New 50% import taxes could hit liquor, hockey gear and wood products like particle board

U.S. President Donald Trump and Canadian Prime Minister Mark Carney, shown here in June at a G-7 summit in France, have been clashing on trade issues.

The Trump administration has promised that new 50% tariffs on $20 billion worth of Canadian goods will kick in early Wednesday, but there are expectations that Donald Trump and his aides may yet again back down from a threat.

The most likely outcome is that this set of tariffs "will be delayed or canceled before the Aug. 19 deadline," said Tobin Marcus, head of U.S. policy and politics at Wolfe Research, in a note. "We would be surprised, though not completely shocked, to see the 50% tariffs actually take effect next week."

Prediction market Kalshi recently was offering a similar view, giving a 45% chance of the new tariffs starting on Wednesday. The president's tendency to pivot on policy has become well-known on Wall Street, which often talks about a "TACO trade," using an acronym for "Trump always chickens out."

What if the Trump administration follows through? Canadian officials are signaling it would be "a major diplomatic breach, but the economic effects would be modest despite the headline rate, as the new tariffs would only cover [about] 5% of total Canadian imports," Wolfe Research's Marcus wrote.

The new tariff plan, announced on July 20, is making use of Section 338 of the Tariff Act of 1930. Administration officials are turning to a range of possible authorities to impose import taxes after the Supreme Court in February ruled against the use of the International Emergency Economic Powers Act of 1977 to justify tariffs.

Senior officials last month described the planned 50% tariffs on Canada as a response to the country's discrimination against U.S. alcoholic beverages, U.S. dairy products and U.S. motor vehicles. The Canadian goods that could face new 50% duties include milk, cream and whey, as well as hockey equipment, liquor and wood products like particle board.

Multiple published reports have said American and Canadian officials are working to negotiate a deal that would prevent the new set of tariffs from taking effect, but Scotiabank economist Derek Holt said "a grand all-encompassing agreement is unlikely at this stage."

"For now, either Trump extends the deadline, or an interim agreement is struck," Holt said in a note. "It's unclear which scenario will prevail, but we maintain cautious optimism. Why? Because going ahead with tariffs would exact a toll on both sides."

-Victor Reklaitis