Trade talks between Canada and the US abandoned.
In early August, a deadline approached for the United States to impose new 50% Section 338 tariffs on $ 20 billion worth of Canadian exports. Both countries met for trade negotiations, and it seemed as if a deal was going to occur, with Canadian negotiators frequently traveling to Washington before the August 19th deadline. And the day before the deadline, Trump announced he would postpone tariffs while alluding to the idea that the countries had come to a deal. Both countries came up with multiple compromises. Canada agreed to eliminate the retaliatory tariffs against steel, aluminum, and auto parts while encouraging Canada's provinces to remove the ban on the sale of U.S. alcohol. The Americans, while not willing to fully abandon all tariffs, offered reductions by agreeing to reduce the steel and aluminum tariffs and drop the tariff on lumber and auto parts.
But later that week, Canadian negotiators were recalled back to Ottawa, with the Prime Minister releasing a statement that negotiations with the United States were to be cut off and would retaliate as a result of the new 50% tariffs imposed on August 22nd. The trade talks seemed to have fallen apart in a few short hours, so what happened?
On the Canadian side, they have accused America of implementing multiple last-minute demands that were "unfair, uneconomic, and called into question the reliability of any deal". The US side negotiators likewise accused Canada of adding additional demands and walking back other commitments towards the end of negotiations.
But since trade talks were cutoff we have had multiple reports come out thanks to journalist interviews with insiders. There were seemingly 4 main irritants that resulted in Canada walking away.
Howard Lutnick, the US Secretary of Commerce, seemingly intervened after being unsatisfied with the negotiated terms near the back end of the process, specifically regarding steel, aluminum, and automobiles. He has a very strong stance on moving automobile production back into the United States and specifically demanded that tariffs on the Canadian automobile sector stay at 25% for all trucks. Canada has built up infrastructure behind the production of Ford and GMC trucks, making this a large concern for them.
There were also major concerns over sovereignty implications of some of the US trade terms. US negotiators introduced American influence over future Canadian trade deals. Specifically proposing that Canada implement tariffs identical to the United States' regarding steel and even proposed that if the US changed policy, Canada would have to follow suit. Canada is actively trying to diversify its trade relations, and this would only lead to further dependence on the US.
Problems also occurred over Canada's French labeling laws. In the province of Quebec, there are multiple rules ensuring the French language does not die out within the country; this includes ensuring both French and English are left on food nutrition labels. The US took issue with this requirement as a result of importing and exporting issues. In Canada, there is also something called CanCon, or Canadian content requirements, that require traditional broadcasters to have a certain percentage of Canadian TV ranging from 35% to 60%. In the last few hours of negotiation, the US brought up clauses that would exempt the United States from these regulations, once again a deal-breaker for Canada.
Canadian officials also held heavy concerns that the US would not preserve or honor this trade deal. Canadians looked to ensure that the deal would not be scrapped overnight, but the US maintained that it would retain the power to change tariff policy against Canada at any time. This was the largest deal-breaker among Canadian officials, with them believing they were giving up many things for things that may never come.
While these Canadian concerns are of key importance, reports from the American side indicate that Canadian negotiators did attempt to lower all Canadian tariffs to zero and instill a new "Buy Canadian" policy throughout the country, rejecting American goods.
Since these talks ended, things have only seemed to escalate, with America instilling their 50% tariff and Canada retaliating against those tariffs with their own tariffs between 15,25 and 50 percent across 700 American products covering about $20 billion in US goods, with these tariffs being enacted September 8th.
No one knows exactly how this situation will end for either country, but it could not be happening at a worse time. The war in Iran continues to impact inflation, with both countries being over 3%, which is only further burdened by the larger tariffs increasing the cost of goods. The US also faces pressure from its bond market, with yields on the rise in part thanks to inflation, which leads to real concerns about future economic growth. While this does seem like a scary time, a large majority of Canadian goods are still making it into the US tariff-free, and as we have seen in the past, these tariffs are subject to rapid change, so both countries may not be in the hot seat for very long; only time will tell.
