Trump
said on July 25 that he has not had “a lot of luck” in securing a trade deal with Canada, which he said could mean Canada will be stuck paying U.S. tariffs. “It’s not really a negotiation,” he said.
Trump told Carney earlier this month in a public letter the 25 percent tariff placed on Canada related to his border security concerns will increase to 35 percent on Aug. 1. Trump said he would consider changing his stance if Canada stops the flow of fentanyl into his country over the shared border.
This tariff comes with an exemption for goods covered by the USMCA free trade deal, meaning approximately 75 percent of goods are exempted, according to the White House. Carney said last week that aside from the sectoral tariffs on items such as steel and aluminum, which are universal, the U.S. tariff faced by Canada is “very low.”
Few details have been aired about the stumbling blocks in the negotiations. It’s not clear what other actions Canada could take on border security after injecting more resources, listing Mexican cartels as terrorist entities, and introducing far-reaching security legislation.
Trump’s letter, aside from complaining about fentanyl, also took aim at Canadian dairy tariffs.
Supply management protects the sector and it’s been a longstanding bipartisan trade irritant for the United States.
Dairy Tariffs
Carney briefly touched upon the issue during his July 28 press conference when asked by reporters whether he'd be open to providing more access to the Canadian dairy market.
“We’ve been clear about supply management, we’ve been clear about language rights as things that are fundamental to our structure,” Carney said.
The prime minister noted that the USMCA, negotiated during Trump’s first term, expanded the United States’ access to the Canadian dairy market.
“The question is the effectiveness of those arrangements,” Carney said, apparently confirming that supply management has been part of the ongoing discussions.
Washington has launched formal
protests under the trade agreement since the USMCA came into force, saying Ottawa was not abiding by its obligations to grant a certain level of access to U.S. dairy products.
Other trading partners of Canada have made similar protests in the context of a separate free trade deal, including New Zealand. Ottawa and Wellington reached a settlement earlier this month which could result in more New Zealand dairy products entering the Canadian market.
‘Landing Zone’
Carney said negotiations with the United States have been “tough,” but said his government is “standing up for Canada” while Trump is “looking out for the interests of American workers.”
“There is a landing zone that’s possible, but we have to get there, and we'll see what happens,” he said.
The prime minister said it’s “unlikely” a deal with zero tariffs will be reached, given the U.S. approach to trade has changed. “It is no longer an approach that hinges on integration. It’s a tariff-based approach for several sectors, in their opinion, key sectors, sectors linked to national security for the U.S.”
Whereas it could have been seen as a political win for Carney to secure a deal with Trump early, the evolving context is now suggesting the opposite could be true.
Had Canada been the first to agree to a deal where different U.S. tariffs remain in place, Carney would have faced harsh criticism after running an “elbows up” election campaign focused on standing up to Trump.
With the two large economies of G7 member Japan and the European Union having now signed deals with 15 percent tariffs remaining in place, it will be easier for Carney to say there was little room to manoeuvre to obtain a tariff-free deal if such an agreement is reached.
The universal 50 percent U.S. tariffs on steel and aluminum are still applying to Japan and the EU, suggesting Canada could face a similar fate.
The universal U.S. tariffs on automobiles and parts, which had been implemented with a 25 percent rate in recent months, have been dropped to 15 percent for both the EU and Japan.
Major Investments
It remains to be seen whether Canada will have to replicate some aspects of the Japan and EU deals, which include total investments of more than US$1 trillion in the United States.
Carney mentioned Canada shares similarities with the EU in terms of its commercial relationship with the United States, saying the two are the largest investors in the country.
“Our companies, our pension funds, others, invest heavily in the United States,” he said. “We are also partners in in defence and security with the United States, as you saw with with the agreements at NATO just last month.”
The EU and Japan have promised to invest massive sums in the United States. The EU trading bloc is the second largest economy in the world behind the United States, whereas Japan
ranks fourth behind China and Germany.
As part of its
deal, Japan must invest US$550 billion in the United States in sectors such as energy, semiconductors, and critical minerals. Meanwhile, the European Union is to
invest US$600 billion in the United States beyond its current investments, including by purchasing defence equipment.
While the Carney government is attempting to make a pivot to Europe to purchase defence equipment to move away from its dependence on the United States, Europe will have to spend more on U.S. military hardware.
As for differences between Canada and the EU, Carney noted part of the deal includes the EU purchasing US$750 billion in energy imports from the United States to wean off Russian energy.
“To help them do that, America needs Canadian energy,” Carney said, noting that the U.S. trade deficit with Canada is due to its Canadian energy imports. Canada is the fifth-largest oil producer in the world and 90 percent of its production heads south of the border. Approximately one-
quarter of oil refined in the United States comes from Canada.
Canada had a trade surplus in goods of US$63.3 billion in 2024 and a trade deficit in services of US$31.7 billion, for an overall trade surplus of US$31.6 billion, according to U.S. government
data.
Meanwhile Japan had a trade in goods
surplus of US$69 billion with the U.S. in 2024, whereas the EU had a US$253.6 billion
surplus.
www.theepochtimes.com
