Prime Minister Mark Carney and U.S. President Donald Trump could reach agreements on metals and energy as early as this month.Evan Vucci/The Associated Press
Andrei Sulzenko was a principal negotiator of the Canada-U.S. free trade agreement.
In the short term, Canada’s best approach in the trade war is to focus on mitigating the impact of current punitive U.S. actions against steel, aluminum, automotive and lumber imports.
In that respect, Ottawa has done the right thing. The Globe and Mail reported on Monday that Prime Minister Mark Carney and U.S. President Donald Trump could sign deals on metals and energy as early as this month.
The most likely outcome is some form of tariff-quota arrangement. This would involve a specified level of tariff-free, or low-tariff, access to the U.S. market, with tariffs, or higher tariffs, imposed on greater amounts – a common technique in trade agreements for sensitive sectors, e.g., Canada’s dairy import regime.
Canada should quickly seek similar relief on other sectoral tariffs. A pragmatic outcome would serve both countries’ interests: Canada’s for relief on major exports, and the U.S.’s for reduced cost pressures on major inputs to user industries ranging from metal fabrication to house building.
Canada, U.S. will have bilateral trade deals alongside USMCA, Carney says
But on the bigger trade issue, the United States-Mexico-Canada Agreement, Canada should be patient. Canada should now replace the “elbows up” hockey metaphor with another: “rag the puck.” The underlying assumption for this switch is that time is on Canada’s side, with the U.S. economy showing increasing signs of fragility that will promote domestic pressures for a more accommodating approach to trade relations.
These weaknesses are just starting to show up in the most recent U.S. data – namely, higher inflation and stagnant job creation. However, there are significant lag effects still playing out in the U.S. economy: pre-tariff front-end loading on imported inventory; importer reluctance to pass on higher costs to customers; resilience in financial markets supported mainly by the artificial intelligence investment boom; sustained spending by higher-income consumers.
Although there is no clear consensus among leading economists about the direction of the U.S. economy, there are increasing signs of strain, driven by growth-sapping trade, immigration and fiscal policies: Job creation has essentially flat-lined after years of sustained growth; inflation is trending towards 3 per cent (above the Federal Reserve’s 2-per-cent target); the continuing federal government shutdown is further crimping economic activity; and business capital investment is being inhibited by trade uncertainty and immigration restrictions.
The effects of these negative forces are encapsulated in a September, 2025, report of the Organisation for Economic Co-operation and Development that forecasts U.S. growth in 2025 and 2026 to be 1.8 per cent and 1.5 per cent respectively, down from 2.8 per cent in 2024.
The fight to preserve North American trade is just beginning
On inflation, the OECD forecasts the U.S. rate to accelerate from 2.5 per cent in 2024 to 2.7 per cent in 2025, and then 3 per cent in 2026. By contrast, most other countries, including Canada, are forecast to have declining rates of inflation.
In these circumstances, it is quite fortunate for Canada that the review of the trilateral agreement with the U.S. and Mexico is scheduled to begin only in 2026. Canada should have a stronger negotiating position then, with a weakening U.S. economy and a correspondingly wounded U.S. administration heading into midterm Congressional elections in November.
At this point, it is difficult to develop cogent scenarios for the review, with too many unknowns. For example, recent musings by U.S. officials that new bilateral agreements with Canada and with Mexico might be preferable to a renewal of the trilateral deal suggests a potential change in modalities, if not ultimately in outcomes.
In the meantime, if short-term accommodation can be reached on the sectoral sore thumbs, Canada will be in a relative sweet spot compared with many other countries, with most remaining trade with the U.S. tariff-free under the terms of the current Canada-U.S.-Mexico trade pact. Sometimes half a loaf is good enough.