Transport trucks cross the Ambassador Bridge on Tuesday.Dax Melmer/The Globe and Mail
When Washington opted not to extend the United States-Mexico-Canada Agreement on July 1, many trade experts suggested this was an opening move for trade negotiations – not an end point.
And on Monday, U.S. President Donald Trump pushed trade talks into a new, higher-stakes phase, saying he would impose a 50-per-cent tariff on some $20-billion worth of Canadian goods in 30 days’ time.
The relatively targeted threat – covering around 5 per cent of Canada’s exports to the U.S. and delivered with a long lead time – appears designed to apply pressure on Ottawa and change its calculus heading into talks about the future of continental trade.
American officials have been clear: They want to change the rules of the USMCA to privilege American companies and reduce Chinese inputs in continental supply chains, and they want to wring various concessions from their neighbours as the price of preferential access to the U.S. market.
So far, Mexico City has been more willing to play ball with Washington and has been rewarded with two rounds of bilateral trade negotiations, with a third round beginning in Mexico City this week.
Ottawa has kept its cards closer to its chest, offering some concessions but holding back on key U.S. demands to maintain leverage at the negotiating table. Formal talks between Ottawa and Washington about the USMCA have not yet begun.
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The Trump administration’s new tariff threat “is trying to build some leverage and tell Canada: ‘You can’t just wait this out,’” said Emily Kilcrease, director of the energy, economics, and security program at the Center for a New American Security in Washington and a former U.S. trade official.
“We’re going to make this more painful for you the more you resist some of the requests that we’re making, and you actually need to come to the table and have the conversation on our terms,” Ms. Kilcrease said, speaking of the Trump administration’s tactics.
Prime Minister Mark Carney seems to have received the message, and on Tuesday, he said Ottawa would “intensify negotiations in the coming weeks.”
But any trade negotiations will be fraught with distrust and messy domestic politics in both countries – issues that the latest barrage of tariffs has only complicated.
The tariffs, which will be imposed under the never-before-used Section 338 of the Tariff Act of 1930, are aimed at getting Canada to back down on three separate issues: provincial bans on U.S. alcohol; Canada’s approach to allocating dairy quotas as part of the country’s supply management system; and several retaliatory measures Ottawa has taken in response to U.S. tariffs on Canadian automobiles.
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Each issue is politically thorny, but there should be a path to a resolution on dairy quotas and alcohol bans, said Wolfgang Alschner, Hyman Soloway chair in business and trade law at the University of Ottawa.
The U.S. isn’t asking for a wholesale dismantling of supply management, he said, but rather changes to how Ottawa allocates the quotas it agreed to under the USMCA. And premiers might be convinced to reverse course on U.S. alcohol sales if they thought it would help Ottawa move trade talks forward in a meaningful way.
Negotiations about the auto sector are much more difficult, Prof. Alschner said.
U.S. auto tariffs, imposed last year under a different tariff authority, have called into question the viability of the Canadian auto manufacturing industry – at least for final assembly. Meanwhile, Ottawa’s retaliatory measures, including a countertariff on U.S. vehicles and a remission framework that incentivizes production in Canada, are aimed at keeping the industry afloat.
“The U.S. administration is just sending a very clear message: ‘Look, guys, we are serious about reshoring our domestic auto industry. … And you, Canada, are making it harder for us to achieve that goal, and you’re really putting pressure on the auto industry to keep the plants up there,’” said Prof. Alschner.
The new Section 338 tariff related to autos doesn’t actually target vehicles, which are already subject to a tariff. Instead, it hits a range of other industries as a kind of collective punishment for Ottawa’s attempts to stand up for the Canadian auto sector.
“The U.S. is now implicating sectors that are totally removed from the debate, and that creates pain in other parts of the Canadian economy,” Prof. Alschner said. “And so domestically, what the government has to do now is decide what to do with all this pain and this grievance, because nobody wants to be sacrificed for the auto sector.”
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The Section 338 tariffs may also prove difficult for Ottawa to manage from a regional perspective, said Christopher Sands, director of the Center for Canadian Studies at the Johns Hopkins University School of Advanced International Studies in Washington.
These new tariffs target a grab bag of products, from alcohol to electronics equipment to furniture. But most of the affected industries are concentrated in Ontario and Quebec, while key Prairie products such as oil, gas and potash are explicitly exempt.
“There’s an attempt to play different parts of the country off each other,” Prof. Sands said. “So, will that work? Will Canadians have some solidarity? Or will they be fighting about which provinces still carry American booze, or whatever. I think there’s an attempt here, in the design [of the tariffs], to mess around in Canadian politics.”
Still, the Trump administration may be shooting itself in the foot with these latest measures, Prof. Sands said.
Over the past year, Mr. Carney has offered a number of concessions to Washington, including scrapping the digital services tax and removing many retaliatory tariffs, only to have the Trump administration turn around and scuttle trade talks.
“The lesson they taught Carney and most Canadians is that if you give up something pre-emptively, you’ll get nothing in return,” Prof. Sands said.
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Ultimately, developments this week in Mexico City could set the tone for any trade talks between Canada and the U.S. in the coming weeks and months. Mexican and American trade negotiators are already deep into discussions about automobile content rules, economic security and external tariff co-ordination.
“My baseline has always been that we will ultimately get to something that looks like a trilateral agreement with some pretty significant updates that all three countries agree to on rules of origin, economic security and labour issues,” said Ms. Kilcrease.
“But it was going to be really, really ugly along the way. And I think what we’re seeing now is a very ugly point.”