairies have long argued that punitive American duties raise the price of homes for American families as much as they squeeze Canadian producers, and Friday’s order sharpens that argument.
For his part, Carney sought to project resolve rather than alarm. His pledge to buy Canadian, to invest in industrial competitiveness and to diversify export markets echoes a strategy that Ottawa has advanced throughout the trade war: reduce dependence on a single, increasingly unpredictable customer by deepening ties with Europe, the Indo-Pacific and Latin America. That diversification is easier to announce than to achieve, given that the United States buys the overwhelming majority of Canadian exports and that geography, infrastructure and decades of integration all pull Canadian goods southward.
Carney’s call to diversify export markets builds on trade infrastructure that Canada has spent years assembling. The Comprehensive Economic and Trade Agreement with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership give Canadian exporters preferential access to large markets beyond North America, and Ottawa has courted new partners across the Indo-Pacific and Latin America. Yet trade economists caution that redirecting exports is a matter of years, not weeks. Ports, pipelines, rail links and commercial relationships are all oriented toward the United States, and no combination of alternative markets can quickly replace a customer that buys the majority of what Canada sells abroad.
Provincial governments, which bear much of the direct exposure to American duties, moved quickly to signal support for affected workers. Ontario and Quebec, home to the automotive and forestry industries most immediately in the line of fire, have long pressed Ottawa for a coordinated national response, and the leaders of the resource-producing western provinces have their own stakes in the metals and lumber sectors. The prospect of layoffs concentrated in a handful of communities gives the dispute a sharp regional dimension, adding to the pressure on the federal government to deliver relief that reaches beyond the metals sector already covered by existing programmes.
The economics of a 35 per cent wall
Economists have consistently warned that broad tariffs of this magnitude act as a tax on both economies, and the immediate market reaction bore that out. The two-year low in the Canadian dollar reflects a blunt calculation by investors: if a large share of Canadian exports suddenly faces a steep American surcharge, demand for Canadian goods and therefore for Canadian currency is likely to weaken, at least until supply chains adjust or a settlement is reached. A softer loonie does provide a partial, automatic offset, because it makes Canadian goods cheaper in United States dollar terms, but that cushion is thin against a duty as high as 35 per cent and it comes at the cost of more expensive imports and imported inflation for Canadian consumers.
The Bank of Canada, which has held its policy rate steady in recent meetings while noting that American tariffs and trade uncertainty have pushed Canadian economic activity onto a lower path than would otherwise prevail, now confronts a fresh complication. A weaker currency and the threat of tariff-driven price increases argue for caution on interest rates, yet the drag on growth and employment from a 35 per cent duty argues for support. That tension will define the central bank’s messaging in the weeks ahead and leaves policymakers with little room to manoeuvre.
The distribution of pain is uneven. Because the 35 per cent rate applies to goods that do not qualify for CUSMA preferential treatment, the practical impact depends heavily on how thoroughly Canadian exporters have documented the origin of their products. Firms that can demonstrate compliance with the agreement’s rules of origin may continue to ship under preferential terms, while those that cannot, whether because of complex inputs, thin paperwork or products that simply fall outside the pact’s coverage, are exposed to the full duty. That dynamic places a sudden premium on customs expertise and origin certification, disciplines that many smaller Canadian exporters have historically treated as afterthoughts.
What it means for importers and exporters
For Canadian exporters, the first order of business is a rigorous audit of CUSMA eligibility. Any product that can be brought into compliance with the agreement’s rules of origin should be, because the gap between the preferential rate and the 35 per cent penalty is now large enough to determine whether a shipment is profitable at all. Companies that rely on non-North American inputs may need to reconsider their sourcing, substituting continental suppliers where feasible so that finished goods clear the origin thresholds that unlock duty-free or reduced-duty access.
American importers of Canadian goods face the mirror image of that problem. A 35 per cent duty is collected at the United States border and paid by the importer of record, not by the Canadian seller, so American manufacturers and retailers that depend on Canadian lumber, auto parts, metals or other inputs will see their costs rise immediately. Those buyers must decide whether to absorb the increase, pass it on to their own customers, seek alternative suppliers or press their Canadian partners for price concessions. In highly integrated supply chains, where a Canadian component has no easy substitute, the tariff functions as a straightforward cost increase that ultimately reaches consumers.
Smaller Canadian businesses are especially vulnerable. Large multinationals can shift production, restructure contracts and deploy tariff-engineering strategies with relative ease, but a small or medium-sized enterprise that sells a specialised product into the American market may lack the scale to relocate operations or the balance sheet to survive months of squeezed margins. For these firms, the government’s promised support programmes, its credit facilities and its pledge to help diversify export markets will be the difference between weathering the shock and folding. How quickly and how broadly that assistance reaches beyond the steel and aluminium sectors to forestry, automotive suppliers and other exposed industries will be a central test of Ottawa’s response.
Trade advisers are also urging clients to prepare for volatility rather than a single, stable new normal. The pattern of the past 18 months, in which rates have been raised, paused, partially rescinded and raised again, suggests that Friday’s 35 per cent figure may itself prove a negotiating position rather than a settled policy. Businesses that build flexibility into contracts, that secure the right to renegotiate prices when duties change and that diversify their customer base will be better positioned than those that assume any given rate will hold.
A relationship at an inflection point
The timing of the order compounds its impact. It arrived as Canada battled a punishing wildfire season, with tens of thousands of residents under evacuation orders and smoke blanketing major cities, and as the broader CUSMA framework entered a fragile new phase following the failure of the three governments to renew the agreement during their required review earlier this month. A country already stretched by natural disaster now confronts an economic shock delivered by its closest ally and largest trading partner, a convergence that Canadian commentators have described as a dual siege.
Whether Friday’s escalation hardens into a durable barrier or becomes the opening move in another round of brinkmanship will depend on choices made in the coming days in both capitals. Carney has left the door open to a negotiated settlement even as he retaliates, and Washington has shown throughout the dispute that its tariff threats are frequently paired with an appetite for a deal. For the workers, exporters and importers caught in between, however, the immediate reality is a 35 per cent wall at the border, a weaker Canadian dollar and a fresh wave of uncertainty about how much longer the continent’s deeply integrated economy can absorb blows of this size.
For households, the effects will arrive through several channels. A weaker Canadian dollar raises the cost of imported goods, from food to electronics, feeding into inflation at a time when price pressures have already proven stubborn. Should Ottawa eventually reimpose broad counter-tariffs on American products, as it did in the opening phase of the trade war before lifting most of them in September 2025, Canadian consumers would face higher prices on a wide range of everyday items. The government’s decision so far to retaliate through targeted measures, such as the bridge tolls, rather than sweeping consumer tariffs, reflects an effort to pressure Washington without punishing Canadian shoppers.
Analysts note that the legal basis for the 35 per cent rate will shape how, and how quickly, it can be challenged or unwound. Tariffs imposed under emergency economic authorities can be adjusted by executive action as rapidly as they are imposed, which cuts both ways. The rate could be lowered in an afternoon if a deal is struck, but it can also be raised again with equal speed. That reversibility helps explain why Canadian officials have kept negotiating channels open even while retaliating, betting that the same flexibility that produced Friday’s escalation could produce its reversal. It also explains why business groups are reluctant to make irreversible decisions, such as relocating plants, on the basis of a rate that may not survive the next round of talks.
The coming weeks will reveal whether the 35 per cent duty settles into place or proves another turn in a long cycle of escalation and de-escalation. Much depends on the parallel negotiations over the continental trade agreement, now shifted to annual reviews, and on whether Washington links the tariff to progress on those broader talks. For Canadian exporters and their American customers alike, the practical reality is a higher and more uncertain cost of doing business across a border that both economies have spent generations trying to erase.
For now, Ottawa’s strategy rests on three pillars: protect the most exposed workers and firms through targeted support, keep faith with CUSMA as the legal foundation for an eventual resolution and use whatever leverage it holds, including the toll revenue flowing across the Detroit River, to remind Washington that integration cuts both ways. The bridge that was meant to symbolise the seamless movement of goods between the two countries has, within weeks of opening, become a bargaining chip in the very trade war it was built to serve.