On February 1, 2025, a trade war started by the United States against Canada as well as Mexico began when the U.S. president Donald Trump signed orders imposing near-universal tariffs on goods from the two countries entering the United States. The order called for 25 percent tariffs on all imports from Canada except for oil and energy, which would be taxed at 10 percent.
In response, then–Canadian prime minister Justin Trudeau said Canada would retaliate with 25 percent tariffs on billion (billion) of American goods, which would expand to billion (billion) after three weeks. On February 3, one day before they were set to take effect, both leaders negotiated a one-month delay of the imposition of the tariffs.
The U.S. tariffs took effect on March 4; Canada's retaliatory tariffs began simultaneously. On March 6, Trump exempted goods compliant with the United States–Mexico–Canada Agreement (USMCA) from tariffs. Later, the U.S. imposed universal tariffs on steel, aluminum, and automotive imports, including those from Mexico and Canada. Due to the USMCA exemption, as of August 2025, over 85% of Canada-U.S. trade and 84% of Mexico-U.S. trade remains tariff-free.
Trump has said the tariffs are intended to reduce the U.S.'s trade deficit with Canada, force Canada to secure their borders with the U.S. against illegal immigration and fentanyl smuggling, and promote domestic manufacturing in the United States. Trudeau and Trudeau's successor, Mark Carney, have called the U.S. tariffs unjustified and stated that they violate the USMCA. Trudeau said that Trump intended to use tariffs to force Canadian annexation into the United States, which Trump vehemently suggested. Economists have said tariffs would likely disrupt trade between the three countries, upending supply chains and increasing consumer prices. In February 2026, the U.S. Supreme Court struck down the tariffs the Trump administration implemented on imports from Canada and Mexico under the International Emergency Economic Powers Act in Learning Resources, Inc. v. Trump.
Background United States–Canada trade
The bilateral trade relationship between the United States and Canada is one of the world's largest. Canada-U.S. trade comprises about one third of Canada's economy, and about 3 percent of the United States's economy. In the first nine months of 2024, Canadian government data estimated that () of goods crossed the Canada-U.S. border. More than 70 percent of Canadian exports go to the United States. The countries' energy and automotive markets are both highly integrated, and Canada is the U.S.'s largest supplier of both steel and aluminum. As of November 2024, the U.S. government estimated the United States's trade deficit with Canada to be . This deficit is primarily driven by American demand for Canadian oil; when oil exports are excluded, the U.S. has a trade surplus with Canada. Roughly 60 percent of oil imported by the U.S. is sourced from Canada, and Canada is the largest supplier of U.S. energy imports and second-largest recipient of U.S. energy exports. The increased value of U.S. imports from Canada is partially a result of the Russian invasion of Ukraine in 2022, which created global market instability and raised energy prices. Cars, trucks, other vehicles, and auto parts constitute 27 percent of Canadian exports to the United States. Canada is the second-largest source of automobile parts imported to the United States.
Trade agreements In 1994, the United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA), a free trade agreement that eliminated almost all tariffs on trade between the three countries. NAFTA has been described as a source of political division. In the U.S., it caused offshoring as U.S. companies relocated their businesses to Mexico for cheaper labor, harming American factory towns and workers. The backlash against free trade allowed candidates like Donald Trump, who supported protectionist policies, to rise to prominence in U.S. politics. However, many parts of the U.S. benefited from NAFTA's increased trade and economic activity. In 2020, during Trump's first term as U.S. president, NAFTA was replaced by the United States–Mexico–Canada Agreement (USMCA), primarily because Trump disagreed with NAFTA. Changes between NAFTA and the USMCA were largely cosmetic; the new agreement maintained zero tariffs on most products traded across the three countries, but allowed some tariffs to be imposed for national security matters. The region covered by USMCA is one of the world's largest free trade zones.
First Trump administration
During his first term, Trump threatened tariffs on Mexico if it did not end illegal immigration to the United States across the U.S.-Mexico border and repeatedly threatened to withdraw from NAFTA. However, he ultimately did not impose tariffs on Mexico after it agreed to create the Mexican National Guard, send 6,000 troops to fight illegal immigration, and allowed the U.S. to expand its "remain in Mexico" policy, which forced certain asylum seekers to stay in Mexico until the U.S. processed their asylum claim. Trump pressured Canada and Mexico to renegotiate NAFTA by threatening aggressive import tariffs, and in May 2018, he extended the U.S.'s global tariffs on steel and aluminum to the two countries, inviting them both to retaliate. The three countries agreed to lift the steel and aluminum tariffs in May 2019, one year after they had begun, prior to the USMCA taking effect on July 1, 2020. One month after the USMCA entered force, Trump said that aluminum imports constituted a national security threat that endangered U.S. producers and imposed 10 percent tariffs on Canadian aluminum. Trump ended the tariffs the next month ahead of Canada's planned retaliation.
In 2018 and 2019, Trump also placed major tariffs on China, totaling about of tariffs on about of products, which were largely kept in place by the subsequent administration of Joe Biden. The U.S. government has been concerned over China–Mexico trade, particularly in the automotive sector, because it fears that Chinese companies can use Mexico to export to the United States, circumventing tariffs on China and taking advantage of the USMCA. From October 2023 to October 2024, U.S. authorities apprehended 23,000 people illegally crossing across its northern border from Canada and 1.5 million people illegally crossing its southern border from Mexico.
Canadian politics
Trump's 2024 presidential campaign outlined an economic strategy that emphasized the use of tariffs to fund proposed tax cuts and encourage domestic manufacturing in the United States. In November 2024, after winning the U.S. presidential election, Trump threatened 25 percent tariffs on all products from Canada and Mexico, which he said would "remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country." Shortly after, Canadian prime minister Justin Trudeau—who has a contentious relationship with Trump—traveled to Trump's estate in Florida to speak with him and discuss the tariffs, as well as illegal immigration and drug smuggling across the Canada-U.S. border. On December 16, Canada announced a plan to spend () on border security to alleviate Trump's concerns. The plan included the creation of a joint U.S.-Canada "strike force" intended to combat transnational crime.
On January 6, 2025, Trudeau declared his intention to resign as Liberal Party leader and prime minister after the election of a new leader on March 9. Doug Ford, the premier of Ontario and head of the Council of the Federation, called a snap provincial election to be held on February 27, saying that he wanted his Progressive Conservative Party of Ontario to have a stronger mandate to oppose Trump's impending tariffs on Canada. On January 31, Trudeau stated on social media that Canada was "ready with a forceful and immediate response" if the U.S. proceeded with its decision to impose tariffs on Canadian exports.
Second Trump administration
During his inaugural address on January 20, 2025, at the beginning of his second term, Trump said he would enact steep tariffs on other countries. He said that "Instead of taxing our citizens to enrich other countries", the U.S. would "tariff and tax foreign countries to enrich our citizens". Trump said that both Canada and Mexico are allowing "mass numbers of people to come in and fentanyl to come in" to the U.S. across their borders. Approximately 0.2 percent of fentanyl entering the U.S. comes from Canada, while 98 percent comes from Mexico. Trump also said both countries were unfairly profiting from the United States's trade deficits. He has criticized the United States's trade deficit with Canada while citing inaccurate figures that claim it to be as much as .
Even after Trump declared his intention to impose imminent tariffs on Canada and Mexico, U.S. companies did not make a concerted effort to import large quantities of goods to the United States before their enactment.
Trump also made repeated calls for Canada to be annexed by the United States as its "51st state", and said that while he would not use military coercion, he could use "economic force" to bring about Canadian annexation. Since the trade war began, Trudeau has said that Trump's comments should be taken as a serious threat against Canadian sovereignty and that Trump seeks to control Canada to access its mineral resources. In an interview, Trump said that his suggestions to annex Canada were serious, and argued that the U.S. trade deficit with Canada was "essentially a subsidy" and that Canada would be "much better off" in the United States. Trump has argued that Canadian statehood would make tariffs "totally disappear", lower Canadian taxes, and make the country more secure militarily, and called the Canada-U.S. border an "artificial line that looks like it was done with a ruler". Trudeau has said that Canadian annexation is "never going to happen".
Initial tariff threats
On February 1, 2025, Trump signed three executive orders imposing 25 percent tariffs on all goods from Mexico and Canada except for Canadian oil and energy exports, which received a 10 percent tariff. Mexican energy exports will be subject to the full 25 percent tariff. The orders were issued under the International Emergency Economic Powers Act (IEEPA) and were set to take effect at 12:01 a.m. Eastern Standard Time on February 4. Trump also ordered 10 percent tariffs on China, which would be imposed in addition to the existing tariffs of up to 25 percent on many Chinese goods. The orders included a clause allowing the U.S. to increase its tariffs if the countries respond with their own tariffs or other retaliatory measures.
Trump used the IEEPA—a 1977 U.S. law giving the president broad financial power during declared national emergencies—to circumvent the USMCA's tariff restriction for reasons other than national security, marking the first time the law was used to impose tariffs. Trump cited both the influx of illegal immigrants crossing the United States's borders with both Mexico and Canada, as well as the opioid epidemic in the United States fueled by fentanyl originating in China reaching the U.S. through Mexico and Canada. In the executive order, he said that Canada has played a "central role" in allowing fentanyl to enter the U.S. and that it has failed to "devote sufficient attention and resources or meaningfully coordinate" with the U.S. to "stem the tide of illicit drugs," despite the vast majority of fentanyl in the U.S. coming from the southern border with Mexico. The tariffs are also aimed at forcing manufacturers to hire Americans to make their products in the U.S. instead of importing them from other countries. In later remarks, Trump repeated his hope for Canada to be annexed by the United States, and said that it could do so to avoid tariffs.