US-Canada trade talks fell apart at the last minute, with fresh 50 per cent tariffs on billions of dollars of Canadian goods taking effect and prime minister Mark Carney promising to retaliate.
The US tariffs kicked in on Saturday on hundreds of items the US buys from Canada, such as plywood, liquor, electrical equipment and hockey gear, totalling about $20 billion. Carney said he suspended talks and that his government would match those duties “dollar for dollar to protect our workers and businesses”. US officials are pledging to present president Donald Trump with options to escalate if he does.
The two sides blamed each other for the collapse. US Trade Representative Jamieson Greer said the Canadian negotiators made 11th-hour demands that upended a draft deal worked out over days of negotiations.
“Despite the US offer to Canada to receive the best treatment of any major exporter to our market, new demands and walk-backs of other commitments by Canada have upended the careful balance reached in the past days,” Greer said in a statement.
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Carney said it was the US that had changed its position, saying “last-minute changes in the US proposed terms were unfair, uneconomic, and called into question the reliability of any deal”.
It wasn’t immediately clear what US sectors Carney will target in his retaliation, nor how quickly the US would take any additional steps in turn, but the late-hour posturing signalled the potential for a spiralling trade fight between the two economies.
A US official, speaking on condition of anonymity late on Friday, said there were no new talks scheduled. The administration will provide Trump options to level out the playing field if Canada retaliates, the official said.
The failure to reach an accord dials up the tension between two long-time allies that conducted almost $900 billion of trade in goods and services last year. In addition to tariffs, Trump has publicly mused about making Canada a US state, referred to its prime ministers as “governor” and said the country couldn’t survive without the US.
It underscored how Trump appeared to get ahead of himself on Tuesday night, when he announced less than two hours before the tariffs were originally set to go into effect that the two sides had a deal. Canadian officials later said important elements still needed to be worked out.
The two sides had been discussing a deal that included lowering tariffs on certain Canadian steel and aluminium to 25 per cent, cutting duties on Canadian autos to 15 per cent and eliminating a 10 per cent lumber tariff. The US official said talks ended when Canada sought additional concessions in a couple of those areas but declined to say which.
But the draft agreement was not without its critics. The US steel and aluminium industry balked at the measures that would have weakened their standing, for instance. Carney faced blowback in Canada, too, for concessions he was prepared to make that would have, in effect, codified tariffs that Canada has long declared illegal, albeit at a lower level.
The trade fight raises a fresh challenge for Trump, who is facing slumping polls and a prolonged conflict with Iran as he barrels toward midterm elections in November. A scrap with Canada – one of the top sources of US imports – threatens to fuel voters’ concerns with high prices and further cloud the path for the Federal Reserve as the administration looks to tame the bond market and bring down borrowing costs.
In his statement late on Friday, Greer confirmed the deal would have reduced tariffs on automobiles, steel, aluminium and lumber, and see the two countries co-operate on export controls, digital trade and certain joint tariffs that he didn’t specify.
They would have also launched formal negotiations to renew the US-Mexico-Canada Agreement, which Trump negotiated in his first term but declined to renew earlier this year, sending the pact into a decade of rolling reviews.
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In exchange, Canada was prepared to remove retaliatory measures implemented last year after Trump launched the trade war, though the full scope of its potential concessions hasn’t been made public. The White House had been seeking the elimination of Canada’s counter-tariffs on US-made vehicles and an end to the ban on the retail sale of US alcoholic drinks in most provinces.
“While I’m hoping more will come out on what happened and where we go from here, this is deeply troubling for thousands of small Canadian exporters,” said Dan Kelly, head of the Canadian Federation of Independent Business.
The new 50 per cent tariffs are being imposed under a never-before-used provision of the Tariff Act of 1930 that gives the president the power to put duties on countries deemed to discriminate against US commerce.
But the new levies won’t apply to the most important natural resources the US imports from Canada, such as oil, potash and critical minerals. Canada is the US’s most important foreign supplier of crude oil and petroleum products, more than 4 million barrels a day.
Public opinion polls in Canada show broad support for fighting back against Trump’s tariffs, and officials in Ottawa have been studying a series of options, according to people familiar with the matter.
In a call with provincial premiers earlier this week, Carney said his government was prepared to retaliate with dollar-for-dollar tariffs if needed – but that he was pleased with the framework deal and relieved he didn’t have to take that step, which he said could be very damaging, according to a person with knowledge of the matter.
“The prime minister has my full support for a strong response – tariff for tariff, dollar for dollar,” Doug Ford, the premier of the province of Ontario, where Canada’s auto sector is based, said in a social media post on Saturday.
Carney earlier appeared to rule out curbing the supply of important natural resources to the US. “Being a reliable supplier is important,” he told reporters in late July, shortly after the Trump administration first threatened the 50 per cent tariffs.
Canada will also soon announce “additional measures to support Canadian workers and businesses”, Carney said, without elaborating.
University of Calgary economist Trevor Tombe estimated if these tariffs remain in place, Canada could lose almost 90,000 jobs. The export hit impact is most sharply felt in machinery and electronics, plastics and rubber, furniture, wood, paper, and chemicals and cosmetics, he said. BC, Ontario and Quebec would be the worst hit provinces, he said. – Bloomberg
