The Canadian dollar dropped on Monday morning after trade talks between Ottawa and Washington fell apart, leaving both sides facing higher prices on a wide array of imported goods and threatening Canada's economic growth.
The U.S. on Saturday slapped 50% tariffs on around $20 billion worth of imports from Canada, its second-biggest trading partner after Mexico. The affected goods span dairy, wine, wood products, furniture, cement, ceramics and a slew of other areas.
Canadian Prime Minister Mark Carney said he would retaliate "dollar for dollar" with tariffs starting Sept. 8, targeting sectors such as steel, dairy, agricultural equipment, paper and electronics. Details will be released "in the coming days," Carney added.
The Canadian dollar was 0.58% lower against the U.S. dollar at 8 a.m. ET. The loonie also dipped against the euro, pound and yen.
Negotiators had been scrambling to strike a deal all week. But rhetoric turned sour by the weekend, with each side blaming the other for failing to reach an agreement and for unfair trade practices.
Speaking to CNBC on Monday, U.S. Trade Representative Jamieson Greer said a deal was close, but that in the "last hours," the Canadians "wanted more" than Washington was willing to offer.
"We offered them the best access to the United States of any country in the world. Obviously, there's always going to be tariffs, and there's going to be that protection for American workers and companies."
"But we sought to accommodate the Canadians by … cutting tariffs in half on steel, on aluminum, and extensively reducing them on autos, and even on things like softwood lumber, accommodating some element of that. Things that are sensitive for the Canadians. They simply … wanted more," Greer said.
"I don't know if it was political for them. It certainly doesn't make economic sense."
Markets "understand that this affects a very small amount of trade," Greer added. The tariffs come to around 0.6% of total U.S. goods imports.
Carney said Saturday that the U.S. had "asked too much and offered too little."
"We were not prepared to compromise Canada's sovereignty or undermine our key industries," he said.
When asked by a reporter why it felt like Canada was entering into a trade war, Carney replied: "Because we got attacked. You're at war when you get attacked. We got attacked."
Tariff details in major sectors including autos, steel and aluminum were a sticking point, along with Canadian protections over use of the French language and the ability for the country to strike separate trade deals, Carney indicated in his remarks.
The U.S. and Canada export tens of billions in agricultural products to one another each year, while their auto industries are deeply entwined. The U.S.' $48.3 billion trade deficit with Canada is in large part due to its significant imports of Canadian natural gas, electricity and crude oil.