Washington: United States imposed 50 per cent tariffs on USD 20 billion worth of Canadian products early Saturday, and Canada immediately said it would retaliate, after last-ditch negotiations failed to resolve the latest strain in already tense relations between the historic allies.
President Donald Trump’s import taxes will hit about 5 per cent of what Canada ships to the United States every year, including products ranging from hockey sticks to tongue depressors.
“Canada will match those tariffs dollar for dollar to protect our workers and businesses,” Canadian Prime Minister Mark Carney said in a statement. The retaliation escalates the trade conflict and calls into question the future of a North American trade pact between the United States, Canada and Mexico that is crucial to industry in all three countries.
Canada sought concessions on Trump tariffs on steel, aluminum, autos and lumber that the United States was unwilling to provide, a senior Trump administration official told reporters.
“Tonight, Canada declined to finalise the trade deal under the terms agreed earlier this week. Despite the US offer to Canada to receive the best treatment of any major exporter to our market, new demands and walk-backs of other commitments by Canada have upended the careful balance reached in the past days,” US Trade Representative Jamieson Greer said in a statement read to reporters on a press call shortly before midnight.
Carney blamed Washington for the breakdown, saying “last-minute changes in the US proposed terms were unfair, uneconomic, and called into question the reliability of any deal.” He said he had suspended negotiations and directed Canada’s negotiating team to return to Ottawa.
Carney said his government would announce additional support for Canadian workers and businesses in the coming days.
Greer said the US offer was “forward-looking” and included “a historic economic and national security partnership.”
No further talks have been planned. The breakdown in negotiations marked a sharp reversal from two days earlier, when officials from the two countries sounded as if they were headed toward a compromise.
Carney said Canada’s goal throughout the negotiations had been to secure the best possible agreement, “never a deal at any price or on any deadline.”
A typically cooperative alliance goes sour
The political impact will likely be even bigger than the economic fallout. The countries sold each other USD 880 billion worth of goods and services last year.
The tariffs were initially supposed to kick in at 12:01 am Wednesday. But Trump extended the deadline for three days to allow talks to continue, but the two countries still could not reach an agreement in time.
The two countries have wrangled for decades over trade, poking each other over sore spots like Canadian softwood lumber imports and US access to Canada’s protected dairy market.
Somehow, they 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 worth of goods cross it every day; 800,000 Canadians live in the United States.
Trump’s 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.
Carney said Canada had recognised that “America has changed” and that the two countries would “not return to our old relationship.”
Canadians and Americans are frustrated
The Canadian public is fed up. A petition to expel the US ambassador, a Trump ally, has collected nearly 248,000 signatures since July 21. It accuses Ambassador Pete Hoekstra of having “normalised” Trump’s talk of annexing Canada, among other things.
The two countries had good reasons to find a compromise.
Nearly 72 per cent of Canada’s 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.
“Canada likely wanted further sector-specific relief than the US was willing to offer, or Canada’s concessions did not go far enough,” said Ryan Majerus, a partner at King & Spalding and a former US trade official. “Either way, I think both sides will be under immense pressure in the coming days to still find an off-ramp. But if Canada has agreed to also impose tariffs, the off-ramp may be even harder to find.”
Candace Laing, president and CEO of the Canadian Chamber of Commerce, called the tariffs “a body blow to North American competitiveness,” warning they would raise costs for Americans while threatening Canadian customers, investment and small businesses.
Trump has turned to Depression-era tariffs
Trump has made tariffs the centrepiece of his second-term economic agenda. Last year, he imposed double-digit import taxes on almost every country, 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.
So Trump has looked for other legal authority to justify tariffs.
To hit Canada, he reached back to the Great Depression, invoking Section 338 of the Tariff Act of 1930 to threaten 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 taxes on imports from around the world. Known as the Smoot-Hawley tariffs after their congressional sponsors, they are notorious among economists and historians for limiting world commerce and making the Great Depression worse.
Section 338, which has never been used before to impose tariffs, authorises the president to slap import taxes of up to 50 per cent on imports from countries that have discriminated against US businesses. No investigation is required to justify the levies. Nor is there any limit on how long they can stay in place.
The rift comes as the United States, Mexico and Canada are trying to renew a trade agreement that Trump negotiated in his first term and once praised as a triumph. The United States has begun formal talks with Mexico over revamping the US-Mexico-Canada Agreement (USMCA). But talks with Canada have not begun, and escalating trade conflict casts doubt on whether they will.
“Canada told the Americans in advance that if these tariffs landed, it would stop negotiating and retaliate,” said Barry Appleton, senior fellow at the Centre for International Law at New York Law School. “The American trade representative said publicly he would not tolerate retaliation. Both sides have now committed themselves in public, which is how escalation stops being a choice.
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