Trump praises tariffs as one U.S. deficit measure falls and Canada buys fewer American vehicles

Tariffs cut one deficit measure

On Aug. 28, 2026, President Donald Trump praised tariffs after sharing trade figures. He said tariffs were “doing precisely what they were intended to do” as the U.S. deficit remained lower.

Federal data showed the U.S. goods and services deficit for January through June was 33.8% smaller than during the same period in 2025. Canada was also buying fewer American vehicles.

From April 2025 through March 2026, Canadian imports of U.S. motor vehicles fell about 22%, or $5.6 billion, during the tariff dispute.

June report explains the decline

The June 2026 trade report released Aug. 4 showed the U.S. goods and services deficit at $73.3 billion, down $4.4 billion from May as imports fell faster than exports.

June exports totaled $314.7 billion, down $2.9 billion from the previous month. Imports totaled $388.0 billion after dropping by $7.3 billion, helping narrow the overall monthly U.S. trade gap.

The goods deficit narrowed to $102.1 billion, while the services surplus increased to $28.8 billion. Those figures covered all U.S. trade, including goods and services exchanged with countries worldwide.

July goods gap widened

A later release showed the trade balance changed again in July. On Sept. 3, 2026, the Census Bureau and Bureau of Economic Analysis reported the July goods and services deficit at $88.6 billion, up $17.4 billion from June.

The July goods deficit widened to $119.6 billion, while the services surplus increased to $31.0 billion. July exports totaled $310.7 billion, down $6.6 billion from June, while imports rose to $399.3 billion.

The full July report covered goods and services, while the earlier advance report covered merchandise trade only. During the same broader tariff period, Canadian purchases of American motor vehicles were also declining.

Canada taxed U.S.-made vehicles

Canada’s pullback on American vehicles followed a specific tariff action. On April 9, 2025, Canada imposed a 25% tariff on U.S.-made vehicles that did not meet continental trade rules.

For compliant U.S. vehicles, Canada applied the tariff only to content that was neither Canadian nor Mexican. The government described the measure as a response to U.S. auto tariffs.

The policy raised costs on some American-assembled cars and trucks entering Canada. Vehicles from other countries remained outside this specific countertariff, giving Canadian dealers another source of imported inventory.

Washington invoked Section 338

Washington widened the dispute on July 20, 2026, when Trump invoked Section 338 of the Tariff Act of 1930 over Canada’s treatment of American motor vehicle exports.

The proclamation found that Canada’s tariff and quota system disadvantaged U.S. vehicles. It authorized additional 50% duties on selected Canadian products, while goods covered by Section 232 were excluded.

Trump delayed the new Section 338 duties for 3 days on Aug. 18 while negotiations continued. Their effective date moved from Aug. 19 to Aug. 22.

Canada shifted vehicle suppliers

Canada’s import mix changed as purchases of U.S. vehicles fell. Compared with the earlier period, imports of Mexican motor vehicles increased by about 23.6% from April 2025 through February 2026.

Canadian imports from Japan, Korea, and Germany rose between about 10.1% and 13.5%. Combined vehicle imports from countries other than the United States increased by about $2.85 billion overall.

Mexico accounted for almost $2 billion of that gain. Canadian buyers and dealers shifted more of their imported vehicle purchases toward factories outside the United States.

Canada tied relief to production

Canada also created tariff relief for automakers that keep production in the country. Qualifying companies can import a set number of U.S.-made vehicles without paying Canada’s vehicle countervailing tariff.

To qualify, producers must maintain Canadian manufacturing operations and make planned investments. Canada opened consultations on Feb. 27, 2026, to strengthen this auto-remission framework for future vehicle imports.

Tariff-free access can depend on an automaker’s Canadian production commitments. Two U.S.-built models can face different Canadian costs because their makers hold different remission quotas.

Canadian vehicles feed U.S. dealers

The dispute also affects vehicles sold back into the United States. Canadian-assembled models accounted for about 6% of U.S. vehicle sales in 2025.

General Motors builds some Chevrolet Silverado pickups in Canada. Stellantis also builds Chrysler Pacifica minivans there, connecting Canadian assembly directly with vehicle supply at American dealerships and dealer lots.

Higher U.S. duties on Canadian vehicles can raise the cost of those shipments. Automakers may absorb some expense, change sourcing, or adjust production depending on each model’s specific tariff treatment.

Toyota and Honda face Canada risk

Toyota and Honda have large exposure to Canadian vehicle assembly. Reuters reported on Aug. 31, 2026, that the 2 companies accounted for more than 75% of vehicles produced in Canada in 2025.

Canadian-built models accounted for about 24% of Honda’s U.S. sales and 17% of Toyota’s. Honda makes CR-V SUVs in Ontario, while Toyota produces RAV4 SUVs there.

Moving similar output would require factory capacity, supplier changes, and new logistics. Canadian production, therefore, remains directly connected with U.S. supplies of Honda and Toyota vehicles.

GM workers approved Canada deal

GM workers in Canada ratified new labor contracts on Aug. 30, 2026, moving the agreement beyond the tentative stage. The contracts cover about 4,600 represented employees at Canadian facilities.

GM said planned investments tied to the agreement include C$144 million for Oshawa to produce the next-generation GMC Sierra Heavy Duty and C$215 million for St. Catharines to produce a next-generation transmission.

Those projects join a previously announced C$691 million V8 engine investment in Canada, bringing the cited investment items to about C$1.05 billion.

Canada sends most output south

Canada’s production scale connects its factories closely with the U.S. auto market. Canada produced more than 1.2 million passenger vehicles during the calendar year 2025.

More than 90% of Canadian-made vehicles were exported to the United States. About 60% of Canadian-made auto parts also went south to U.S. factories and vehicle markets.

Parts can cross the border before being added to the assembly. Completed vehicles can later return to the other national market through established North American production and distribution routes.

China EV quota adds competition

Canada opened another vehicle supply channel while purchases from the United States weakened. Beginning March 1, 2026, Canada implemented an import quota for electric vehicles originating in China.

The first-year quota covered 49,000 vehicles. Canada said that volume would increase by 6.5% each year, giving Chinese electric models a defined route into the Canadian new-vehicle market.

U.S. vehicles can face Canadian tariff restrictions while Chinese electric models gain controlled access to dealerships serving the same national customer base.

Canadian vehicle production falls 15% while U.S. output rises, showing how these trade pressures are already affecting manufacturing differently on each side of the border.

Auto barriers now move higher

By late August, the auto dispute was moving toward higher barriers. Automakers had expected possible tariff relief as U.S. and Canadian negotiations continued.

Companies expected Washington’s Canadian auto tariff to fall from 25% to 15%. Instead, Trump threatened to raise tariffs on cars, trucks, and automotive parts from Canada to 50% starting Jan. 1, 2027.

An industry executive warned against Canada being treated like China. Canadian demand for American vehicles was falling while U.S. tariffs on Canadian automotive imports were threatened with another increase.

Cheap Chinese EVs are reshaping markets with fewer import barriers, showing how Canada’s controlled opening to Chinese models could intensify competitive pressure as North American trade barriers rise.

Are tariffs helping the U.S. economy if Canada is buying fewer American vehicles? Share your view in the comments.

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This slideshow was made with AI assistance and human editing.