President Donald Trump has increased to 35pc the tariff on imported goods from Canada not covered by the US-Mexico-Canada free trade agreement, in the latest escalation of tariffs targeting the US' second largest trading partner.

The higher tariff rate went into effect at 12:01 am ET today, replacing a 25pc tariff that has been in place since March. Trump was already threatening Canada with higher tariffs as he pushed for a new trade deal, which Trump this week said might not come together partly because Canada said it planned to recognize a Palestinian state.

"I didn't like that, not a deal breaker, but we haven't spoken to Canada today," Trump said on Thursday. "They have to pay a fair rate, that's all, it's very simple. They have been charging very, very high tariffs to our farmers."

The higher tariff on Canada will not apply to potash imports, which Trump already reduced to a 10pc tariff in March, and earlier exemptions for energy imports will remain in place. In an executive order signed on Thursday, Trump said he was raising the tariff because of Canada's "lack of cooperation" in stopping the flow of drugs across the US border, along with Canada's "efforts to retaliate" against earlier rounds of US tariffs.

Canadian prime minister Mark Carney said his government was "disappointed" by the higher tariffs, and he challenged the claim that Canada was not doing enough to stem the flow of drugs into the US. Carney said for domestic sectors such as lumber, steel, aluminum and automobiles that will be "heavily impacted" by tariffs, his government will "act to protect Canadian jobs, invest in our industrial competitiveness, buy Canadian and diversify our export markets".

On Thursday, Trump separately rolled out new, higher tariffs that will apply to most US trading partners, but he delayed their effective date so most new tariffs will not apply to goods loaded on ships before 7 August and that enter into the US before 5 October. Those tariffs would be "stacked" on top of additional sectoral tariffs that Trump has imposed on goods such as steel, copper and aluminum.

Trump has made some bilateral trade agreements ahead of a self-imposed 1 August deadline, including deals with the EU, the UK, South Korea, Indonesia and Japan that range from tariff rates of 10-20pc.

Trump agreed to a 90-day delay of increased tariffs on Mexico after reaching an agreement with Mexican president Claudia Sheinbaum on a temporary trade deal.

The increase on US tariffs comes at a time of continued questions over their legal durability. On Thursday, the US Court of Appeals for the Federal Circuit heard arguments in a lawsuit that argues Trump's claims of an "emergency" related to trade imbalances was not an adequate justification for unilateral tariffs on nearly all imports.

If Trump loses the case, the US could have to refund tens of billions of dollars in tariffs collected since the start of his second term. The lawsuit would not affect sector-specific tariffs on steel, aluminum, copper and other products.

By Chris Knight