The United States imposed 50% tariffs on about $20 billion of Canadian goods on Saturday after negotiations broke down. The list covers plywood, alcoholic beverages, electrical equipment and hockey gear.

We reported earlier this week that these tariffs had been paused while the two governments closed in on an agreement. They have now taken effect, and the correction is worth stating plainly rather than folding into the background.

What was nearly agreed

The draft that did not survive would have cut US tariffs on Canadian steel and aluminium to 25% and on cars to 15%, with Canada removing the retaliatory measures it had already imposed.

That is a substantial deal, and its collapse over what both sides describe as the other's late changes tells you the disagreement is not about the numbers in it.

The exemptions are the tell

Crude oil, potash and critical minerals are excluded.

That is not a concession to Canada. It is a recognition that the United States cannot tariff them without taxing itself: Canada supplies more than four million barrels a day of crude and petroleum products to US refineries, many of which are configured for heavy Canadian grades and cannot simply substitute. Potash goes into American fertiliser and therefore into the price of food.

So the tariff list is what remains once the goods America cannot do without are removed. Plywood, drinks, electrical equipment and hockey sticks are what is left, and $20 billion is a small share of a relationship in which the two countries exchanged nearly $900 billion in goods and services last year.

The legal route is the unusual part

The duties rest on a previously unused provision of the Tariff Act of 1930, which permits duties against countries judged to discriminate against US commerce.

A statute that has sat unused for nearly a century is being brought into service, and that matters beyond Canada. Most recent US tariff action has run through national-security or emergency authorities that have been tested in court. Reaching for a different and untried provision suggests either that the familiar routes were considered legally exposed, or that this one offers something they do not. Either way, the first use of a 96-year-old power will be litigated, and the outcome sets a precedent well beyond hockey gear.

What Canada will do

Prime Minister Mark Carney has promised to respond "dollar for dollar" and says his government is reviewing further options.

He has also said Canada will not restrict natural-resource shipments, because it "intends to remain a reliable supplier". That is the more consequential sentence. Canada's single strongest lever is the oil, gas, potash and electricity that the US economy runs on, and Carney has publicly declined to pull it.

That is a choice about what kind of trading partner Canada wants to be seen as when this is over, and it costs him leverage now to make it.

Who actually pays

The importer does. A tariff is collected at the US border from the American company bringing the goods in, not from the Canadian firm that made them.

That importer then decides how much to absorb and how much to pass on. A US builder buying Canadian plywood faces a higher landed cost and either raises prices or takes a thinner margin. A distributor of Canadian whisky does the same. Neither outcome is paid by Canada, though Canada suffers separately if American buyers switch to other suppliers or simply buy less.

This is why the first-order effect of a tariff shows up in the imposing country's own prices, and why the argument for one has to rest on the second-order effects, on production shifting home over time, rather than on the tariff being paid by anyone abroad.

What to watch

The specific list of Canadian retaliation, and whether it targets goods from politically sensitive US states, which is the established pattern. Whether the exemptions hold, since an energy exemption is a stated policy rather than a legal fixture. And whether the talks resume, because a deal that was close enough to draft rarely stays dead.