The U.S. early Saturday imposed 50% tariffs on Canadian products that account for some $20 billion in annual trade, after negotiations between the two countries broke down at the last minute.

Each side has blamed the other for the negotiations' collapse.

Earlier in the week, President Donald Trump said the U.S. and Canada were close to closing a "good deal" for one of America's main trade partners.

The Trump administration had extended an original Wednesday deadline for the talks on the new tariffs that Trump proposed. In February, the U.S. Supreme Court invalidated a round of tariffs he'd declared in 2025 via the International Emergency Economic Powers Act.

Since then, the Trump administration has tried to rebuild those levies through other tariff authorities, including sectoral tariffs and duties related to forced labor provisions announced earlier this summer.

The latest levies against Canada were implemented via Section 338 of the Trade Act of 1932. Saturday's move marks the first time it's been used in the nearly 100-year history of the Smoot-Hawley Act, a law that raised levies on thousands of goods in 1930, sparking a trade war and worsening the economic slowdown.

Ryan Majerus, a partner at King & Spalding who previously worked in the U.S. Trade Representative's office, expects a challenge in court, barring a last-minute change in the situation early next week, but thinks such a move could take time.

"Section 338 presents its own vulnerabilities compared to IEEPA, but that will likely play out in the courts for months through merits proceedings and appeals," he said.

Friday's tariffs cover a slice of imports from Canada that include plywood, liquor, and hockey gear. The U.S. already levies 50% tariffs on Canadian steel and aluminum, and has a 10% tariff on lumber.

The U.S. and Canada accused one another changing demands at the last minute.

Canada's prime minister Mark Carney, a former central banker, on Saturday vowed to impose dollar-for-dollar retaliatory tariffs.

Carney says that more details are to come and they are intended to go into effect Sept.8. That leaves room for continued negotiations and a potential off-ramp.

"Our response will be concentrated in sectors such as steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics," Carney said in a press conference. "It'll also include products that are currently subject to unjustified Section 232 and 338 tariffs."

Some Canadian provinces also imposed symbolic restrictions on U.S. liquor.

The breakdown between the two major trading nations comes after the Trump administration refused to renew the broader United States-Mexico-Canada Agreement, or USMCA, that Trump negotiated in his first term.

"This does not bode well for jump starting U.S.-Canada negotiations under the USMCA," Majerus says. "The longer this goes on, the greater the risk modifications to the agreement that only apply to the U.S. and Mexico, which will create implementation challenges for the USMCA as a whole."

While Trump officials have held formal talks with Mexico, they have said the situation with Canada has been more fraught.

The administration's new tariff escalation may also threaten the efforts of the Federal Reserve to keep price inflation and interest rates in check.

The U.S. and Canada collaborate in manufacturing automobiles, so the tariffs will likely weigh on that industry. Neither country has said they plan to resume talks.

Canada has been among the few trading partners other than China to push back against Trump's tariff push.

Owen Tedford, an analyst at Beacon Policy Advisors, worries that the situation "has the strong potential" to get worse before it gets better. "If there is sufficient pressure on Trump, there very well could be a reversal as soon as the end of the weekend or early Monday morning, but that is not my base case," Tedford says. "This current fight over the Section 338 tariffs is all about positioning toward the USMCA renegotiation, and so I expect the Trump administration to pursue actions that it feels give it the strongest hand in those talks."