Kathmandu— After decades of close economic ties, relations between Canada and the United States have deteriorated sharply following the collapse of trade negotiations, leading to a tit-for-tat imposition of tariffs on billions of dollars worth of goods. Prime Minister Mark Carney announced Friday that talks had failed, acknowledging a permanent change in the relationship as the US pursues increasingly protectionist policies. The United States enacted 50% tariffs on approximately $20 billion in Canadian imports Saturday, with Canada vowing to match those tariffs starting September 8th, targeting key sectors like steel, dairy, and electronics. This escalation risks a full-scale trade war between the two nations, fueled by concerns of economic coercion and a perceived betrayal of long-held alliances.

Years of Reliance Upended

For decades, Canada’s economy has been heavily reliant on access to the U.S. market, benefiting from agreements like the 1989 Canada-U.S. Free Trade Agreement, NAFTA, and its successor. The recent breakdown in negotiations represents a departure from this established pattern, even the acceptance of some tariffs for market access was a break from decades of policy aimed at eliminating trade barriers. Daniel Béland, a political science professor at McGill University in Montreal, stated that “the collapse of the tariff talks points to the fact that the old Canada-U.S. relationship is over and, for many Canadians, it also confirms the perception that Canada can’t trust the Trump administration.”

Retaliation and Economic Impact

Canada will respond with dollar-for-dollar retaliatory tariffs beginning September 8th, targeting sectors including steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics. While nearly three-quarters of Canada’s goods exports go to the United States, economists at Royal Bank of Canada estimate the initial impact of the U.S. tariffs will be around 0.4% of Canada’s GDP, as they currently cover only about 5% of Canadian exports to the US. Prime Minister Carney acknowledged that the retaliatory measures would “raise costs and reduce choice for Canadians,” but pledged additional assistance for affected businesses and workers.

A Shift in Approach

Prime Minister Carney has increasingly advocated for economic diversification, warning at the World Economic Forum in Davos in January of a ‘rupture, not a transition’ in global economics. He urged Canada to reduce its vulnerability to coercion by strengthening its domestic economy and seeking new international partnerships. This approach, often described as “elbows up” – hockey shorthand for playing aggressively – has resonated with Canadians and garnered attention internationally. The breakdown in trade talks underscores the validity of Carney's concerns and his commitment to a more independent economic path.

Long-Term Implications

Experts suggest that even after Donald Trump leaves office, the shift in the Canada-U.S. relationship is likely to be lasting. Goldy Hyder, president and CEO of the Business Council of Canada, believes “there is a new trade and investment model, one that could well be kept in place by future U.S. administrations whether Democrat or Republican.” As a result, Canada is actively pursuing new trade agreements across five continents and exploring options to reduce its dependence on the U.S., including advancing plans for a Pacific Coast oil pipeline to access Asian markets.

One-Sided Dependence Questioned

While the US has focused pressure on autos, steel and aluminum, Canada supplies 99% of U.S. natural gas imports, 85% of its electricity imports and 60% of its crude oil imports. Lana Payne, national president of Unifor, accused Trump of attempting to weaken Canada’s industrial base, stating that “What we have seen from the U.S. administration…is this consistent attempt to try and destroy the industrial economy of Canada with tariffs.”

The current tariff confrontation remains unresolved, but analysts predict a fundamental alteration in the Canada-U.S. relationship, one characterized by increased protectionism and a move away from decades of close economic integration.

(With inputs from AP)

Originally published on abcnews.com.np.