Source: Fortune.com
Summary
The U.S. and Canada escalated a trade war with new tariffs, blaming each other for failed negotiations. The U.S. imposed 50% tariffs on $20 billion in Canadian goods, while Canada set Sept. 8 as the start of its retaliatory measures. Prime Minister Justin Trudeau accused the U.S. of using economic integration as a weapon, while U.S. trade negotiator Jamieson Greer said the tariffs were necessary to protect American workers. The dispute threatens the future of the USMCA trade agreement and raises concerns about economic and political fallout.
Our Reading
The numbers tell one story.
U.S. and Canada trade war escalates with new tariffs.
Each side blames the other for failed talks.
Trump uses Depression-era law to justify tariffs.
Trade agreement future in doubt.
Author: Evan Null
Historic Allies in a Trade War
The United States and Canada, historic allies with an undefended border, are now locked in a trade war marked by angry recriminations and new tariffs. The dispute has escalated after failed negotiations in Washington, with the U.S. imposing 50% tariffs on $20 billion worth of Canadian goods and Canada setting Sept. 8 as the start of its retaliatory penalties.
President Donald Trump’s import taxes will hit about 5% of what Canada ships to the U.S. annually, ranging from hockey sticks to tongue depressors. Prime Minister Justin Trudeau accused Washington of using “economic integration as a weapon” and said “its signature was written in pencil.”
U.S. trade negotiator Jamieson Greer said the administration was compelled to act after a year of retaliation by its longtime partner. “We’ve said enough, and so we’ve taken countermeasures. Our interest is in protecting American workers and protecting American supply chains,” he said.
The breakdown in negotiations has raised concerns about the future of the USMCA trade agreement, which is crucial to industry in all three countries. Trudeau said the failed talks gave Canada “a new perspective” on what Washington wants from the broader economic relationship.
The political impact of the trade war is likely to be even bigger than the economic fallout. The countries sold each other $880 billion worth of goods and services last year, and the tariffs were initially supposed to kick in at 12:01 a.m. Wednesday.
Unacceptable Demands and Tariff Tactics
Trudeau said Canada had been willing to drop remaining retaliatory tariffs on steel, aluminum, and autos if the U.S. substantially lowered its own. But he said Washington’s final demands went too far. “They asked too much and offered too little,” Trudeau said.
Greer said the Republican administration was offering to cut tariffs on steel, autos, and lumber, “things that are sensitive for them. And they’ve always had the best deal, and they still would have an even better deal, but they didn’t want that.”
Carney said the U.S. added last-minute terms that would have reduced tariff relief for Canadian-made vehicles, restricted Canada’s ability to strike trade deals with other countries, and weakened protections for language, culture, and sovereignty.
He said such demands were “unacceptable.” 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.
Ontario Premier Doug Ford praised Trudeau for rejecting the deal, saying it would have hurt Ontario’s auto, steel, and manufacturing sectors. Ford urged Canada to use “every tool in our toolbox” to fight the U.S. tariffs.
A Typically Cooperative Alliance Goes Sour
The political impact will likely be even bigger than the economic fallout. The countries sold each other $880 billion worth of goods and services last year. The tariffs were initially supposed to kick in at 12:01 a.m. Wednesday. Trump extended the deadline for three days to allow talks to continue, but the countries could not reach an agreement in time.
The U.S. and Canada have wrangled for decades over trade, poking each other over sore spots such as Canadian softwood lumber imports and U.S. 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 U.S.-Canada border is undefended, and nearly 330,000 people and $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 imposed tariffs on Canadian goods in a push to bring manufacturing back to the United States and made inflammatory comments about turning Canada into America’s 51st state.
Trudeau said Canada had recognized 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 U.S. Ambassador Pete Hoekstra, a Trump ally, has collected nearly 248,000 signatures since July 21. It accuses the former Republican congressman from Michigan of having “normalized” Trump’s talk of annexing Canada, among other things.
The two countries had good reasons to find a compromise. Nearly 72% of Canada’s goods exports last year went to the United States. The Trump administration might be wary of imposing new tariffs — paid by U.S. importers who try to pass along the cost to consumers via higher prices — before the November midterm elections.
American voters are already frustrated with the high cost of living. “Both sides will be under immense pressure in the coming days to still find an off-ramp,” said Ryan Majerus, a partner at King & Spalding and a former U.S. trade official.
Joshua Bolten, CEO of the Business Roundtable, which represents leaders of major U.S. companies, warned the tariffs and retaliation risk “raising costs for American businesses and families” and disrupting vital supply chains, and urged both governments to resume negotiations.
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.
Trump Has Turned to Depression-Era Trade Penalties
Trump has made tariffs the centerpiece of his second-term economic agenda. Last year, he imposed double-digit import taxes on almost every country, justifying them by declaring the long-standing U.S. trade deficit a national emergency. The Supreme Court in February ruled that he had overstepped his authority. The justices struck down the trade penalties and set the stage for the federal government to pay refunds to importers.
So Trump has looked for other legal authority to justify tariffs. After the Supreme Court struck down much of Trump’s earlier tariff program in February, the administration turned to other legal authorities. For Canada, Trump invoked Section 338 of the Tariff Act of 1930, a rarely used Depression-era provision allowing tariffs of up to 50% against countries deemed to discriminate against U.S. businesses.
The provision is part of the Smoot-Hawley tariff law, widely blamed by economists and historians for worsening the Great Depression by restricting global trade. Section 338 has never previously been used to impose tariffs.
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, known as USMCA. But talks with Canada have not begun and escalating trade conflict casts doubt on whether they will.
The story highlights the growing tension between two historic allies and the use of outdated trade laws to justify new tariffs, signaling a shift in the relationship between the U.S. and Canada.
