US, Canada hold last-minute talks to stop 50% tariffs on Canadian goods

The US and Canada are racing to avert a new round of tariffs as President Donald Trump threatens 50% levies on Canadian goods, adding strain to a traditionally close trade relationship

The United States and Canada have wrangled for decades over trade, poking each other interminably over sore spots like Canadian softwood lumber imports and US access to Canada's protected dairy market.

Somehow the two neighbours still managed to remain friends, allies -- and trading partners. Canadian soldiers fought alongside Americans in Afghanistan after 9/11. The 5,525-mile US-Canada border is undefended, and nearly 330,000 people and USD 2 billion dollars' worth of goods cross it every day; 800,000 Canadians live in the United States.

President Donald Trump's belligerent approach to dealing with Canada marks an extraordinary departure from the traditionally cooperative relationship between the two countries. Trump has hit Canadian goods with tariffs -- in a push to bring manufacturing back to the United States -- and has repeatedly made inflammatory comments about turning Canada into America's 51st state.

 

The Canadian public is fed up. A petition to expel the US ambassador, a Trump ally, has collected nearly 218,000 signatures since July 21. It accuses Ambassador Pete Hoekstra of having "normalised" Trump's talk of annexing Canada, among other things.

Tension could hit new heights at 12:01 am Wednesday if Trump goes ahead with his plan to impose 50 per cent tariffs on USD 20 billion worth of Canadian products, ranging from hockey sticks to tongue depressors.

As the deadline approaches, the two countries are seeking a truce that would avoid the new round of tariffs.

"We are negotiating," Canadian Prime Minister Mark Carney told reporters Monday, speaking in French. "The negotiations are very intense and delicate. This is not the time to talk about negotiations in public."

Looking for an off ramp

Nearly 72 per cent of Canadian goods exports last year went to the United States. And the Trump administration might be wary of imposing a hefty new tariff -- paid by US importers who try to pass along the cost to consumers via higher prices -- ahead of November's midterm elections. American voters are already frustrated with the high cost of living.

"I don't think either side really wants these tariffs to come into effect," said Ryan Majerus, a partner at King & Spalding and a former US trade official. "There's a pretty strong push on both sides to find an off ramp here."  Majerus said the United States is aiming to get Canada to buy more US military equipment, including F-35 fighters; to take part in Trump's "Golden Dome" missile defence; and to give the United States more access to critical minerals, thereby reducing America's reliance on tenuous supplies from geopolitical rival China.

The Canadians would like relief from US tariffs on steel and aluminum as well as softwood lumber, which America says receives unfair government subsidies.

Trump relies on Smoot-Hawley to go after Canada

Trump has made tariffs the centrepiece of his second-term economic agenda. Last year, he imposed double-digit import taxes on almost every country on earth, justifying them by declaring the longstanding US trade deficit a national emergency. The Supreme Court in February ruled that he'd overstepped his authority, striking down those tariffs and setting the stage for the federal government to pay refunds to importers.

Trump immediately looked for other ways to rebuild his tariff wall. Last month, he imposed import taxes of 10 per cent to 12.5 per cent on 59 countries and the European Union -- which together account for 99 per cent of US imports -- for allegedly failing to have or to enforce restrictions on imports made from forced labour.

Then he reached back to the Great Depression to find a cudgel with which to whack Canada, one of his favourite targets.

Trump invoked Section 338 of the Tariff Act of 1930 to impose 50 per cent tariffs on products that account for about 5 per cent of Canadian exports to the United States.

Nearly a century ago, with the US and world economies in collapse, Congress passed the 1930 tariff law, imposing hefty taxes on imports from around the world. Known as the Smoot-Hawley tariffs, for their congressional sponsors, they are notorious among economists and historians for limiting world commerce and making the Great Depression worse.

Section 338 tariffs have never been used before. US trade negotiators traditionally have favoured another tool, Section 301 of the Trade Act of 1974 -- the provision Trump invoked for last month's forced-labour tariffs.

Section 338 authorises the president to impose tariffs of up to 50 per cent on imports from countries that have discriminated against US businesses. Unlike Section 301 sanctions, no investigation is required. Nor is there any limit on how long the tariffs can stay in place.

In announcing the Section 338 tariffs, Trump claimed that Canada discriminates against American exports of autos, alcohol and cheese. Trump is angry because Canada and China were the only countries that punched back with retaliatory tariffs of their own when he slapped levies on their products last year.

"If a country retaliates against us, we're obviously not going to tolerate that," US Trade Representative Jamieson Greer told reporters Friday at the Iowa State Fair. "We'll take action. My sense is the Canadians, they want to have a more conciliatory approach, but we'll see."

New leverage to renegotiate USMCA

The US is renegotiating a North American trade pact -- the US-Mexico-Canada Agreement -- that Trump strong-armed America's neighbours into accepting in his first term. The threat of Section 338 tariffs gives the United States leverage to seek fresh concessions from Ottawa.

"From Carney's perspective, you need (USMCA) to be renegotiated," said Christopher Gundermann, fellow in the economics programme at the Centre for Strategic and International Studies. "You can't renegotiate it with a massive trade war going on."  But the Canadian public's furore over Trump's policies may limit Carney's ability to cut a deal. Canada could retaliate again if the new 50 per cent tariffs take effect, potentially aggravating a trade fight.

Canada's government "cannot look like it is simply caving to the Trump administration's demands," said Daniel Beland, a political science professor at McGill University in Montreal. "Making further concessions without getting something meaningful in exchange would probably lead to a strong backlash ... The risk is for the Carney government to make Canada look weak and, therefore, even more vulnerable to future trade and geopolitical bullying on the part of the Trump administration."  Dominic LeBlanc, Canada's minister for US trade, met with Greer on Monday. He was tight-lipped afterward.

"The work is continuing," he said. "We continue to do our job.