Canada will impose retaliatory tariffs on US goods as negotiations collapse
The United States imposed 50% tariffs on 20 billion dollars worth of Canadian products, and Canada said it would retaliate after last-ditch negotiations failed to resolve the latest strain in relations between the historic allies.
President Donald Trump’s import taxes will hit about 5% of what Canada ships to the United States every year, including products ranging from hockey sticks to tongue depressors.
Canadian Prime Minister Mark Carney said that “in the coming days, we will release the details of these new tariff measures, which will come into force the Tuesday after Labour Day”.
The dollar-for-dollar retaliation would target steel, dairy, appliances, agricultural equipment, pulp and paper and electronics, he said from Ottawa.
He disclosed that Canada had been willing to drop remaining retaliatory tariffs on steel, aluminium and autos if the United States substantially lowered its own, and to encourage provinces to restore US alcohol sales.
But he said Washington’s final demands went too far, saying, “They asked too much and offered too little”.
Mr Trump’s top trade negotiator, Jamieson 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”.
He added: “We’re moving forward with measures that respond to Canadian retaliation.”
The moves also call into question the future of a North American trade agreement covering the United States, Canada and Mexico that is crucial to industry in all three countries.
Mr Carney said the US 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”.
But Mr Greer, the US trade representative, said that after a year of retaliation by its longtime ally, “we’ve said enough, and so we’ve taken countermeasures”.
He said: “Our interest is in protecting American workers and protecting American supply chains.”
No further talks are planned.
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.
Mr Carney said Ottawa would “hit back” with targeted tariff protection for industries exposed to the new US duties, including some steel products.
Ontario Premier Doug Ford, who leads Canada’s most populous province, backed Mr Carney’s response, saying the prime minister had his “full support” for retaliation “tariff for tariff, dollar for dollar” and that “everything needs to be on the table”.
The political impact will likely be even bigger than the economic fallout.
The countries sold one another 80 billion dollars worth of goods and services last year.
The tariffs were initially supposed to kick in at 12:01am on Wednesday.
Mr Trump extended the deadline for three days to allow talks to continue, but the countries could not reach an agreement in time.
The US and Canada have wrangled for decades over trade, poking each other over sore spots such as Canadian softwood lumber imports and US 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 US-Canada border is undefended, and nearly 330,000 people and 2 billion dollars worth of goods cross it every day; 800,000 Canadians live in the United States.
Mr Trump’s approach to dealing with Canada marks an extraordinary departure from the traditionally co-operative relationship between the two countries.
The US president 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.
Mr Carney said Canada had recognised that “America has changed” and that the two countries would “not return to our old relationship”.
The Canadian public is fed up. A petition to expel US Ambassador Pete Hoekstra, an ally of Mr Trump, has collected nearly 248,000 signatures since July 21.
It accuses the former Republican congressman from Michigan of having “normalised” Mr 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 US 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.
Ryan Majerus, a partner at King & Spalding and a former US trade official, said: “Canada likely wanted further sector-specific relief than the US was willing to offer, or Canada’s concessions did not go far enough.
“Either way, I think both sides will be under immense pressure in the coming days to still find an off-ramp. But if Canada has agreed to also impose tariffs, the off-ramp may be even harder to find.”
Candace Laing, president and chief executive of the Canadian Chamber of Commerce, called the tariffs “a body blow to North American competitiveness” and warned they would raise costs for Americans while threatening Canadian customers, investment and small businesses.
Mr Trump has made tariffs the centrepiece 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 US 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 Mr Trump has looked for other legal authority to justify tariffs.
To punish Canada, he reached back to the Great Depression, invoking Section 338 of the Tariff Act of 1930 to threaten 50% tariffs on products that account for about 5% of Canadian exports to the United States.
Nearly a century ago, with the US and world economies in collapse, Congress passed the 1930 tariff law, imposing taxes on imports from around the world.
Known as the Smoot-Hawley tariffs after their congressional sponsors, they are notorious among economists and historians for limiting world commerce and making the Great Depression worse.
Section 338, which has never been used before to impose tariffs, authorises the president to slap import taxes of up to 50% on imports from countries that have discriminated against US businesses.
No investigation is required to justify the levies. Nor is there any limit on how long they can stay in place.
The rift comes as the United States, Mexico and Canada are trying to renew a trade agreement that Mr 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.
“Canada told the Americans in advance that if these tariffs landed, it would stop negotiating and retaliate,” said Barry Appleton, senior fellow at the Centre for International Law at New York Law School.
“The American trade representative said publicly he would not tolerate retaliation. Both sides have now committed themselves in public, which is how escalation stops being a choice.”
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