U.S., Canada Spiral Toward Trade War

TORONTO—After weeks of marathon talks between U.S. and Canadian trade officials, an agreement was almost in sight.

Late Tuesday, less than two hours before a slate of punishing new U.S. levies on Canadian goods were going to go into effect, President Trump announced a “DEAL” on social media and a three-day delay to give officials time to finalize the details.

Prime Minister Mark Carney said negotiators had made “substantial progress.” The Canadian minister in charge of U.S.-Canada trade, Dominic LeBlanc, and U.S. Trade Representative Jamieson Greer were all smiles as they stood side by side outside Greer’s office the next day and told reporters they had resolved several issues in the bilateral relationship and a deal was close.

But late Friday, the talks collapsed at the 11th hour—sending U.S.-Canada relations into a tailspin, raising the prospect that the dispute between neighbors with a nearly $900 billion-a-year trading relationship could escalate into an all-out trade war and renewing questions about the future of the U.S.-Mexico-Canada Agreement.

The two sides blamed each other for the collapse.

Shortly after 11:30 p.m. on Friday, Greer said Canada walked away from the table and had made new demands, without specifying what those were. He said Canada rejected a deal that he said offered it “the best treatment of any major exporter to our market.” As a result, tariffs of 50% on $20 billion worth of Canadian goods, or about 5% of its U.S.-bound exports, went into force after midnight.

Carney said Canadian officials worked “in good faith” on a deal, but it was the U.S. that proposed new terms that were “unfair,” compromised Canada’s sovereignty and revealed the limits of U.S. “commitments to a true economic partnership.” Canada, he added, would slap dollar-for-dollar countertariffs on U.S. goods such as steel, dairy and appliances on Sept. 8, the day after Labor Day.

“Last spring, I warned that America is trying to break us so they can own us and I promised that that will never, ever happen,’ ” Carney said at an hourlong news conference on Saturday morning in Ottawa. “We are keeping that promise. Canada is becoming stronger and less dependent on America.”

The White House, Commerce Department and Office of the U.S. Trade Representative didn’t immediately respond to requests for comment. Greer on Saturday repeated an oft-made complaint of the Trump administration that the U.S.’s northern neighbor is among a handful of countries that have retaliated against the president’s tariffs.

The U.S. had offered to “cut the tariffs on them,” he said in an interview with “Fox & Friends Weekend” on Saturday. “They’ve always had the best deal, and they still would have an even better deal, but they didn’t want that.”

The dispute was poised to further unravel already-deteriorating ties between the neighbors. Since returning to the White House, Trump has imposed tariffs on Canadian goods, repeatedly questioned Canada’s viability as a country and threatened to make it the 51st state. The threats and economic aggression have infuriated Canadians, who’ve boycotted U.S. travel and goods.

Carney on Saturday said the tariffs constituted an “attack” on Canada. “You’re at war when you get attacked,” he told reporters, “and we got attacked.”

Trump turned to a never-before-used provision of a Depression-era law to impose the new tariffs on Canada. He said last month that the levies would be imposed in response to bans from most of Canada’s provinces on American alcohol, protections for its domestic dairy industry and quotas and tariffs on some U.S. vehicles.

Many of those measures were implemented by Canada last year in retaliation for earlier tariffs imposed by the Trump administration, including sector-specific levies as high as 50% on automobiles, steel, aluminum and forestry products. Canadian officials and trade law experts view those levies as a violation of the USMCA, which Trump negotiated during his first term.

The threat last month of new tariffs led to a flurry of high-level meetings between officials from both countries. Carney has long said that he won’t accept a “bad deal,” an approach that polls show has broad support from Canadians. On Saturday, the contours of the disputes that led to the last-minute collapse in talks were coming into focus.

Canadian officials sought a deal that would avert the new tariffs and substantially ease the already-existing duties. In exchange, the country was prepared to concede to several U.S. demands, including removing retaliatory tariffs on U.S. autos, steel and aluminum. Carney would also push provincial leaders to end their bans on U.S. alcohol.

Shortly after Trump extended the tariff deadline, negotiators were near a deal: The U.S. would lower tariffs on steel and aluminum from 50% to 25% and ease top-line automotive tariffs from 25% to 15%, according to people familiar with the discussions. But pushback from U.S. industry and acrimony within the Trump administration helped derail those critical aspects of the deal.

In particular, some domestic producers of aluminum products argued that while tariffs on primary aluminum could be decreased, the U.S. should maintain 50% tariffs on downstream products made with the metal, people familiar with the talks said.

Commerce Secretary Howard Lutnick took up their cause internally, the people said, arguing the U.S. should take a harder line on the sectoral tariffs, which his agency administers. Lutnick’s involvement in the trade talks worried people in Canada, people familiar with the negotiations said. In the past, he has said Canadians “suck” and criticized their negotiating strategy.

The U.S. then floated proposals that would have maintained high tariffs on some downstream metal products, including those made from aluminum, as well as set quotas for the amount of steel that could come into the U.S. under lower tariff rates. The conflicting proposals ultimately led the entire agreement on sectoral tariffs to unravel, the people said.

Carney on Saturday declined to comment directly on whether Lutnick was an impediment to a deal. He did, however, indicate that there were differences in opinion between U.S. negotiators. While the Canadian negotiating team was unified, the prime minister said, “you cannot say that about the United States administration.”

Carney detailed several other alleged last-minute demands that he said the country wouldn’t agree to. They included weakening Canadian protections for the French language and culture and restricting Canada’s efforts to strike trade deals with other countries. “It’s a power play,” Carney said, and it “becomes a question of sovereignty.”

Another sticking point was automotive tariffs. The U.S. currently allows automakers to receive rebates from tariffs for the amount of U.S. content in their vehicles; Canada and Mexico have pushed for those rebates to be expanded to all North American content. But U.S. officials were resistant.

And at the last minute, Carney said, U.S. negotiators sought to exempt medium and heavy trucks from the auto tariff relief without “giving a rationale.” That constituted a “big change, obviously,” he added, and would have made the production of automobiles in Canada “more uneconomic over time.”

“In short,” Carney said, “they asked too much and they offered too little.”