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There is less than a day to go until the target date for a tariff deal between Canada and the United States — but both Prime Minister Mark Carney and U.S. President Donald Trump are indicating that a deal is unlikely before Friday.
Some economists say reaching a deal quickly is crucial, but not “fundamental” to Canada’s economic prospects for the year.
In July, Trump delayed his slew of global “reciprocal” tariffs, including those on Canada and Mexico, to Aug. 1 with the intention of signing individual trade deals with hundreds of countries.
Later that month, in a letter to Carney posted to Truth Social, Trump threatened a 35 per cent tariff on “Canadian products sent into the United States, separate from all Sectoral Tariffs.”
“If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by, will be added onto the 35 per cent that we charge,” the letter adds.
This would raise the tariff on Canadian exports to the U.S. that are not compliant with the Canada-U.S.-Mexico trade agreement (CUSMA) to 35 per cent – not including tariffs on specific sectors, like automobiles, steel and aluminum.
The new tariff would take effect on Aug. 1, Trump said.
White House press secretary Karoline Leavitt said on Thursday that Trump could still ink some last-minute deals.
“If more deals are cut between now at midnight, I will never count out the president. You’ve seen him do it before. He cut three deals in one day very recently. So we’ll see what happens. I do know foreign leaders are ringing his phone, realizing this deadline is a real thing for them tomorrow, and they’re bringing offers to the table,” Leavitt told reporters.
On Thursday, Trump announced that he had spoken with Mexican President Claudia Sheinbaum and extended trade negotiations with Mexico for another 90 days.
He did not mention Canada in his post.
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If a deal is not reached by Friday, all indications are that those threatened 35 per cent tariffs will kick in at midnight. But that does not mean the negotiations will collapse.
“Deadlines are only deadlines in circumstances like this if the parties agree that they’re a deadline. There’s nothing in law that makes this a deadline, so they could easily continue negotiating through the weekend or even next week if they think they’re making progress,” said Drew Fagan, professor at the University of Toronto’s Munk School of Global Affairs and Public Policy.
With a six per cent effective tariff rate, Canada’s economy could potentially start recovering by the end of the year, even with higher tariffs, said Sal Guatieri, director and senior economist at BMO Capital Markets.
“It does hurt, but it’s manageable and something that Canadian businesses ultimately could adjust to and live with.”
The reason the effective tariff rate on Canada is relatively low, at six per cent, is that goods that comply with CUSMA were exempt from Trump’s broad-based tariffs in April.
“We don’t have a recessionary outlook again for later this year. If CUSMA exemptions do hold, which is what we’re expecting right now, we don’t expect there will be significant changes to the outlook either,” said Claire Fan, senior economist at RBC.
While Canada is expecting a trade deal with some tariffs, Fan said CUSMA exemptions might help Canada avoid a worst-case scenario economic downturn since it puts it ahead of the U.S.’s other major trade partners.
“Is it ideal? Absolutely not,” Fagan said. “Is the damage that we feared from the trade action the president is taking as bad as we feared it might be? No, it’s not.”
However, business groups in Canada are worried that this will only extend the cloud of uncertainty that has hung over North American trade over the last few months.
“While missing the August 1 deadline would not preclude further negotiations, it would increase the risk of further entrenching the emerging status quo – a North American trade environment that features significant U.S. tariffs on major Canadian industries and the persistent threat of new unilateral U.S. trade actions,” said Gaphel Kongsta, director of international policy at the Canadian Chamber of Commerce.
Overall, however, Canada’s economy could deal with an entrenched negotiation, Fagan said.
“This is not the main event in terms of Canada-U.S. negotiations. For other countries or regions like the EU and Japan and other countries, this was fundamental negotiation,” Fagan said, adding that the CUSMA review due for next year is more crucial to Canada.
“The prime minister is drawing out these negotiations, given these circumstances. And I think it’s probably a smart thing to do,” Fagan added.
Ontario Premier Doug Ford spoke to reporters Thursday, urging Carney not to “roll over” in the negotiations.
“We buy more products off the U.S. than Japan, Korea, China, the U.K. and France combined. I wouldn’t roll over. I told the prime minister: fight back as hard as we possibly can,” Ford said.
“We’re going to win this thing, one way or another, we’re not going to go down and roll over. We’ll keep fighting every single day.”
Speaking to reporters on Wednesday, Carney said a deal had not yet been reached.
“We’re seeking the best deal for Canadians. We have not yet reached that deal. Negotiations will continue until we do,” he said.
“It’s possible that they (trade talks) may not conclude by the 1st of August,” Carney said at a press conference where he announced Canada’s intent to recognize a Palestinian state by September, “predicated” on several key democratic reforms.
Trump escalated the situation on Thursday morning, saying Canada’s decision to recognize a Palestinian state would affect trade talks.
“Wow! Canada has just announced that it is backing statehood for Palestine. That will make it very hard for us to make a Trade Deal with them,” Trump said on Truth Social.
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