Canada's recent trade deal with China (announced around January 2026) involves reducing tariffs on key goods like electric vehicles (EVs) from China and agricultural products (e.g., canola) from Canada. This has sparked significant backlash, particularly from the US, where President Trump threatened 100% tariffs on all Canadian goods entering the US if the deal proceeds.
This situation is highly relevant to global trade tensions, especially given the upcoming review of the USMCA (United States-Mexico-Canada Agreement) in 2026.
Impact on the World Economy
North American supply chains are deeply integrated. Canada is the US's largest trading partner, with bilateral trade worth hundreds of billions annually. Escalating tariffs could disrupt industries like automotive, energy, and agriculture, leading to higher costs, reduced exports, and potential job losses in both countries.
A full-blown trade war could slow North American GDP growth (USMCA countries represent ~30% of global GDP). Analysts estimate that broad tariffs could reduce US GDP by 1% or more, with Canada facing even steeper declines (potentially pushing it into recession).
Globally, this contributes to trade realignment — countries like Canada are diversifying away from over-reliance on the US, strengthening ties with China, the EU, and others. This accelerates a shift toward a multi-polar trade system, potentially raising costs and inefficiencies worldwide.
Impact on the USD (US Dollar)
Trade tensions often strengthen the USD in the short term, as investors view it as a safe-haven currency during uncertainty. Tariffs can reduce US imports, improving the trade balance and supporting dollar strength.
However, prolonged disruptions could weaken the USD if they slow US economic growth, increase inflation (via higher import costs), or prompt retaliation that hurts US exports.
In this specific case, the threat of 100% tariffs has already contributed to a stronger USD against currencies like the Canadian dollar (CAD), Mexican peso, and even the Chinese yuan, as markets anticipate reduced trade flows.
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