Canada is escalating its response to the United States’ latest tariff hikes, unveiling new measures designed to stabilize two of the country’s most export-dependent sectors. With U.S. President Donald Trump imposing 50% tariffs on Canadian steel and raising duties on softwood lumber to 45%, Ottawa is positioning itself for a more fragmented North American trade environment. The shift marks a decisive turn in a bilateral economic relationship long anchored in integration and market alignment.

Canada Confronts a New Era in North American Trade

Prime Minister Mark Carney emphasized that the “decades-long process of an ever-closer economic relationship” between Canada and the U.S. has effectively ended, noting that over 75% of Canadian exports still flow to its southern neighbor. For industries like lumber, steel, and aluminum—where roughly 90% of output is shipped to the U.S.—the new tariff landscape exposes acute vulnerabilities. The sudden deterioration in trade conditions risks reducing margins, weakening investment incentives, and disrupting supply chains that have operated seamlessly across the border for generations.

For global investors, the evolving dynamic signals broader questions about North American industrial policy. As the U.S. accelerates tariff-driven leverage, Canada is forced to recalibrate its economic strategy, prioritizing diversification and domestic value-chain resilience. These moves echo broader global trends where governments are increasingly using industrial tools—tariffs, subsidies, and quotas—to protect national industries in strategic sectors.

Ottawa Rolls Out Financial Backstops and Tighter Import Controls

A central component of Carney’s plan is an additional CAD 500 million (US$356 million) in federal loan guarantees for the softwood lumber industry. The support is aimed at managing cash-flow pressures and ensuring producers can continue operations despite losing scale in the U.S. market. Ottawa will also tighten quotas on steel imports from non-FTA countries, reducing allowable levels from 50% to 20% of 2024 volumes. This approach is intended to curb foreign competition as Canadian mills navigate weaker export demand.

The government’s policy also complements existing domestic-manufacturing incentives that encourage homebuilders and infrastructure developers to use Canadian-sourced materials. By pairing capital protections with targeted industrial and procurement policies, Ottawa is signaling a more interventionist stance as trade frictions deepen.

Freight Subsidies Aim to Strengthen Domestic Market Links

In an additional step to counter the impact of U.S. trade barriers, Canada will introduce freight-rate subsidies on rail shipments of steel and lumber starting next spring. According to Carney, the goal is to make it “more affordable to transport Canadian steel and lumber across the country,” strengthening inter-provincial supply chains and supporting domestic substitution. The policy reflects an effort to cultivate new internal demand channels at a time when reliance on a single export market has become a strategic weakness.

Trade tensions escalated after President Trump halted negotiations last month, reacting to critical anti-tariff ads aired by the Ontario provincial government in U.S. markets. Still, Carney noted he will speak with Trump during an upcoming visit to Washington for the FIFA World Cup 2026 draw, reiterating that Canada remains open to re-engagement when the U.S. is willing.

Looking ahead, markets will be watching whether these policy supports translate into stabilized industrial output and whether the U.S. shows any willingness to revisit its tariff posture. The broader risk remains that prolonged trade fragmentation could reshape supply chains across North America, affecting costs, pricing, and corporate investment decisions. For now, Canada’s strategy signals a shift toward stronger domestic industrial reinforcement as it adapts to a more contentious continental trade environment.