There's a massive wildcard in the US-Canada trade war coming this November

The US-Canada trade war resurged this summer as tensions escalated between the two nations. After negotiations broke down, the US imposed new tariffs on Canadian exports, affecting about 5% of the country's total exports to the US, valued at around $20 billion. While this is not enough to plunge the US economy into chaos, it will significantly impact the targeted industries.

Canadians have shown little concern over the renewed rivalry, with some even embracing the boycott of American goods. This dispute goes beyond the price of a Crown Royal bottle, as it could lead to higher consumer prices across various sectors, contributing to inflationary pressures. Consequently, the Federal Reserve faces a challenging decision regarding potential rate cuts.

The most significant risk from this trade war lies not in the already implemented tariffs, but in what could come next. Canadian Prime Minister Mark Carney announced retaliatory tariffs starting in November 2023, while US President Donald Trump responded by threatening to double the headline tariff on Canadian automobiles and parts to 50% from January 2027. The president's intention to incentivize US auto companies to shift their supply chains became clear in a post on Truth Social.

The US and Canada share a profound economic interdependence, with Carney jokingly mentioning that America needs "many, many, many things" from its northern neighbor. Amidst this trade war, the midterms loom as an interesting factor. If Republicans struggle in the polls, Canada might perceive it as a broader sign that Trump's economic agenda is losing support. However, if the GOP performs well, Trump could interpret it as validation for his trade approach.