US threatens 100% tariffs as USMCA review raises risk of higher Canadian export duties
The USMCA review due this year has become contentious after US President Donald Trump threatened Canada with 100% tariffs if Ottawa deepens trade ties with China following a limited Canada–China deal announced January 16. That deal allows up to 49,000 Chinese electric vehicles (under 3% of Canada’s new vehicle market) in exchange for lower food tariffs to China. Canadian officials, including Dominic LeBlanc and Prime Minister Mark Carney, say the arrangement is limited, complies with USMCA rules and aims to restore 2023 tariff levels while keeping the EV cap. The US, however, may use the USMCA review — and its power to end the agreement or return to annual reviews — to press tariff changes. Economists warn the average tariff on Canadian exports to the US could spike to over 7% if protections are removed. Key sectors at risk include autos, steel, aluminum and lumber. Business surveys show Canadian firms are pausing growth and investment pending trade clarity. Analysts view the review as likely to conclude with a deal but say recent US threats increase downside risks to investment and trade certainty.
Bearish
The news increases geopolitical and trade-policy uncertainty between North American trading partners. Trump’s threat of 100% tariffs and renewed scepticism toward USMCA raise the probability of higher tariffs or retaliatory measures, which historically depress risk assets and raise safe-haven flows. For crypto markets, heightened trade tensions often lead to short-term risk-off sentiment: traders reduce exposure to speculative and correlated assets, including some crypto tokens, and move into USD or stablecoins. The piece also signals potential real-economy weakness for Canada (lower investment, paused growth), which can reduce institutional risk appetite. While a final USMCA deal is still likely according to economists, the immediate effect is increased downside risk—volatility spikes, lower liquidity, and possible price declines for risk assets. Over the medium term, resolution of the dispute could restore confidence; prolonged tensions would be persistently bearish for risk-on markets. Past parallels: tariff escalations in 2018–2019 sparked global equity volatility and risk-off rotations; cryptocurrencies saw correlation with equities during those spikes, often declining in the initial shock and recovering later as liquidity normalized.