Carney faces crucial test after walking away from Trump's deal

The United States and Canada have entered into uncharted territory. The longtime allies and economic partners, who have enjoyed free trade for decades, are now in an escalating trade war with no clear off ramp.

And for Prime Minister Mark Carney, the late night decision to suspend talks with President Donald Trump and to retaliate instead of agreeing to a deal that seemed in reach, will be a significant political test.

He is one of the first world leaders to walk away from the negotiating table with the White House - and the outcome will be closely watched. Both sides have have blamed last-minute changes for torpedoing the tentative deal. Carney's decision will also challenge the appetite among Canadians to accept some economic pain as Ottawa pushes for more US concessions.

Key Analysis and Detailed Timeline

After rejecting Trump's high pressure tactics, and in choosing to hit back against the latest duties, Carney will need to convince Canadians that the economic pain is worth the cost of standing up to the Trump administration in search of a better agreement in the long run. There is no doubt this will cause pain on both sides of the border, with business facing more pressure from US duties and Canadian counter-tariffs.

Canada sends about 70% of its exports to the US, and the country is the top trading partner for a number of US states, with Michigan, Kentucky, Indiana and Ohio among the most exposed. Carney came to power with a call for "elbows up" - an ice-hockey term for an aggressive approach - vowing to fight for Canada in the face of a Trump administration keen to exert economic pressure for its America First agenda.

Many Canadians have informed pollsters that they are willing to fight. A recent survey Canadians frustrated with the US tariffs have already chosen to avoid travelling there. The boycott has meant a loss of about C$3.3bn ($2.35bn; £1.75bn) in travel revenue for the US last year.

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Broader Impact and Sector Outlook

A decision Based on US government trade data, US wine exports to Canada fell 78% year over year, a $357m loss in export value. The US distillers association reported similar numbers - saying provincial bans have caused exports of American spirits to drop The ban quickly became a point of frustration for the Trump administration.

Canada’s prime minister will also need to convince the provinces who have been less affected He will be meeting them on Saturday to brief them on the current state of affairs. Many Canadians are boycotting the US, so this is where they're travelling instead Canada says it will match US tariffs 'dollar for dollar' as trade talks break down For a week, it seemed that a deal between Washington and Ottawa was in reach.

It's still unclear exactly how the talks fell apart in the final hours. Carney said that late US proposed terms "were unfair, uneconomic, and called into question the reliability of any deal".

US trade representative Jamieson Greer pointed to "new demands and walk backs of other commitments In a statement on Friday, the Distilled Spirits Council of the United States suggested "Canadian provinces' continued refusal to return US spirits products to store shelves has led to this outcome".

Both Ontario and Quebec had yet to say whether they were on board with a reversal on the US booze boycott. There were also reports And as details on an interim trade agreement with the US trickled out over last week, some provincial leaders, industry groups and political opponents raised concerns that the prime minister had not delivered on the fight he promised.

Conservative opposition leader Pierre Poilievre said that any agreement that included "one-sided" tariffs on Canadian industry would be "a bad deal". On Saturday, he backed Carney's decision to walk away for now, saying: "Canada cannot accept one-sided tariffs that will deindustrialise our country."