Business Insights: Global Markets, Strategy & Economic Trends
- President Trump's tariffs target over 500 Canadian goods covered by the U.S.M.C.A., likely to face legal challenges.
- Mark Carney will hold firm, pursuing trade diversification and enjoying broad domestic support to resist concessions to the United States.
- Canadians broadly back a hard line, yet opposition criticism and short term economic pain could reduce tolerance for a prolonged standoff.
For Canada and the United States, it was always going to be a bumpy summer.
Ever since the United States on July 1 declined to renew the trade deal President Trump negotiated with Canada and Mexico in his first term, the Canadian government, and many Canadians, have been bracing for his administration to try to use pressure tactics to extract concessions on trade.
On Monday the administration did just that, upping the ante, as Mr. Trump made use, for the first time in history, of a nearly century-old provision to impose fresh tariffs on the second-largest U.S. trading partner.
But the move is more likely to elicit stoicism than panic from the Canadian side.
The tariffs, which experts expect to face legal challenges, target more than 500 Canadian goods, including cheese and hockey sticks, worth $20 billion. That’s about 2 percent of the entire trading relationship in goods between the two neighbors, which was worth some $720 billion last year.
Those goods are virtually all covered by the upended United States-Mexico-Canada Agreement, a free-trade pact known as the U.S.M.C.A. In 2020 it replaced and updated the North American Free Trade Agreement, which took effect in 1994.
Mr. Trump, who negotiated the U.S.M.C.A. during his first term, at the time called it the “largest, fairest, most balanced and modern trade agreement ever achieved,” but has criticized it in his second term as the worst agreement ever. That deal, and the 1994 one, known as NAFTA, between them have for decades shaped the economy of the United States and its North American neighbors, Canada and Mexico.
Mr. Trump and the U.S. trade representative, Jamieson Greer, said on Monday that the new tariffs were intended to punish what they labeled Canada’s “discriminatory” treatment of the U.S. auto, dairy and alcohol industries. In introducing the tariffs, Mr. Trump raised his often-repeated narrative that Canada is a mooch on the United States.
In a statement accompanying the new measures, Mr. Greer highlighted his disapproval of the fact that Canada had taken retaliatory tariffs against some U.S. goods in response to American levies, the only country to do so other than China.
The response by Prime Minister Mark Carney of Canada was dispassionate.
“This is the latest in a series of unilateral U.S. trade actions that began with the U.S. imposing a series of tariffs” violating the U.S.M.C.A., Mr. Carney said in a statement on Monday. “Canada, as is its right, has merely matched those measures,” he added.
The new tariffs came days after Mr. Trump threatened Canada with sanctions for the wildfire smoke that has drifted from the blazes raging in Ontario to U.S. cities.
Mr. Carney was elected last year on a wave of profound concern and anger at Mr. Trump’s belligerent rhetoric toward Canada. He promised to build a sustainable trade agreement with Mr. Trump but also make Canada more independent of the United States.
He has pledged to double trade with non-U.S. economies by 2035, and has relentlessly traveled the world seeking investments and new trading partners. He has turned to both Asia and Europe to strengthen Canada’s economic and strategic alliances, and has made it plain that diversification away from the United States is his core U.S. policy. He has even suggested that a Canada with stronger global ties is a better partner to the United States.
The Canadian economy has treaded water through all of this and so far avoided a meaningful recession. But U.S. tariffs on goods such as steel, aluminum and vehicles have hit sensitive sectors, and the broader uncertainty around Canada’s relationship with its top partner affects the investment environment, which values stability.
The Canadian public seems to support Mr. Carney’s approach, handing him persistently high approval ratings in polls. Sentiment about the United States seems to have suffered more. Significantly fewer Canadians have been traveling to the United States for tourism over the last year according to Canada’s national statistics agency. And a recent Pew poll showed that only 35 percent of those surveyed in Canada describe the United States as a reliable partner, down from 83 percent in 2022.
New data released on Tuesday by Abacus, a Canadian opinion research company, shows Mr. Carney has broad backing to resist Mr. Trump’s escalating pressure to settle for a less advantageous trade agreement.
While six in ten Canadians polled believe reaching a deal with the United States over trade is urgent, only one in five said Canada should “be willing to make compromises to reach an agreement sooner.”
“Prime Minister Carney has a lot of room to maneuver in negotiations with the Trump Administration,” said David Coletto, who leads Abacus. “Over the past year, Canadians have gone from being overly anxious about how tariffs might impact their lives and wanting a speedy resolution, to now feeling that a bad deal that rewards troubling behavior is a non-starter,” he added.
These data points suggest that Mr. Carney has support at home to play hardball. Canadians generally want him to strike a fair and lasting deal, unlike many of the United States’ other trade agreements, which have been seen as fickle.
That grace is most likely not infinite. The opposition Conservative Party continues to strongly criticize Mr. Carney for failing to strike a deal with the United States, calling on him to take action to salvage the relationship and decrying some of his overseas outreach as theater rather than substance.
“President Trump is wrong to target Canadian workers and must reverse these tariffs immediately,” Pierre Poilievre, the Conservative leader, said in a statement on Monday, adding, “And Mark Carney was wrong to surrender Canada’s leverage for over a year and a half, without actually working to secure the deal he promised.”
Many Canadians remain worried about the impact that an aggressive United States can have on their lives, particularly the possibility of permanently tearing up the U.S.M.C.A. rather than just declining to renew it, which will lead to more negotiations.
Still, Mr. Carney is likely to hold out in protracted talks this summer, rather than roll over. At the very least he has until Aug. 19, when Mr. Trump’s newly announced tariffs are set to take effect.
In his statement on Monday evening, Mr. Carney reminded Canadians that this battle was about more than the economy, invoking Mr. Trump’s “threats to Canadian sovereignty,” a reference to the president’s repeated claims since late 2024 that Canada should become the 51st American state. That quip animated many Canadian voters to elect Mr. Carney last year.
Mr. Coletto said that Mr. Carney’s optimistic alternative, which includes deeper engagement with other parts of the world, is giving Canadians hope despite the dire situation with the United States.
“There’s an optimism and a new resolve that Canada ‘has what the world wants’ and, even if there is pain in the short term, uncoupling our relationship with the United States will be good for us in the long run,” he said.
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