Impact of new Canadian tariffs on prices for U.S. consumers
New tariffs on Canadian imports could raise prices for some goods, but exemptions could limit the impact on many U.S. consumers.
The Trump administration announced on July 20 that it would impose 50% tariffs on many Canadian imports, but economists say the exemptions will likely limit the hit to most Americans’ household finances unless they buy items affected by the new tariffs.
President Donald Trump said his administration is using Section 338 of the Tariff Act of 1930 to impose tariffs in response to what it calls Canada’s discriminatory trade practices against the United States, particularly the auto industry. The tariffs are scheduled to take effect on August 19, but the final rate and range could still change as Canadian Prime Minister Mark Carney has indicated he is open to negotiations.
The tariffs primarily affect goods entering the United States from Canada’s auto, alcohol and dairy industries. Oil, natural gas, critical minerals and other Canadian products are exempt.
Canada is the U.S.’s second-largest trading partner, but these exemptions will limit the impact of the tariffs to about 5% of the $382 billion in recorded imports from Canada to the U.S. in 2025, said Brian Therrien, senior analyst at Edward Jones.
Despite facing some legal challenges, tariffs have become a hallmark of President Trump’s economic policy in his second term. The Supreme Court has invalidated many of the sweeping tariffs President Trump announced on April 2, 2025, forcing some to be returned, but the administration continues to look for ways to introduce similar import taxes.
Will new tariffs increase U.S. consumer prices?
In tandem with President Trump’s declaration, the White House released an 18-page list of hundreds of Canadian imports affected by the new 50% tariff. The list ranges from honey and flowers to plywood and clothing.
Tariffs are taxes levied on goods imported into the United States. U.S.-based importers often pay a price before selling the product to a retailer, who then sells it to a consumer. In the process, tariff increases may be absorbed or passed on.
Shikha Jain, partner and North American consumer sector leader at Simon Kuchar, said she expects most retailers to pass on the increased costs to consumers over the next three to four months once new tariffs on Canadian imports go into effect on Aug. 19.
“But the flip side of that is that if there is a very severe price increase or at least a 20% increase in discretionary prices, we know that about 20% of consumers will stop buying all together,” Jain said, adding that companies would think carefully about raising prices. This is because if the price increase is too high, the product may not be able to be moved.
Additionally, much of the U.S. home building materials have historically come from Canada, so a 50% tariff could raise the cost of some key raw materials and make the already difficult process of building new homes in the U.S. even more expensive, said James Knightley, chief international economist at Dutch bank ING.
“It’s putting more pressure on the home builders themselves,” Mr Knightley said. “It just tightens their margins a little bit more.”
His advice for consumers who want to avoid rising customs costs is simple. “Buy American.”
Did tariffs increase inflation?
When President Trump announced that he would impose tariffs on imports from many countries around the world in April 2025, economists worried that it would result in meaningful price increases for U.S. consumers.
“Of course, that’s when we were talking about 30% to 50% tariffs,” Knightley said, adding that the effective U.S. tariff rate before Trump returned to office in 2025 was about 2.5%. “But as we’ve seen, the administration quickly changed tariff rates, and the average tariffs settled at about 16% or 17%, but the actual tariffs were lower than expected.”
About a year later, researchers at the Dallas Fed found the answer. They estimated that without the tariffs, core consumer spending, a measure of inflation, would have grown 2.3% in March this year. Instead, it was 3.2%.
“We estimate that about 25% of inflation is due to tariffs,” Jain said, adding that typical year-over-year inflation and price increases associated with the Iran war accounted for much of the rest. “Many other companies are using tariffs as a reason or an excuse to raise prices, and it’s easy to think that consumers are somehow to blame.”
So, are tariffs inflationary?
“The short answer is yes. Tariffs cause inflation. Tariffs are inherently inflationary,” said Par Hong, partner and global lead at Kearney Foresight, a think tank within management consulting firm Kearney.
He added that supply chains are also “adapting to manage and mitigate that impact.”
Where will tariffs and prices go?
A 30-day grace period has begun before new tariffs on Canadian imports go into effect. Carney said in a July 20 statement that Canada is “ready to work intensively” with U.S. negotiators at this time to reach an agreement “in the mutual benefit of our people.”
Knightley said the lawsuits are unlikely to stop the Trump administration from imposing tariffs, as tariffs are typically challenged in court after they go into effect.
“Rather, what matters is whether we can get enough concessions to moderate the situation,” he said. “My view is that it is unlikely that we will see any meaningful reductions.”
The Trump administration is also working to implement tariffs in several other ways under various authorities. Drew DeLong, director of corporate policy at Kearney Foresight, said he would be surprised if the effective U.S. tariff rate at the end of 2026 is not higher than at the end of 2025.
Jain said the average U.S. consumer should expect prices to continue rising, whether due to tariffs, oil supply constraints due to the Iran war, or other reasons.
“It’s hard to see a world where prices stabilize over the next three or four years,” he said.
Contact Rachel Barber rbarber@usatoday.comFollow her on X @rachelbarber_and subscribe to her newsletter Making More of Your Money here.
