Trade negotiations between collapsed just hours before a new round of US tariffs took effect, pushing the two neighbours deeper into a trade war and raising questions over the future of one of the world’s most closely integrated economic relationships.
has imposed 50% tariffs on about $20 billion worth of Canadian goods, while Canadian Prime Minister has announced a “dollar-for-dollar” retaliation beginning September 8.
But why the talks fail even as Trump had declared last week about a deal being reached with Canada and he was delaying taxes on Ottawa?
What went wrong in the negotiations?
The negotiations had appeared to be moving towards an agreement earlier last week. Trump said on Tuesday that the deadline had been extended because a deal was close, and he described the emerging agreement as a potentially “very fair deal for both” sides, according to The Guardian.
However, the discussions, reportedly, broke down on Friday after disagreements over the terms of the proposed agreement.
Carney accused the US of introducing last-minute demands that were “unfair, uneconomic and called into question the reliability of any deal”. He said Canada was unwilling to accept terms that compromised its sovereignty or undermined key industries.
The issues that Carney raised were about US demands affecting Canada’s policies on Canadian and French-language content on streaming services, subsidies for industries such as publishing and film, and bilingual labelling requirements, according to The New York Times.
The US side, meanwhile, blamed Canada for seeking concessions Washington was not prepared to make, particularly in the automotive, steel, aluminum and lumber sectors.
US Trade Representative Jamieson Greer later said Washington had offered major tariff reductions on Canadian steel, aluminum and automobiles and to remove a recently imposed tariff on Canadian lumber.
Why did Canada walk away?
For Carney, the issue was not simply the level of tariffs but the broader terms of the relationship Canada would have with the US.
He said Canada had recognised from the beginning that “America has changed” and that the two countries could not return to their previous relationship.
“We cannot accept what they offered and we will not give what they asked,” Carney said, according to the NYT. The decision also came amid concerns in Canada that Ottawa could be making too many concessions simply to secure lower US tariffs.
The Guardian reported that details emerging from the negotiations had triggered concern that Canada might give ground on issues including the sale of US alcohol in Canadian provinces in exchange for tariff reductions.
Carney ultimately ordered Canadian negotiators to return to Ottawa rather than accept the proposed terms.
What tariffs has the US imposed?
The US tariffs that took effect Saturday cover around $20 billion worth of Canadian goods.
According to the NYT, the affected products span more than 500 items and include products from sectors such as forestry, building materials, dairy, clothing and alcohol. The measures also come on top of existing US tariffs on major Canadian industries.
The collapse of negotiations means Canada did not secure the removal of tariffs of up to 50% on automobiles, steel and aluminum, while softwood lumber is also subject to separate US duties, according to the NYT.
Trump has justified his trade measures by accusing Canada of unfairly treating US businesses. The Guardian noted that the White House has particularly pointed to Canadian restrictions on the sale of US alcohol.
How will Canada retaliate?
Canada said the retaliatory measures will come into effect on September 8 and would match “dollar for dollar” to the new US tariffs.
While Ottawa has not yet released the complete list of products that will face the tariffs, Carney said the measures would largely target steel, dairy, appliances, agricultural equipment, pulp and paper and electronics, according to an AP report.
While Carney has acknowledged that retaliation will also hurt Canadians, saying the measures could “raise costs and reduce choice for Canadians”, reports mention that his government will announce support for affected workers and businesses.
How much does Canada depend on the US?
The stakes are particularly high for Canada because of the extraordinary level of economic integration between the two countries.
According to AP, nearly three-quarters of Canada’s goods exports go to the United States. The US economy is roughly 10 times larger than Canada’s, meaning a prolonged tariff battle could cause disproportionate damage to the Canadian economy.
At the same time, the dependence is not entirely one-sided. Canada supplies 99% of US natural gas imports, 85% of its electricity imports and 60% of its crude oil imports, thus, giving Ottawa some leverage.
Royal Bank of Canada economists estimated that the latest US tariffs directly affect about 0.4% of Canada’s GDP, as they cover only around 5% of Canadian exports to the US. However, AP reported that the economic impact could become substantially larger if the dispute expands, disrupts supply chains or discourages investment.
What happens to the Canada-US relationship now?
For decades, Canada-US trade policy was built around reducing barriers, beginning with the 1989 Canada-US Free Trade Agreement, followed by NAFTA and its successor, the USMCA.
The latest breakdown has forced Canada to reconsider that model.
Carney has already been pursuing a strategy of reducing Canada’s dependence on the US by expanding trade and investment relationships elsewhere. AP reported that Canada has signed more than 20 trade and security agreements across five continents over the past year and is seeking to attract C$1 trillion in investment by 2030.
Goldy Hyder, president and CEO of the Business Council of Canada, said businesses increasingly see the shift as potentially lasting beyond Trump’s presidency.
“There is a new trade and investment model, one that could well be kept in place by future U.S. administrations whether Democrat or Republican,” Hyder said, according to AP.
