US and Canada near deal to end trade crisis

Following tense months under the shadow of $20 billion in reciprocal customs tariffs, the US and Canada have moved closer to reaching a bilateral agreement to lower trade tensions. White House National Economic Council Director Kevin Hassett announced that negotiations have gained momentum and that the two sides are very close to a final compromise. While US Commerce Secretary Howard Lutnick has reportedly been in contact with Canadian officials over the past week, the agreement aims to ease cost pressures across North American supply chains.

Why did trade tensions escalate between the US and Canada?

The trade dispute between the two countries began shortly after US President Donald Trump took office in January 2025, citing border security, drug trafficking, and foreign trade imbalances to impose additional tariffs on Canadian goods. In August, citing discriminatory treatment against US-origin automotive, dairy products, and alcoholic beverages, the Washington administration subjected approximately $20 billion worth of Canadian products to an additional 50% duty. Canada retaliated in September by imposing tariffs on $20 billion worth of American goods. Negotiations, which had stalled during the summer months due to reciprocal demands from the parties, were revived when Trump revised the list of Canadian products subject to additional duties. The regulations are expected to take effect as of October 30.

Which sectors will the potential trade agreement affect?

The potential compromise is projected to lower input costs for manufacturing, automotive, and agricultural companies conducting cross-border operations. The Trump administration refused earlier this year to renew the US-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) during his first presidential term, in its current form and demanded that the rules be updated. Hassett stated that earlier negotiations had stalled due to Canada's election schedule and debates over the secession of the province of Alberta, while under the current circumstances the Ottawa administration is focused on finding common ground for an agreement.

Following the news flow, limited price action was observed across financial assets. While the US dollar index rose to 101.81, the Canadian dollar traded flat against the US dollar at 0.71. Among exchange-traded funds tracking the Canadian stock market, the iShares MSCI Canada ETF (EWC) fell 0.41% to $60.69, while the Franklin FTSE Canada ETF (FLCA) dropped 0.48% to $54.17.

This content is for information purposes only and does not constitute investment advice.