Background

The United States and Canada have entered into uncharted territory, as the longtime allies who have enjoyed free trade for decades now face an escalating trade war with no clear exit.

Prime Minister Mark Carney made the decisive move to suspend talks with President Donald Trump and retaliate against fresh tariffs, a rare choice that sets a significant test for the Canadian government and its people.

Carney criticised the US proposals as unfair and unaconomic, arguing that the American demands, especially on the automobile sector, and restrictions on trade with other partners called the reliability of any agreement into question. He also accused the US of a "power play" and said the new terms were a "miscalculation" designed to hurt and divide.

What Went Wrong

A deal seemed within reach but fell apart in the final hours. The US late‑night proposals were deemed "unfair, uneconomic, and called into question the reliability of any deal" according to Carney. He added that the demands on the automobile sector were "unacceptable" and that the US was seeking "unacceptable" restrictions on trade with other countries.

US trade representative Jamieson Greer pointed to new demands and the walk‑backs of other commitments by Canada. The Distilled Spirits Council of the United States said that Canadian provinces’ refusal to return US spirits to store shelves had led to the breakdown.

Canadian media reports highlighted US Commerce Secretary Howard Lutnick’s unhappiness with the deal, and the BBC has reached out for comment. Provincial leaders, industry groups and political opponents expressed concerns that the Prime Minister had not delivered on the fight he promised.

By January 21, 2026, Canadian officials had begun to impose tariffs in response to American duties, with Canada matching US tariffs "dollar for dollar" as trade talks fell apart.

Approximately 36% of Canadians support retaliation, while 56% want the government to hold a hard line. The disappearance of US alcohol from Canadian shelves has dealt a significant blow to the spirits industry, reducing export value by 78% and costing the industry more than $350 million.

Politics are now aligned with the economic crisis, as provincial leaders such as Ontario Premier Doug Ford and British Columbia Premier David Eby express solidarity. Ford declared the fight as "not started by Canada, but that we will win this fight."