Canada in the Tariff Fire. Markets React to Political Tensions in North America

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Recent threats by President Trump toward Canada, involving the potential imposition of 100 percent tariffs on all Canadian goods, demonstrate that trade is no longer serving purely economic purposes and has become a tool of foreign policy. The Ottawa–Beijing agreement, which reduces tariffs on canola and electric vehicles, has become a pretext for escalating rhetoric that could have far-reaching consequences for the stability of North American markets.

The key destabilizing factor is not the sheer scale of potential tariffs, but the unpredictability of actions and the lack of clear rules. This situation generates heightened volatility in currency, commodity, and trade markets. In particular, the USD/CAD pair may experience significant pressure. The risk of tariffs threatens Canadian exports and economic growth, weakening the Canadian dollar against the US dollar. At the same time, Canada is a major exporter of oil and metals, so trade disruptions impact commodity prices, further affecting the exchange rate.

Rising uncertainty leads to short-term spikes in USD/CAD volatility, especially when new information emerges regarding potential tariffs or statements from the White House. The risk of retaliatory measures by Canada and the renegotiation of the USMCA, the North American free trade agreement between the US, Canada, and Mexico, adds to instability, creating pressure both for the strengthening of the US dollar and for fluctuations in the Canadian dollar in response to changes in exports and trade flows.

At this stage, Canada is responding calmly, emphasizing that the agreement with China covers only selected sectors and remains compliant with the principles of the USMCA. Prime Minister Carney described the United States’ actions as part of a broader negotiation context, focusing on border protection, price accessibility, and diversification of trade beyond the US. Canada’s approach shows that consistent adherence to rules and stable economic policy can help ease tensions, even in the face of direct threats from a trading partner.

Source: xStation5

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Canada in the Tariff Fire. Markets React to Political Tensions in North America

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