On September 8, 2026, trade negotiations between the US and Canada finally collapsed, and Ottawa imposed countertariffs on American goods totaling $27.6 billion Canadian dollars.

This was in response to the 50 percent tariffs that Washington introduced on August 22 after the failure of bilateral talks. Canada levied tariffs up to 50% on a hundred American products – from dairy products and steel to motorcycles and household appliances.

In response, the US banned imports of Canadian alcohol, dairy products, aluminum and furniture. It seemed that a trade war with the closest ally should have weakened the dollar. But the opposite happened: the US currency strengthened, as investors saw this conflict as a new reason for flight to safe assets.

Even in mid-August it appeared that the parties were close to an agreement. On August 18 President Trump announced that Washington and Ottawa had reached preliminary agreements and gave negotiators several days to finalize remaining details. However, the negotiations suddenly collapsed, with each side blaming the other for unacceptable changes at the last moment.

The reaction followed immediately. The US imposed 50 percent tariffs on Canadian goods totaling about $20 billion. Canada responded on September 8 with symmetrical measures. Prime Minister Mark Carney stated: "Canada wants a long-term agreement with Washington, but will not accept conditions that undermine the competitiveness of key Canadian industries."

As a result, the trade conflict between the two largest trading partners, which last year exchanged goods worth over $715 billion,

Edgen analysts note that "the dollar rebounded from session lows as traders sought a safe haven." The USD/CAD pair became the main beneficiary of this movement: the Canadian dollar bore the brunt of the tariffs while the dollar strengthened. The EUR/USD and GBP/USD pairs weakened against the dollar, reflecting its safe-haven status.

Who Suffers More: The Asymmetry of the Trade War

Although the trade war damages both sides, the asymmetry is clear. According to Fitch Ratings, the US purchases about 70–75% of Canadian exports, equivalent to nearly 20% of Canada's GDP. In comparison, US exports to Canada account for only about 15% of total US exports and roughly 1% of US GDP.

This means Canada faces a much larger trade exposure and is more vulnerable to escalation. However, as Fitch notes, "political considerations may limit how much this asymmetry strengthens the US's negotiating position."

So far, Canada has already allocated 32.5 billion Canadian dollars to support businesses and workers—a sign that Ottawa expects a prolonged conflict. For the dollar, this means the trade war with Canada is likely to remain a supportive factor rather than a source of pressure.

What's Next

The trade war between the US and Canada could drag on for months. Analysts do not rule out a new round of escalation, including the possible doubling of tariffs on automobiles and parts from January 1, 2027. Trump has also threatened to impose restrictions on Canadian aircraft manufacturer Bombardier.

For the dollar, this means continued support. As long as the trade conflict persists, investors will seek safe assets, and the dollar will remain the primary beneficiary. As analysts point out, "traders are pricing in continued dollar strength and increased volatility."

One thing is certain: the trade war with Canada has not weakened the dollar; it has strengthened it. And as long as the conflict continues, the US currency will remain the main destination for capital.