Rapid Response 2026: Canada and US enter trade war (Issue 8)

US and Canada trade talks collapse

The US had announced a new 50% tariff on many Canadian goods, initially to go into effect on Aug. 18, 2026. It does not affect autos or auto parts but addresses an additional US$20 billion in annual exports from Canada to the US. These were imposed under Section 338 of a 1930 US trade law; the US imposed tariffs on 60 other countries with the same authority. The US and Canada came close to an agreement, but the US returned with demands Canada rejected. Canada pulled out of talks and on Aug. 22 the US tariffs went into effect. On Aug. 25, Canada announced retaliatory tariffs; the new Canadian tariffs go into effect on Sept. 8. The new list does not address vehicles or parts in particular, although Canada increased its tariff on US steel and aluminum to 50% from 25% and some steel and aluminum derivatives now also have a 25% tariff. On the US part, President Donald Trump announced that the tariff on cars and car parts from Canada will increase to 50% on Jan. 1, 2027.

The breakdown in talks between the US and Canada could be a signal of posture and goals Mexico might expect. Canada’s tariff actions set for Sept. 8, 2026, came along with billions of Canadian dollars to help support the industries that will presumably be affected by business lost as US companies look to less expensive sources. The Trump administration has adjusted tariff points in response to industry reaction (for example, the offset intended to give a break to OEMs importing parts and exporting vehicles), but a broader support for US business or consumers is not in play.

USMCA: Expectations adjusted, potential revisions

The US-Canada trade war could put a crimp in the tone of USMCA talks or could suggest a more difficult route for any side agreements the US may work through with Mexico. Despite the recent tensions, however, Mobility Global expects the most likely probability to be that the three countries will reach a modified interim USMCA by January 2027. We see a 20% probability that the review period could be extended into 2027.

Forecast assumptions: September 2026

Mobility Global’s next sales and production forecasts will be issued mid-September and are not final. However, we can provide a view into factors and directional changes in development. We signaled with the June 2026 forecast round that the deceleration in the Chinese domestic market will have a larger impact on global sales and production than the ongoing Iran conflict or uncertainty over the USMCA. With the September 2026 round, we are expecting a further reduction in Chinese TIV, while global TIV estimates may be up to 1% higher than the prior forecast round.