AsianFin -- U.S. President Donald Trump escalated his trade dispute with Canada on Thursday, just one day before a self-imposed August 1 deadline for a bilateral tariff agreement.

If no agreement is reached by the deadline, Trump plans to impose a 35% tariff on all Canadian imports not covered by the U.S.-Mexico-Canada Agreement (USMCA).

“Wow! Canada has just announced that it is backing statehood for Palestine. That will make it very hard for us to make a Trade Deal with them,” Trump wrote in a post on social media Truth Social.

Canadian Prime Minister Mark Carney had previously described trade negotiations with Washington as constructive but acknowledged that a final deal may not be reached in time. He noted that talks were in a critical phase, but a comprehensive agreement lifting all U.S. tariffs was unlikely.

Canada is the second-largest U.S. trading partner after Mexico and the largest purchaser of U.S. exports, buying $349.4 billion in American goods last year while exporting $412.7 billion to the U.S., according to U.S. Census Bureau data.

Canada also supplies the U.S. with most of its imported steel and aluminum, which are currently subject to U.S. tariffs, along with Canadian vehicle exports.

Last month, Ottawa abandoned plans for a digital services tax aimed at U.S. tech companies after Trump abruptly withdrew from trade talks, calling the tax a "blatant attack."

Carney announced on Wednesday that Canada intends to recognize the State of Palestine at a UN meeting in September, aligning with recent moves by France and Britain. He cited worsening humanitarian conditions in Gaza, saying, “Canada condemns the fact that the Israeli government has allowed a catastrophe to unfold in Gaza.”