Trump and Carney speak ahead of US tariff deadline

Trump and Carney speak as US tariff deadline looms

US President Donald Trump and Canadian Prime Minister Mark Carney spoke by phone on Monday afternoon, Carney's office said, as the two countries sought to avert new 50 percent tariffs set to take effect at midnight on Wednesday. The call came amid what Carney described as "very intense and delicate" negotiations, telling reporters, "This is not the time to talk about negotiations in public."

The new US tariffs, which would cover about $20bn worth of imports, would apply regardless of whether Canadian goods qualify for preferential treatment under the US-Mexico-Canada Agreement (USMCA), according to Al Jazeera. The USMCA, which was hailed by Trump in 2020 as "the largest, fairest, most balanced, and modern trade agreement ever achieved," has shielded much of Canadian industry from earlier US tariffs. However, the agreement was not renewed by the US last month and is now in annual review.

The two countries have wrangled for decades over trade, with sore spots including Canadian softwood lumber imports and US access to Canada's protected dairy market, as Al Jazeera reported. But trade tensions have escalated in Trump's second term as he has used tariffs as a major tool of his economic agenda, including to bring back manufacturing to the US.

Sticking points and auto tariffs

Among the sticking points in the negotiations are existing US auto tariffs, as reported by Reuters citing two unnamed sources. The two sides have discussed cutting US Section 232 tariffs on Canadian vehicles to 15 percent from 25 percent, with further reductions based on the amount of US content. However, they remained at odds over how to account for content, with Washington demanding only US-produced content and Canada wanting all North American content counted.

A Canadian auto official told Reuters that with automotive profit margins averaging only 6 percent, even a 15 percent tariff would be too high. The US Commerce Department released new rules on Tuesday for automakers exporting from Canada and Mexico to certify their current levels of US content, reducing the exercise to once per year, as Al Jazeera reported. The US Federal Register notice said automakers must recertify vehicles' US content by September 30 for them to claim deductions in the new annual cycle starting December 1.

Breakdown and retaliation

The talks collapsed over the weekend, with both sides blaming last-minute changes. Carney said the US "asked too much and they offered too little," and accused the administration of a "power play." "We take this step confident this is in the best interest of Canada," he said on Saturday, adding, "You're at war when you're attacked - we got attacked." In French, he said the dispute "wasn't our choice," and that "Canada is strong, Canada is ready, Canada is united."

US Trade Representative Jamieson Greer pointed to "new demands and walk backs of other commitments by Canada" as the cause of the breakdown. The Distilled Spirits Council of the United States suggested in a statement that Canadian provinces' continued refusal to return US spirits products to store shelves "has led to this outcome." Ontario and Quebec had yet to say whether they were on board with a reversal on the booze boycott.

Carney said the late US proposed terms "were unfair, uneconomic, and called into question the reliability of any deal." He also cited demands on the automobile sector and "unacceptable" restrictions on trade deals with other countries.

On Saturday, Carney said Canada will retaliate on Sept. 8 for the new tariffs with its own trade measures. The 50% US tariffs took effect early Saturday on an array of Canadian products, including hockey sticks and Crown Royal whisky, as The Philadelphia Inquirer reported.

Political and economic fallout

The breakdown has significant political implications for Carney, who came to power with a call for "elbows up" - an ice-hockey term for an aggressive approach. He is one of the first world leaders to walk away from the negotiating table with the White House, and the outcome is being closely watched, as BBC and The Nation reported.

Canadian public opinion appears split: a survey by Abacus Data suggested that around 36% of Canadians would support retaliating to US tariffs, while a Leger poll indicated that 56% want the federal government to take a hard line and make no more concessions.

The trade war is already having economic effects. The boycott of US products has meant a loss of about C$3.3 billion in travel revenue for the US last year, as BBC reported. US wine exports to Canada fell 78% year over year, a $357 million loss in export value. The US distillers association reported that provincial bans have caused exports of American spirits to drop by more than 70%.

Candace Laing, CEO of the Canadian Chamber of Commerce, said there are "billions in goods per year that were not impacted before, but now are at risk of being impacted significantly." She said businesses have been doing a "high-wire act" for well over a year, holding off on hiring, investment and growing in Canada.

Perspectives on the collapse

Carney's decision to walk away has drawn support from Canadian political leaders. Conservative opposition leader Pierre Poilievre said "Canada cannot accept one-sided tariffs that will deindustrialise our country." Ontario Premier Doug Ford, who had raised concerns in a letter to Carney that an agreement under pressure would "embolden the United States to seek concession after concession," said after the breakdown that "the prime minister has my full support for a strong response - tariff for tariff, dollar for dollar."

On the US side, some officials have voiced frustration. Both Jamieson Greer and Treasury Secretary Scott Bessent have publicly complained that only Canada and China retaliated for the tariffs Trump imposed last year, as The Philadelphia Inquirer reported. The Inquirer also reported a split between Peter Navarro and Howard Lutnick over Greer's willingness to reduce an existing 50% tariff on aluminum derivatives to 25%, with Navarro and Lutnick reportedly yelling at Greer at a White House meeting, according to an anonymous industry representative.

Former US trade negotiator Wendy Cutler called the collapse a "big setback" for Trump's trade policy, saying other countries are "closely watching how this plays out."

The breakdown also highlights the deep economic interdependence between the two countries. Canada sends about 70% of its exports to the US, and is the top trading partner for several US states, with Michigan, Kentucky, Indiana and Ohio among the most exposed. US farmers rely on Canadian sources for nearly 80% of the potash fertilizer they use each year, according to the US Geological Survey. Northern border states run on electricity produced by Canadian hydropower, and Midwestern refineries are optimized to process heavy sour crude oil from Canada. Total US-Canada trade each year exceeds $700 billion.

Carney will meet provinces on Saturday to brief them on the current state of affairs. The outcome of the trade dispute is expected to have ripple effects on both economies, with Jason Miller of Michigan State University expecting a significant drop in import categories as importers struggle with costs, potentially leading to empty store shelves. Trump's 50% tariffs on goods ranging from hockey sticks to alcohol are expected to raise prices for American consumers before the Nov. 3 midterm elections, which polls show are expected to turn on voters' frustration with the rising cost of living.