President Trump escalated his trade war with Canada on Tuesday by imposing new retaliatory tariffs and declaring that the only logical solution was for Canada to become part of the United States. His remarks, which intensified both economic tensions and his increasingly direct rhetoric about absorbing Canada as a U.S. state, sent shockwaves through financial markets.
The U.S. stock market, which had been attempting a recovery after Monday’s steep losses, quickly reversed course following Trump’s announcement. In a post on Truth Social, he revealed that previously planned tariffs on Canadian steel and aluminum, set to take effect Wednesday, would double from 25% to 50%. He also threatened additional tariffs that, in his words, would “permanently shut down the automobile manufacturing business in Canada.”
Trump then made an even bolder statement, suggesting that the only way to resolve trade disputes would be for Canada to join the U.S. as its “cherished Fifty-First State,” claiming that such a move would eliminate all tariffs and trade conflicts. Canadian officials have repeatedly rejected any notion of giving up the country’s sovereignty, making it clear that such a proposal is not under consideration.
Trump justified his new tariffs by pointing to Ontario’s recent decision to impose a tariff on electricity exported to the U.S., framing it as an attack on American interests. In response, he announced plans to declare a “National Emergency on Electricity within the threatened area.” Later, in another Truth Social post, he doubled down on his threats, warning that Canada would “pay a financial price for this so big that it will be read about in History Books for many years to come!”
Ontario Premier Doug Ford, speaking to CNBC after Trump’s announcement, made it clear that he would not back down, stating that Ontario would cut off electricity exports to the U.S. entirely if necessary. While Canada is the largest foreign supplier of electricity to the U.S., providing a significant portion of energy imports, those imports account for less than 1% of overall U.S. consumption, according to data from the Energy Information Administration.
The financial markets reacted swiftly to Trump’s statements. The S&P 500, which had opened higher, fell sharply following his post, sinking 0.6% by midday. Investors remain on edge as tensions between the two countries escalate, with businesses on both sides of the border bracing for potential economic fallout from the latest round of tariffs and political brinkmanship.