Here We Go Again: Punching Oneself in the Face Why the Canada-U.S. Tariff War Hurts Us All

by: Jeffery A. Keill, CFP, CIM, FMA, FCSI, CEA

Portfolio Manager and Senior Wealth Advisor

With all the hub-bub around tariffs once again, it made me look further into this ridiculous posturing and left me wondering why. Why!? Does no one look at history? Common sense? What am I missing?

The trade relationship between Canada and the United States, one of the longest, friendliest, and mutually fruitful in history, has officially devolved into an all-out trade war. After months of negotiations broke down, the Trump administration slapped a massive 50% tariff on Canadian imports, targeting everything from dairy and wine to hockey sticks. Hockey sticks!? In response, Canadian PM Carney announced that Canada will strike back "dollar for dollar" with retaliatory tariffs starting in September.

Politicians on both sides are positioning this as a battle of sovereign will and strength. But if you look at the actual economics of a tariff war, it looks less like a David and Goliath and more like two store owners burning down their own aisles.

Burning Our Own Aisles

To understand how counterproductive this conflict is, imagine you own a local grocery store and get your best bread from a supplier across town. To "punish" that supplier for a disagreement, you decide to place a heavy fine on every loaf of bread and every baked good that enters your front door.

Does the supplier pay that fine? No. You, the grocery shopper, pay it. If you can’t afford it, you stop buying it, and your shelves sit empty. This will result in less economic activity and inflation.

By applying a 50% tariff on Canadian goods, the U.S. isn't extracting money from Canada. It is taxing American businesses and consumers who rely on Canadian materials. Conversely, when Canada retaliates on American steel, agricultural equipment, and electronics, Canadian businesses and everyday shoppers will bear the brunt of higher prices.

It is the economic equivalent of punching yourself in the face just to prove a point to your neighbor. Both nations are voluntarily driving up inflation and restricting their own supply chains.

History’s Warning: The McKinley Tariff

We have seen this playbook before, and it never ends well—for the economy or the politicians. In 1890, the U.S. passed the infamous McKinley Tariff, which raised duties on foreign imports to an average of nearly 50% in an attempt to protect American manufacturing.

The results were disastrous. Instead of sparking a domestic boom, it triggered immediate retaliation from trading partners—including Canada. Canada went to Britain instead. Deprived of foreign markets, American agricultural exports plummeted. At home, the price of everyday consumer goods skyrocketed, sparking widespread public outrage. The economic backlash was so severe that it caused political fallout. The ruling Republican Party lost control of Congress in the 1890 midterms, and William McKinley himself lost his seat.

Huh? We have U.S. midterms on the horizon, and the Republicans will be trying to find a viable option to replace Trump in 2028.

This is why the TACO trade remains the play. Trump Always Chickens Out is a term that is so often realized. Threaten and then back off. The economy will not put up with burning aisles while the grocery store owners continue to punch their own faces. Backlash and dissent will prevail against the U.S. and Canadian political leaders, and these tariffs will ultimately be changed to form a revised version of the USMCA.

What Ronald Reagan Knew About Trade

The irony of the current conflict is that the modern conservative movement was built on the exact opposite philosophy. Interestingly, this very trade war hit a bizarre flashpoint when the province of Ontario ran an ad featuring conservative icon Ronald Reagan to warn American audiences about the dangers of protectionism.

The ad infuriated President Trump. Reagan’s words remain historical fact. In his famous April 25, 1987, national radio address, Reagan spoke extensively about free trade, explicitly stating that he was "loath to take steps imposing tariffs or trade barriers."

Reagan understood what today's policymakers seem to have forgotten: "The world economy is like a delicate ecosystem. You cannot damage one part without hurting the whole... protectionism is destructionism."

He warned that while tariffs might offer a fleeting illusion of domestic protection, they ultimately slow down innovation, spark international retaliation, and harm the very workers they claim to protect. Romantic political rhetoric in a speech, but with destructive economic results.

The Bottom Line

As Canadians and as K&A clients, I remind us to consider that the immediate casualty will be the wallets of the citizens, regardless of whether they carry ‘greenbacks’ or loonies and toonies. When we look past the tough political rhetoric, the tariff war will not be an economic victory. It will remain a historical story of when neighbors, standing on their respective lawns, blindly threw punches at their own faces, wondering why the other guy isn't crying yet.

Posted August 2026