As Canadians continue to navigate the ever-changing trade policies of U.S. President Donald Trump’s administration, experts say officials in Ottawa are walking a tight rope between appeasement and retaliation.
“(Trump) takes retaliation very personally, so I’m not sure it’s worth the calculation,” Drew Fagan, professor at the Munk School of Global Affairs & Public Policy, told BNN Bloomberg in a Tuesday interview.
“Canada’s a big country, it’s the tenth biggest economy in the world, but we’re a middle weight fighting with a super-heavy weight, I don’t think you want to go punching with them and thinking you’re an equal; you’re not.”
A Friday deadline passed without a trade deal between the U.S. and Canada, and the Trump administration implemented a 35 per cent tariff on Canadian goods entering the U.S. that are not already covered under the existing North American free trade agreement.
Most Canadian products exported to the U.S. do fall under the Canada-United States-Mexico agreement (CUSMA) and thus remain duty-free for now. That deal, however, is slated for renegotiation in 2026.
“For (Canada), the bigger negotiation is the one over the renewal, the review and the renegotiation of CUSMA next year,” Fagan argued.
“When (Trump) negotiated the renewal of NAFTA (North American Free Trade Agreement) in his first term, he put additional pressure on Canada by putting tariffs... on steel and aluminum that are key products that we export to the U.S.”
It’s possible, Fagan said, that Trump is carrying out a similar strategy now. “The only thing that’s really stopping him are the courts in the United States,” he said.
From the start, Trump’s legal justification for the tariffs placed on Canadian goods came through the International Emergency Economic Powers Act (IEEPA), which gives the U.S. president authority to enact economic measures typically reserved for the U.S. Congress.
“There is a significant court case going on now… it’s possible that the court will strike (the tariffs) down, but of course this president has a way of kind of working around court decisions… but we should expect that it’ll be a bit of a full tilt in 2026,” said Fagan.
Canada’s next moves
Although most Canadian exporters with U.S. customer bases are free to operate without tariffs for the time being, it remains unclear what moves Washington or Ottawa will make next in the ongoing trade conflict.
But those industries that export non-CUSMA compliant goods to the U.S. need relief as soon as possible, says John Boscariol, leader of the International Trade and Investment Law Group at McCarthy-Tétrault LLP.
“For our exporters in the steel, aluminum and auto sector and now copper, they continue to face sectoral tariffs, so they are continuing to be hurt by those tariffs,” he told BNN Bloomberg in a Tuesday interview.
“What we are anticipating hopefully is that, as this agreement is being negotiated, we’re going to see some kind of deal, some kind of resolution over those sectoral tariffs going forward and that’s really how we will judge whether this is a good deal or not.”
Many within the Canadian business community had been hoping for a new trade deal before last week’s deadline to ease the burden on companies impacted by current tariff rates. But it’s unclear if an imminent agreement is in the cards, Fagan noted.
“Conversations are continuing… the (U.S.) president and the prime minister are expected to talk this week,” he said. “(But) I don’t expect, and I don’t think many people expect a deal to be done soon with regard to Canada and the United States.”
Prime Minister Mark Carney has said repeatedly since taking office this spring that Canada needs to diversify its economic partnerships around the world and become less dependent on the U.S. in light of the trade developments this year.
But many of those partnerships are still in the early stages, and most Canadian exporters will continue to rely on U.S. markets at least in the near and medium term, Boscariol said.
“There is that opportunity to diversify and certainly the provinces are trying to do their part in reducing provincial barriers but in the short to medium term, we’re looking to these trade negotiations to provide some sort of relief or resolution,” he said.
While in search of that resolution, Fagan said that Canada’s leaders should rely on their strengths, which have always been different than those of their U.S. counterparts.
“Let’s be smarter than the U.S. is; we always are in negotiations,” he said, “that’s our superpower and I think we will be in the upcoming negotiations as well.”
