File image of Canadian Prime Minister Mark Carney. Picture by Simon Dawson / No 10 Downing Street.
The Canadian Dollar is putting on a brave face after Trump announces new 35% tariff.
Just as things were settling down, U.S. President Donald Trump dropped a new bombshell: Canadian exports to the U.S. would meet a 35% tariff.
The announcement was made in a letter sent to Prime Minister Mark Carney, in which Trump said the decision rested on Canada's failure to slow the flow of fentanyl across the border. He also cited existing Canadian tariffs on U.S. imports, including a 400% tariff on U.S. dairy products.
The new rate would go into effect on August 1 and would go up if Canada retaliated.
"Negotiations with Canada, which has its own deadline of July 21, are also not proceeding as Trump would have probably liked, putting the country next in the firing line, following the surprise decision earlier in the week to slap Brazil with 50% tariffs. Newly elected Canadian prime minister, Mark Carney, had been hoping to avoid another standoff with Washington, but that's not going to be possible now after Trump’s latest announcement," says Raffi Boyadjian, Lead Market Analyst at XM.com.
The decision comes as a blow to Carney, who appeared to have reset U.S.-Canada relations in his first month in office.
Following the news, the Canadian Dollar was broadly lower, falling against the majority of its G10 peers.
"The Canadian dollar is losing altitude as uncertainty ratchets higher, consolidating its status as the worst-performing major currency against the dollar this year," says Karl Schamotta, market strategist at Corpay.
However, losses for CAD are relatively contained and could have been a lot worse, given the scale of the tariff announced.
This suggests the market is taking Trump's threat with a pinch of salt, thinking that some compromises will be reached ahead of the deadline.
"If Canada works with me to stop the flow of fentanyl, we will, perhaps, consider an adjustment to this letter," said Trump.
Currently, most Canadian exports to the U.S. are protected by the USMCA agreement, which also includes Mexico. If Trump proceeds with his threat, Canada would be hit by a sizeable shock that will weigh heavily on the CAD.