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Key takeaways:
Renewed focus on tariffs has re-emerged in late August 2026 as Canada and the U.S. worked toward finalizing a new trade agreement. While negotiations initially appeared to be progressing well, the two sides ultimately failed to reach an agreement. The breakdown in talks escalated trade tensions and led to discussions of additional tariffs and retaliatory measures. These recent trade tensions continue to generate headlines as developments evolve.
Managing your personal finances can be overwhelming enough without factoring in international trade policy, but it is all connected. That is why it is important to understand the basic ins and outs of tariffs — so you can respond thoughtfully to any potential impact they could have on your financial situation.
A tariff is a tax that a government imposes on goods and services imported from another country. In this case, the U.S. would charge a tariff on imports brought into the U.S. from Canada, and Canada would, in return, impose its own tariff on imports from the U.S.
But are tariffs good or bad? That depends on your perspective. Tariffs, in theory, promote an increase in domestic production that can provide more jobs in certain sectors and would result in better employment opportunities for some. However, economists generally agree that this potential boost in employment is usually not large enough to make up for the overall lost economic benefits of free trade.
So, why would one country impose tariffs on another country? There are a number of reasons, including but not limited to:
- Generating revenue: The government that imposed the tariffs collects all the money generated by them.
- Supporting domestic companies: Local goods may become more appealing to customers when prices on foreign alternatives rise.
- Diplomatic leverage: Tariffs can be used as a diplomatic tool, waged by one nation against another to force a desired foreign policy, or as retaliation.
To understand how tariffs work, you need to know the difference between exports and imports. Exports are goods one country sells to another country, while imports are goods brought into that country from another country. For example, Canada exports steel and aluminum to the U.S., and the U.S. imports steel and aluminum from Canada.
Tariffs are placed on imports and enforced at the border by customs agencies.
As for who ultimately foots the bill for the tariffs? It depends.
Though tariffs are collected by the government, the government does not pay them. If the U.S. imposes a tariff on goods imported into the country, U.S. importers would pay the tariff on imports and then, to offset the new costs, they may choose to raise the price of the products for customers. Long story short: Tariffs can make imported goods more expensive for the buyer.
Let’s look at an illustrative example of how tariffs could affect the export of maple syrup to the U.S.:
A tariff war — also known as a customs war or trade war — is an economic conflict between two countries that begins when one country levies tariffs on imports from another country. In retaliation, the latter country imposes its own tariffs on imports from that trade partner which can lead to a series of escalating tit-for-tat trade barriers between the two countries.
Generally speaking, the best-case scenario is that a tariff war ends when the two governments are able to come to an agreement and lift their respective tariffs.
The Canadian and U.S. economies are interconnected, and when one country's economy is affected, the other will likely feel those waves. In general, the imposition of tariffs at any level could slow economic growth in both economies.
As the Bank of Canada explains1, "Tariffs affect spending, trade flows, government revenue, exchange rates, employment, gross domestic product (GDP) and inflation. They could substantially disrupt supply chains in Canada, the United States and elsewhere around the world."
U.S. tariffs on Canadian imports could cause less demand for those goods, which could slow economic growth in Canada and could result in layoffs and increased unemployment rates. And for the U.S., those tariffs could lead to higher consumer prices in the U.S. and cause the inflation rate to rise.
While the GDP and international supply chains might not feel like everyday concerns for you, the impact of tariffs will likely be felt in that dreaded I-word: Inflation. Prices could increase in both countries, meaning an increase to the overall cost of living.
The full effects of any new tariffs on the economy and financial market will only become clear with time, ultimately depending on what tariffs are imposed and for how long. But in general, tariffs can introduce a layer of uncertainty. So, what do you do? You focus on what you can control, and that's your financial well-being.
In a general sense, well-being is the state of being comfortable, healthy or happy, which can seem like an uphill battle when things around you seem unstable. Take the time to gain a clear understanding of where you stand financially. Developing a plan that allows you to feel confident in the present can help you handle unexpected challenges in the future. Regularly reviewing your finances and financial plan with the help of your Scotia advisor, sticking to a reasonable budget and paying down your debt can all help contribute that sense of overall wellness and security.
Looking after your financial well-being reduces added stress if we find ourselves in a period of market volatility. Even the savviest investors can benefit from the following timeless investing principles:
- Stay invested: There are always reasons not to invest. Tuning out the noise, focusing on the long-term, and remaining invested despite negative news headlines can help keep investors stay on track to reach their long-term investing goals.
- Diversify: A diversified, actively managed portfolio can help mitigate risks and capture investment opportunities as they arise. Scotia Portfolio Solutions make investing easy by diversifying across a variety of investments spanning different management styles, asset classes, geographies, industries and company sizes in one convenient solution.
- Invest often: Establish and maintain a disciplined approach to investing with a Pre-Authorized Contribution (PAC). Regular contributions take the uncertainty out of "when" to invest by making investing automatic, helping to build wealth gradually over time. If you have any questions, reach out to a Scotia advisor.
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