As U.S.–Canada trade negotiations enter their final stretch, the economic relationship between the two countries has once again taken center stage in the markets. President Trump recently delivered a strong warning: if an agreement isn’t reached by August 1, all Canadian imports could face tariffs of up to 35%. The announcement has rattled markets and added fresh tension to already strained bilateral relations.

On June 28, Canadian Prime Minister Carney acknowledged that the negotiation process is “complicated and challenging,” and admitted that securing a full tariff exemption on all products would be difficult. He reiterated that Canada’s negotiation stance prioritizes protecting domestic workers and industries, and that Ottawa won’t sacrifice key sectors simply to seal a quick deal. Given that the U.S. recently signed a tariff agreement with the European Union that caps import duties at 15%, Canada receiving a complete exemption appears unlikely. In the short term, the Canadian government is aiming to secure lower tariffs or partial exemptions for certain critical industries.

To signal goodwill, Canada announced at the end of June that it would postpone the implementation of its digital services tax, which had been set to take effect on June 30. The move was intended to create space for continued dialogue. However, deep divisions remain around key sectors such as steel, aluminum, agriculture, and pharmaceuticals, making a comprehensive deal difficult to achieve in the near term.

Markets reacted swiftly. As the White House adopted a hardline stance, the U.S. dollar surged against the Canadian dollar, putting downward pressure on the loonie. North American stock futures also dipped, reflecting investor concerns over supply chain disruptions and future corporate earnings.

Over the longer term, this trade standoff could reshape North America’s economic landscape. Canada is the U.S.’s third-largest trading partner, with over $400 billion in exports to its southern neighbor last year. If steep tariffs are imposed, major sectors like automobiles, energy, and agriculture will likely face significant headwinds, potentially prompting a broader reconfiguration of the North American supply chain.

With only days remaining before the August 1 deadline, both sides are engaged in intensive closed-door talks. While a complete avoidance of tariffs appears unlikely, Canada is expected to push hard for selective exemptions and reduced rates to limit economic fallout. Whether a balanced outcome can be reached—and a full-blown trade escalation avoided—remains uncertain. Investors and business owners should monitor developments closely and prepare for potential shifts in policy.