Trump didn't chicken out. So what's Canada's next move?

Yahoo

2 days ago

Canada has now learned that the derisive acronym TACO — often slapped on U.S. President Donald Trump — is inaccurate and needs to be tweaked to something more like "Trump (Almost) Always Chickens Out."
Despite putting decidedly lower tariffs than he'd threatened on dozens of countries around the globe and giving Mexico a 90-day reprieve from his threat to raise its tariff rate, Trump singled out Canada for an increase.
While there's no way that Canada can characterize what happened as a win, there's plenty of evidence that it's not a reason for Prime Minister Mark Carney's government to panic and do something that jeopardizes what really matters for the Canadian economy: tariff-free access to the U.S. for the vast majority of exports.
The key evidence backing this perspective comes in the economic number-crunching showing the actual impact of Trump's tariffs on the whole of Canada's exports to the U.S, what's called the effective tariff rate. Think of it as an average, weighted by the value of Canadian goods going across the border.
Different economists have slightly different estimates, but even with the increase Trump announced Thursday night, there's consensus the effective tariff rate for Canada is down in the single digits, noticeably lower than the rate for any other major trading partner.
That's because despite Trump's bluster, he's allowing the vast majority of Canada's exports into the country with zero tariff under the terms of the Canada-U.S.-Mexico Agreement (CUSMA).
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Experts and business leaders say Canada's trade negotiators and federal government need to be laser focused on maintaining that tariff-free access through CUSMA, especially since the deal is soon up for review.
Goldy Hyder, president and CEO of the Business Council of Canada, says a bigger issue than Trump's incremental increase of the tariffs is the way Canada is struggling to "find a way forward" in its negotiations with the U.S.
'The conversation that we should be having'
"I am hoping this is an opportunity to reassess and to some extent reset where we are and where we need to get to for the longer haul," Hyder told CBC's Katie Simpson in an interview Friday.
While Hyder says he has empathy for Carney's government as it tries to navigate the uncharted waters of dealing with Trump 2.0 on trade, he's questioning whether its negotiating strategy has been aimed at the correct target.
Canada must assess what it needs to do "to get into the conversation that we should be having, which is first and foremost: how are we going to review and renew the USMCA?" Hyder said, using the U.S. government's preferred acronym for the trade deal.
The text of CUSMA calls for a formal review starting in July 2026, but consultations between the three countries are expected to begin this fall.
As Trump levies blanket tariffs on nearly every other major trading partner, observers are increasingly pointing to the big tariff exemptions Canada is getting from CUSMA as a major competitive advantage.
That creates a rather hefty source of motivation for the Carney government to make solidifying CUSMA the long-term goal of its talks with the Trump administration.
The eternal question: Trump's real motivation for the tariffs
On the other side of the border, there's a view that a significant driving force behind Trump's tariff tactics with Canada is gaining leverage in those CUSMA renewal talks.
Although Department of Justice lawyers have been arguing in court that stopping the flow of fentanyl from Canada — as minimal as it is — justifies the tariffs, trade policy expert Inu Manak of the Council for Foreign Relations in Washington, D.C., says she believes there's no way that's really what's motivating Trump.
"I do think a lot of this has to do with some sort of renegotiation of parts of the CUSMA deal that the Trump administration is not happy with," Manak told CBC News Network on Friday.
Although Trump hit Canada with a tariff increase, Manak isn't criticizing Canada's negotiating tactics.
"There's no really good way to go about doing this," she said. "We've seen variation in approaches and no matter what, everyone seems to be getting hit with tariffs."
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CUSMA and its tariff-free access must remain the focus for Canada, says John Manley, a former Liberal deputy prime minister, now chair of chair of Jefferies Securities, a global investment banking firm.
"The big game is the 93 per cent of Canadian goods that cross the border currently tariff-free under USMCA," Manley told CBC News. "That is what we need to protect."
To retaliate or not?
Even if the CUSMA renegotiation is what matters most in the long term for Canada, the Carney government also has to think about what its immediate next steps should be.
Perhaps the most immediate question along those lines for Ottawa is whether to retaliate or not.
Brian Clow, who served as former prime minister Justin Trudeau's deputy chief of staff and led his "war room" on Canada-U.S. trade relations, describes himself as a fan of retaliation, but is not advocating for Carney to fire back at Trump in this instance.
"I do think [Carney and his team] need to stop and consider whether to further retaliate right now, given Canada is standing on its own, and the rest of the world is not standing with us," Clow said Friday in an interview with CBC News.
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Carney's government also needs to think about what it can do about the tariffs that are actually having the biggest impact on Canada right now: the sectoral tariffs of 50 per cent on steel and aluminum and 25 per cent on the non-U.S. content of assembled automobiles.
"Maybe there's one more step towards the American ask that we can take — that we can live with — that can close this deal," Clow said.
The signals from Carney's team suggest the plan is to keep on keeping on.
Dominic LeBlanc, the minister responsible for Canada-U.S. trade, said Friday that he and Commerce Secretary Howard Lutnick, Trump's point man on tariffs, agreed to speak by phone next week and arrange for a meeting later in August.
"We'll continue to talk to the Americans," LeBlanc told reporters in Washington. "The United States will continue to be our neighbour, continue to be our most important economic and security partner."
Both LeBlanc in his scrum and Carney in his statement acknowledged the need for the government to help the steel, aluminum and auto sectors. Getting carve-outs or reductions of those tariffs will no doubt be an objective as the talks with Team Trump progress.