Kathmandu— A rapidly escalating trade war between the United States and Canada is sparking fears of recession in both nations, though experts believe the Canadian economy will be disproportionately affected. Triggered by collapsed trade negotiations, the US imposed 50 percent tariffs on $20 billion worth of Canadian goods on Saturday, prompting retaliatory measures from Canada targeting an equivalent value of US products slated to take effect September 8th. The dispute has extended beyond economics, with a symbolic renaming of Lake Ontario by President Trump adding further tension.

Economic Impact and Job Losses

While the overall impact on Canada’s GDP is estimated at 0.3 percentage points next year, certain provinces – Quebec, New Brunswick, and Ontario – and sectors like manufacturing are expected to bear the brunt of the US tariffs. Oxford Economics identifies cement, paper, wood, beverages, clothing, plastics, and electronics as particularly vulnerable products due to their easy substitutability. International trade consultant Ashley Kalyn estimates upwards of 100,000 Canadian jobs could be lost, with some clients already planning factory closures and layoffs.

Escalating Tensions and USMCA Threat

The conflict extends beyond tariffs; President Trump announced the US federal government would refer to Lake Ontario as “Lake America,” a move dismissed by Canadian officials as symbolic posturing. Economists warn that continued escalation could jeopardize the United States-Mexico-Canada Agreement (USMCA), potentially pushing Canada into recession and onto a ‘permanently lower path.’ The USMCA currently shields most Canadian exports from tariffs, maintaining an effective rate of 5.1 percent.

Automotive Industry at Risk

The car industry is bracing for significant disruption as Trump threatens to double automobile tariffs to 50 percent starting in 2027. While manufacturers had absorbed previous tariff increases, experts believe these new levies will strain the cross-border automotive supply chain and disproportionately harm Midwestern US states reliant on Canadian components. Oxford Economics lead US economist Bernard Yaros suggests Trump feels less constrained by domestic politics after the midterm elections, potentially leading to a more volatile trade environment.

Internal Divisions and International Implications

The escalating conflict is also creating internal political divisions within Canada, with some provinces advocating for aggressive retaliation – including potential cuts to resource exports – while others express reluctance. Vina Nadjibulla, cofounder of the Centre for Strategic Statecraft, notes that Canada’s ability to withstand these pressures will be closely watched by other nations. The implementation of Canada's reciprocal tariffs on September 8th is seen as a key date in determining the future trajectory of the dispute.

With both sides digging in and retaliatory measures set to take effect, the outlook for US-Canada trade relations remains uncertain, and the possibility of further escalation looms.

(With inputs from Al Jazeera)

Originally published on abcnews.com.np.