Forgotten Profits Trade Setup Archive

The tariff, outlined in a letter to Canadian Prime Minister Mark Carney and posted on social media, replaces the previous 25% duty on non-USMCA goods and comes with a warning: any retaliation by Canada could result in even higher levies. Trump’s message also touched on unrelated grievances, including Canada’s dairy import restrictions and its role in the fentanyl crisis, further signaling that his administration is willing to blur the lines between trade and other geopolitical issues.

Economic Impact on Canada

Canada’s economy, already shaken by uncertainty in trade policy, is bracing for impact. With trade to the U.S. accounting for nearly 20% of Canada’s GDP, the new tariffs could significantly disrupt sectors such as manufacturing, agriculture, and the automotive industry. Canada’s unemployment rate has reached a nine-year high (excluding pandemic-era figures), and this latest development threatens to deepen the downturn.

In response, Canada is taking steps to maintain its diplomatic presence. Prime Minister Carney recently rescinded a controversial 3% digital services tax aimed at U.S. tech firms in an attempt to revive talks. His administration is also increasing investments in border security, appointing a “border czar,” and pledging $1 billion to address fentanyl trafficking—a key point of contention with Trump.

Markets React Cautiously

The Canadian dollar weakened sharply after the announcement before recovering modestly, as traders weighed the likelihood of Trump following through. According to Karl Schamotta, Chief Market Strategist at Corpay, “Traders remain broadly convinced that the President will ultimately fail to follow through on his threats, but this may not be a safe assumption.” U.S. businesses that rely on Canadian supply chains are also voicing concerns, warning that rising costs could impact both consumers and investment planning.

Tariffs as a Political Tool

This is not the first time President Trump has linked tariffs to issues beyond trade. From imposing duties on Brazil over the trial of Jair Bolsonaro to threatening Colombia and Mexico over immigration policies, Trump’s evolving use of tariffs represents a stark break from post-World War II norms of rules-based trade. Legal challenges are mounting: A U.S. appeals court is set to review several of these tariff actions on July 31, just one day before the Canadian tariffs are scheduled to take effect.

What’s Next?

Analysts and lawmakers remain divided. Supporters argue that Trump’s hardline stance gives the U.S. more negotiating power. Critics—including many in his own party—warn that unpredictable tariff policies create economic chaos and undermine long-standing trade partnerships. “If every foreign policy disagreement results in a 50% tariff, we’re going to lose our footing in global markets,” said Senator Rand Paul.

While the U.S.-Canada relationship has weathered tariff battles before, the inclusion of non-trade-related demands makes the path forward murkier. Whether this is a new era of transactional trade diplomacy or a temporary flashpoint remains to be seen.

Key Takeaways:

• Trump announced 35% tariffs on some Canadian imports, effective August 1, 2025.
• USMCA-compliant goods are temporarily exempt, but future changes are possible.
• The move is tied to political grievances, including fentanyl trafficking and dairy market access.
• Canadian officials are attempting to de-escalate by repealing digital taxes and increasing border efforts.
• Legal and market risks are increasing as Trump employs tariffs for political, rather than purely economic, leverage.