Canada braces as tariff deadline looms and talks with US ‘chaos machine' drag

The Guardian

4 days ago

After months of tariff threats from the US and escalating trade tensions that have sowed anger in Canada and fractured a once-close alliance, the country is now fast approaching a 1 August deadline to reach a deal with the Trump administration – which has shown no signs of backing down.
And observers are keeping a close eye on negotiations this week to determine whether too large a chasm has grown between the countries, resulting in what could be an explosive end to what was decades of free-flowing trade.
Canada is also in a highly vulnerable position, as it has closely intertwined its economy with the US's, and is extremely reliant on a low-barrier trade environment, said William Huggins, an assistant professor in economics at McMaster University in Ontario.
'Canada has tried to negotiate sort of forcefully from a position of not acquiescing to every demand, but by the same token, has also realised it's not in the strongest position to do so … We've had to navigate carefully,' said Huggins.
The Canadian public is also anxiously awaiting the deadline to strike up a deal. Economists and political scientists say the country's prime minister, Mark Carney, was elected on the belief that he's the right person to be at the helm of negotiations and lead Canada through a tenuous period with their southern neighbour.
His successes or failures in this arena could affect public perception – as he has characterised his government as being the most adept in the crisis around its sovereignty due to the tariffs and Donald Trump's persistent claims that he'd like to make Canada the 51st state.
'[Carney] is in a situation where he doesn't hold all the cards and whoever we put in was going to have to figure out a way through this … [His] ability to plan is severely limited by the chaos machine that is operating south of the border,' said Dennis Pilon, the chair of the politics department at York University in Ontario.
On Monday, Carney said at a news conference on Prince Edward Island that the trade negotiations are at an 'intense pace' and that they are 'complex'. But he projected tentative optimism, stating that the negotiations are 'tough' because the government is standing up for Canadian interests.
'There is a landing zone that's possible but we have to get there. We'll see what happens,' he told reporters.
But Trump spoke of the negotiations flippantly when asked by reporters outside the White House last Friday. 'We haven't really had a lot of luck with Canada … Canada could be one where there's just a tariff, not really a negotiation,' he said.
So far, much of the talks have happened behind closed doors. There was a glimpse into what could be the dynamic between Carney and Trump when the prime minister had his first meeting with the president in the Oval Office in early May. There were positive tones in both initially offering praise for each other, but the encounter quickly grew tense as Trump repeated his annexation claims, which were subsequently rebuffed by Carney.
Since March, Trump has imposed several tariffs on Canadian goods and energy resources. There is a 25% tariff on all goods, excluding potash and energy products. But there's separately a 10% tariff on energy resources, including potash. Additionally, there's a further 50% tariff on steel and aluminum imports and a 25% tariff on autos and auto parts.
At this stage, the tariffs have seemingly not delivered a significant blow to Canada's economy, but that could change quickly. The Royal Bank of Canada noted in its June forecast that nearly 90% of Canadian goods are exempt from tariffs under the United States-Mexico-Canada Agreement (USMCA), the free trade deal that replaced Nafta in 2020 and which provides a degree of insulation.
In an assessment published by the Toronto-Dominion Bank (TD) on Tuesday, it reported that energy exports have not been significantly affected by the tariffs, as most exports are compliant under the USMCA, and are therefore exempt from tariffs.
Some of the insulation so far from tariffs could be from opening Canada up to other markets. TD said that in the past four months, Canadian businesses rapidly moved to reorient supply chains and export to non-US markets. Now about 30% of exports go outside the US – a level not seen since the pandemic, when TD notes there was disorientation in trade.
But TD also warned that the negative effects of the tariffs might be beginning to emerge. It said that Canadian exports to the US are 'generally underperforming' in tariff-targeted industries, particularly steel and automaking. Canada's auto exports fell to levels not seen since late 2022, following the April imposition of tariffs. Automakers have also 'slashed' production in response, it said.
Andrea Lawlor, an associate professor of political science at McMaster University, said that while there haven't been many layoffs or a complete reorientation of production lines yet, industries targeted by tariffs are preparing to do so.
Lawlor also said that Carney has been prudent in his negotiation strategy so far, and right in waiting for deals to be brokered between the US and other nations, as they were this month with Japan and the EU, to help inform Canada's strategy.
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And despite concerns about marred relationships with First Nations people, pushing forward controversial infrastructure legislation and his quick scrapping of Canada's digital services tax – which many, including top former diplomats, viewed as fawning capitulation toward Trump – the prime minister is still enjoying fairly positive polling in his term's infancy.
Abacus Data reported at the end of June that 52% of Canadians surveyed approve of the Carney government. The research firm states it shows that his post-election honeymoon period is 'far from over'.
Lawlor said the best outcome for Carney in the negotiations is a favourable trade deal – however, there has been signalling from Carney, in his discussion of 'tough' talks so far, that Canadians may have to accept a baseline of tariffs.
'Many Canadians just simply will not be satisfied if that is the outcome,' she said. But due to Carney facing limited criticism of his interactions with the Americans so far, Lawlor said she believes the prime minister will not face extreme negative blowback if he doesn't trounce tariffs for good this week.
But he will be more vulnerable if the tariffs start to place downward pressure on multiple industries, she said.
As Canadians are waiting and watching for the Friday deal deadline, the real fears are around the cementing of a new world order and whether long-term business and consumer decisions need to be made in response, said Preetika Joshi, an assistant professor at McGill University in Quebec that specialises in taxation.
'If you were a business owner and you knew Trump is going to be in power for only three, four years, would you necessarily make big, significant changes in your supply chain … or would you just wait it out?' she said.
But given some grim messaging from those close to Carney – Canadians might be facing tough decisions. Dominic LeBlanc, the federal minister responsible for Canada-US trade, said last week there's a lot of work ahead of them and minimised the 1 August deadline.
'We're going to continue to work toward the 1 August deadline,' said LeBlanc to reporters in Washington. 'But all of these deadlines are with the understanding that we'll take the time necessary to get the best deal,' he said.
Deal or no deal, the negotiations might reveal that there isn't a best-case scenario, said Joshi.
'What we were used to before Trump, where there were very little tariffs, that reality is slightly over,' she said. 'We'll have to wait and see … but the reality is that there are going to be some tariffs.'