Front Burner - What’s behind Trump’s latest Canada threats?

Episode Date: February 5, 2026

Last week the U.S. Treasury Secretary Scott Bessent issued a very public warning to Prime Minister Mark Carney. At the centre of that warning is the USMCA trade deal, which kept Trump’s tariffs from unleashing even deeper damage to the Canadian economy. A mandatory review of the US-Mexico-Canada pact is kicking-off now. It has turned into a high stakes negotiation, with the U.S. poised to squeeze Canada and Mexico and to use the negotiation itself as leverage to advance the administration’s interests. Today, trade expert Eric Miller is back to talk about where the trade talks are headed, what the Americans are hoping for, and what would happen if the deal got ripped up altogether.  Miller is the president of Rideau Potomac Strategy Group and a fellow at the Canadian Global Affairs Institute. For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

If you experienced harm while admitted to a federal Indian hospital between 1936 and 1981, you might be eligible for compensation. The claims period is now open and free supports are available to help you submit your claim. Learn more at www.IH.settlement.ca. Or call 1-888-592-9101. This is a CBC podcast. He rose to power on an anti-American anti-Trump message. And that's not a great place to be when you're negotiating with an economy that is multiple

larger than you are. I would not pick a fight going into USC to score some cheap political points. So this is U.S. Treasury Secretary Scott Besson last week, talking about Prime Minister Mark Carney, issuing a very public warning. At the center of that warning is the USMCA trade deal, which kept Trump's tariffs from unleashing even deeper damage to the Canadian economy. A mandatory review of the U.S.-Mexico-Canada pact is kicking off now, and the deadline to resign is July.

It has turned into a high-stakes negotiation, with the U.S. poised to squeeze Canada and Mexico and to use the negotiation itself as leverage. for whatever else they want from us, too. Such as backing off deals with China. Here's U.S. Commerce Secretary Howard Lettenen. The Canadians have the second best deal in the whole wide world. If they continue this path, right, which is a political path of a certain thing,

I'm going to go fly to China. I'm going to open up my markets to China. I'm going to take Chinese electric cars and do all sorts of this stuff. Then when U.S.MCA gets renegotiated, do you think the president, United States is going to say, you should keep having the second best deal in the world. Or making sure Canada buys American F-35s. Here's U.S. ambassador to Canada, Pete Hochstrap. If they change and decide we're going in a different way, then the folks at NORAD, which is a combination of American and Canadians, would have to say, okay, we're going with an inferior product that is not as interchangeable, interoperable as what the F-35 is, that changes are. you know, defense capability. And as such, we have to figure out how we're going to replace that.

Today, we wanted to get trade expert Eric Miller back up to get some clarity on where these USMCA talks are headed. What are the Americans gunning for and what would happen if the deal got ripped up altogether? Eric is the president of the Rito Potomac Strategy Group and a fellow at the Canadian Global Affairs Institute. There's a lot to go through here, so let's get right to it. Eric, hey, it's always great to have you on the show. Thanks for making the time. Jamie, thanks for having me back. So first, it certainly seems like these big players in the administration,

I'm thinking of Besson, Lutnik, have been talking a lot more aggressively about Canada in the last couple of weeks. I mentioned a few clips in the intro there. Bessent took direct aim at Carney recently. So I would just encourage Prime Minister Carney to do what he thinks is best for the Canadian people, not his own virtue signaling. Letnik talked about how he's a whiner. They have the second best deal, because Mexico's got a little better deal. They have 25% on the extra 15%, whereas Canada's got 35% on the extra 15%.

But give me a break. They have the second best deal in the world. And all I've got to do is listen to this guy whining complain. Mr. Secretary, in fairness. Hoekstra has dismissed Canada entirely. What is it, Ambassador Hoekstra? Do you need us or do you not need us? Well, I think the key operative word is need.

All right. No, we do not need Canada. Have we taken the framework? Do you think that we're getting these more antagonistic comments directed at us because they're being asked about Canada more, post-Carnie speech, post-China deal? Or do you think that they're laying the groundwork for something here? So certainly they're seeing a lot more of Canada in the circles in which they're. run. Mark Carney's speech was incredibly consequential. And of course, if you're the United States and you are approaching this as a, as a revisionist power, I mean, Donald Trump ran on being a disruptor and he

has been a disruptor domestically and internationally, you are going to see someone like Mark Carney pointing out the divergences in the system, the ruptures, as he put it, as something that's unhelpful. Because the U.S. at the same time is trying to negotiate many, many, many deals with many, many people. And so the U.S. is reacting in a way that is both, in some sense, is understandable from their perspective, given that their underlying project of changing the system has been challenged, but also it is seeking to use this as leverage going into the Canada-U-S-Mexico agreement or U.S.MCA agreement, as many call it. Right, right. You think they're also making these comments because we're heading into these

negotiations. 100%. Yeah. Yeah. All right. Let's talk about these negotiations and what we might see, right? We have this deadline coming up in July to re-sign the trade deal. And formal talks between the U.S. and Mexico have started already, though talks between

Canada and the U.S. have not begun yet, but apparently we've been told that they're coming soon. Just for clarity, what is the purpose of these talks driving to this deadline? So in the original USMCA or Kuzma agreement is a requirement that there be a review after six years. And the agreement says that there will be a review. Is everything working the way it should? Are there changes that are needed or not? And if every country were to say that, yes, the agreement's working well, we're happy with it, then it can get renewed for another 16 years. so taking you to 2042. If there is not an agreement to renew for 16 years, then you go into a series of annual review processes. So if nothing is agreed on July 1st, 2026, the agreement does not

disappear. The way that the agreement is written is that you have a series of 10 annual review processes. But the way many people are thinking about Trump would approach this is that this is an opportunity for him on an annual basis to extract more and more concessions from trading partners. And so some take a skeptical view in the sense that they would agree to a 16-year review because Donald Trump very seldom ever leaves the bits of leverage on the table. Right, right. I mean, I've heard lots of experts say that the most likely outcome here is going to be that we enter into this year-by-year, kind of zombie USMCA agreement, right? I guess that the last, Last of us was filmed in Alberta and British Columbia, so it is somewhat appropriate.

Are you concerned that Mexico has started talks before us? No, I'm not. Mexico has taken a very different tact with the U.S. than Canada has, but there are a number of very significant differences. Mexico has not retaliated, but then again, Mexico has not faced the sort of rhetoric around annexation, 51st state, whatever you want to call it, that Canada has, has. Mexico has not faced that. Mexico has faced the threat that the U.S. military would bomb or otherwise attack the cartels in Mexico. We've knocked out 97% of the drugs coming in by water,

and we are going to start now hitting land with regard to the cartels. The cartels are running Mexico. It's very, very sad to watch. But that's a very serious matter, but it's a different one than outright annexation. Let's get into what you think the U.S. is going to try to extract from us as these talks move along. I saw Bessent say that he thinks that we'll eventually get to some kind of agreement, but it's not going to be a straight line. So what I want to do with you today is get a sense of what will deviate, I guess, from that straight line. I hear people talk about irritants a lot. And so maybe we should start with dairy.

Trump has been complaining about supply management for a while. They want to send their dairy to us. And what could happen there? What could they try to do there? Well, certainly what the United States would like on dairy is a full opening of the market. The challenge that you have from the U.S. perspective is that they have massive surpluses of fluid milk. And fluid milk is such that you can't ship it to Europe or Asia. It's not really conducive because of spoilage and costs and so on. So Canada is really the only market where you could send that milk. And so they would like to see a full opening of the Canadian dairy market. Canada, on the other hand, has had a supply management regime for over 50 years. It has kept prices stable. It has kept many producers who are not the largest in business. And this is not only important from a political perspective, you know, i.e. there are, if you look at where the quote is allocated, you have roughly 80% of the quota that is allocated in Canada annually for dairy, split between Ontario and Quebec. And there's a big industry and production infrastructure there. And there's a lot of votes in those regions.

Important writings, yeah. Absolutely. But at the same time, there's also major financial connectivity here. So you've seen billions of dollars extended in credit to dairy farmers over the years or upgrades to their facilities or to buy feed or whatever it is. And so the value of those loans is underpinned essentially by the value of the quota. And so if you don't have the quota, then those dairy farmers are not able to access capital. And you'd also have to go through and do a major financial workout in terms of what happens to the loans that are outstanding with the value of the underlying asset that they're based upon,

suddenly diminishes. And of course, at the same time, you would also see a significant number of dairy farmers in Canada go at a business. Now, if you're on the processing side, if you're trying to make ice cream or trying to make yogurt or whatever it is, you would like to have access to cheaper feedstock of milk. But right now, Canada has prioritized and continues to prioritize supporting the continued existence of large numbers of dairy farmers on the front end. And in fact, in Parliament recently passed a bill which prohibited the Minister of Trade from negotiating further quota concessions in the dairy space. And so it's not just that Canada may not want to do this politically.

There's also that matter of a law which prohibits further concessions on dairy, which the government would have to figure out how to now. if that's what it wanted to do. Right. So this is highly, highly, highly unlikely that we would budge on this, is what you're trying to say. It wouldn't be a point that I would make a major bet on because the complexities, both political and economic, are very tricky. But I could foresee a scenario where the U.S. essentially does a brinksmanship maneuver where they say, either you give us 10% on dairy

or there's no agreement. But Canada will work vigorously to try to not have to make those concessions, but it doesn't mean that the dynamics in the negotiation won't lead to some hard decisions in this space. The claims period is now open and free supports are available to help you submit your claim. Learn more at www.IH.settlement.ca. Or call 1-888-592-9101. Look, chances are your algorithm is still locked into everything that happened to this year's Grammy Awards. So let's talk about it. I'm Alameen and this week on Kammer. I'm assembling the group chat to talk about the big winners and the surprises that no one saw coming and the snubs that people are upset about from music's biggest night.

Find and follow commotion with Elamene Abdu Mahmoud on YouTube, Spotify, or wherever you get your podcasts. The other space, it seems to me, is the auto industry. Trump has been pretty clear that he doesn't want cars made here, right? He wants cars made in the United States. Canada wants it. They need it because we don't need Canada products. That's a thing. You know, I want to be a nice person, but we don't need. I want to build the cars here, not in Canada.

And so how does that translate? What is it that they're going to try and do there? So there's a high-level statement that says, we don't need any cars from Canada that came out of the president's mouth. But fundamentally, the auto industry in North America has been heavily integrated for 100 years and really intensively integrated since the mid-1960s. Now, in practical terms, Mexico is a huge supplier of parts. They have a big assembly industry. Yeah. So if the agreement were to be broken into two, for example,

so you've heard Ambassador Jameson Greer say, well, maybe we won't have a trilateral, we'll have a bilateral. My sense going forward is we're going, we're already talking to them separately. Sure. I have not, I have not had a meeting this year where I sat with Canada and Mexico in a room and we sat together and talked about USMCA. So when you start picking. apart this system, it gets very, very difficult. But the actions by the U.S. are certainly putting significant pressure on the system as it has existed. And so the Carney government is hard at work looking at other ways to underpin and safeguard the market. And among the things that the thinking is

around is, well, how do you use the fact that Canada is a 2 million unit per year market? That means that on average, two million new cars are sold per year in Canada and try to say, well, the U.S. is advantaging U.S. content. How do we make sure that people who are selling in Canada are actually using Canadian content in their vehicles? And so there's a lot of work to be done and a lot of thinking about how do you advantage Canadian content as the U.S. continues to advantage U.S. content. Yeah, and I know on Thursday, right, we signed an auto deal with South Korea. Canada has signed a memorandum of understanding with the Southeast Asian country, which includes talks on bringing South Korean auto manufacturing to Canada.

Now, that could include vehicles, parts, or batteries, a trade delegation including... Does that fit into what you're talking about? Absolutely. So right now, if you look at Kia and Hyundai, you take the Hyundai Santa Fe, for example, which I believe is made in Montgomery, Alabama. So if you take a vehicle like that, fundamentally they're not using very much Canadian content. So if you're thinking about a post-Kuzma, post-USMCA, North American auto sector, you're thinking if you are the South Koreans, well, maybe I'm not going to be able to get my Kiyas and Hyundai's into Canada duty-free quota-free anymore. So maybe I need to do what Toyotas did in the 1980s and think about localizing production, not in the region, but in the markets. I sell in, and that includes in Canada. And so the Korean move, I think, is really very strategic.

It could be very positive for incentivizing uses of the Canadian automotive supply base. But that's really what lays behind it, because if free trade in North America breaks down, a vehicle which has next to no Canadian content coming out of the southern United States is going to have a hard time not paying duty going into Canada under that scenario. I think this kind of leads into my next question for you, which is also jumping off something that U.S. Trade Representative Jamison Greer has brought up, which is the creation of this kind of customs union, this idea that USMCA or QSMA countries would make deals together with other countries instead of on their own, right? Which is opposite to what Carney has been doing, right? In China, in Qatar, in India. with South Korea, too. And it? Also counter to what he advocated for

in his speech of Davos. Great powers can afford for now to go it alone. They have the market size, the military capacity, and the leverage to dictate terms. Middle powers do not. But when we only negotiate bilaterally with a hegemon,

we negotiate from weakness. We accept what's offered. We compete with each other to be the most accommodating. Could this become a real sticking point during the negotiations, the idea that the Americans are going to tell us to stop making these deals on our own? First of all, historically, the reason why the North American Free Trade Agreement looked the way

it did and did not look like the European Union is because none of the three countries wanted to cede the sovereignty necessary to have a customs union. They wanted to have policy autonomy. The Americans wanted that. The Mexicans wanted that. And Canada wanted that. And so this would mark a real shift in how things have always been done in North America. It doesn't mean that it won't change, but we have to recognize that this would be a major point of departure.

At the same time, you also have the concerns that Mark Carney laid out in Davos about being too dependent on particular markets. and certainly Canada's trade diversification agenda is such that it is looking to become less dependent on the U.S. than more dependent. And it's looking for that autonomy. And so when we think about the China deal, which has got a lot of attention, I think it's important to compare that to the deal that the United States made with China in the middle of last year. So Donald Trump had a real problem in April of 2025, the Chinese, cut off exports of rare earth magnets. And the U.S. needed to get that market open. So that market was open with a series of policy measures, which included moving away from tariffs on certain agricultural

products and things of that nature. Similarly, Canada wanted to get the tariff off of Saskatchewan canola and off of Nova Scotia lobsters. And so you had the same sort of process. So the deal that Mark Carney reached with China in many respects was the same sort of problem-solving deal. Now, in the Kuzma Agreement itself, there is a provision number 3210, Article 3210, which says that countries that are party to the agreement may not negotiate a free trade agreement with a non-market economy. And that was put in in the context of Justin Trudeau going to China to try to negotiate a free trade agreement, which happened before the imprisonment of the two Michaels and all of the things that flowed. And so what Mark Carney has done with the deal with China, and certainly with deals with

Qatar and others, are far, far away from there being a pre-trade agreement. That being said, the China deal, which got almost no notice before Mark Carney went to China, has gotten a lot of notice afterwards. And so the U.S. will try to use this as a point of pressure, but I ultimately don't think that this will be something that the U.S. will be able to pull up because there are elements that the U.S. would have to give up to Canada and Mexico in terms of decision-making. You'd have to have some sort of joint management process of the customs union. And the U.S. doesn't want Canada or Mexico telling them how to run certain aspects of their policy. And that's always been the core problem. So it's an idea from Jameson Greer, which is understandable, given the context

in which he's operating, but it has no historical foundation. And practically speaking, will run into the same political obstacles and concerns about sovereignty that this proposal for Customs Union in North America has always run into. Another kind of irritant I keep hearing about is this push to scrap these review panels, right? Basically, it's like this panel that settles disputes between the countries. This is something that U.S. lumber coalitions are gunning for scrapping these dispute panels. And could that be sort of a top-level item at the negotiating table? Could this be a real problem moving forward?

It could be. So if you go back to the Canada-U.S. Free Trade Agreement, the single last issue that was negotiated, and there was some explicit language used between James Baker, the Treasury Secretary and Prime Minister Mulroney, so it's not appropriate for family programming. But they essentially, in the end, the U.S. had to concede that Canada would get its dispute settlement panel because Mulroney called Reagan and Reagan agreed to it. So Canada has sought over time to protect all forms of dispute settlement and review in the agreement because they're not based on power. It's based on the text of the agreement says X or Y. Therefore, you need to do X or Y. Now, there was a ruling, a very technical one on automotive

rules of origin, which the U.S. lost, which they never applied. And so you've seen a certain erosion of a U.S. willingness to continue to go along with this kind of legalistic consensus around how do you deal with disputes? Yeah. Well, what good is the dispute panel if the parties are not actually carrying through with the decisions of the objective arbiters of what the agreement means and doesn't? If we, Canada, backs down on something or gives them something, what do you think it's going to be? So I think in a lot of plays where Canada is, is they're thinking about how do I keep the superstructure in place?

So how do I make sure that I am running as much of my trade as possible based on a quote-unquote objective set of rules about how things work and how they're supposed to work? And so I think, for example, Canada may well agree to have softwood lumber included in the talks, which they historically haven't. And you could see a scenario where Canada pushes to say, look, we're going to give up the ambition for free trade in lumber in North America. And we're just wanting to negotiate a long-term quota system that provides stability and things of that nature. So there'll be a number of strategic points on that front. certainly the trade lawyers will have a hard time giving up on dispute settlement, but that may be something that could be put on the table or there could be some revisions on that front, because ultimately if it's not being respected most some parts of the time anyway,

then why are you going to die on that hill for something that's not going to give you the protection you want? And I guess, too, there's stuff that we might be able to offer. offer up that's outside the trade negotiations, right? That the United States, I mean, they really want us to buy these F-35s right now. These jets made by American company Lockheed Martin, and we have bought 16, but whether we're going to buy 72 more is still being reviewed, right? And is that like a point of leverage for us? Well, it's a point of something. So the F-35 is, I think, by most accounts, a superior. aircraft to the Swedish model. But Canada is not flying fighter jets into Iran and needing full stealth. It has other needs and uses. And so I think the decision on the F-35 really comes down to what happens to the Kuzma negotiation. If you talk to people at the Department of National

Defense, they will say the F-35 is a superior kit. Let's go with the F-35. If you talk to people who are are looking at how do you build out the defense industrial base, then they may say, look, we would like the Swedish fighter because there's great capacity and thousands of jobs here. But I think ultimately what helps make the decision is where is the Canada-US relationship mid-year? And I think it's going to come down to, does the agreement survive or get burned? And if Canada needs to buy F-35s to keep the agreement, then it may well do that. And if there's one-year review processes, then maybe Canada they'll order five more, but they won't order 70. Right. We kind of dangle it. Because it's my understanding, correct me, if I'm wrong, that we might have a bit of a bargaining chip here, right? Because

they actually really need these purchases from us to keep this whole program going. 100%. The economics of the F-35 are all dependent on allied purchases. And so, So the F-35 is the most expensive aircraft ever built. Even with the resources of the United States, they cannot afford this alone. So that's why they put together this consortium of a dozen allied countries and then others have looked at it to make these purchases. But of course, when you look at what the Trump administration has done in its relationship with Europe, Europe is asking the same questions around, do I want to buy a fighter that may be

superior on the surface, but I'm not sure I'm going to be able to use in the way that I need to or want to be able to use it. And so, yeah, the program will be in major trouble if allies continue to pull out and move away from that, from their purchases. You've alluded to this a few times during this conversation, the idea that the entire deal could get ripped up, that QSMA, USMCA could get ripped up. Like, who could do that? And what would happen? Formally speaking, any country is it, well, I'd to withdraw a six months notice. But do they just pull out and say no more free trade with anyone in North America? Do they pull out and say, we want to do strictly bilateral agreements?

How does this play out? So if you take your kind of worst case scenario, which is the U.S. exits and there's no and there's nothing that follows on. Yeah. And we just have sort of all the tariffs that they've slapped on us that were not, that QSMA exempted us from, but we would no longer be exempt? You would be playing, and I don't mean to, I don't mean to sound, to sound overly Germanic here, but you would be playing with a potential financial crisis once people saw the consequences of this. And you would have companies that would see their supply chains destroyed overnight, and they would not be in a position to really deal with that. You would see Canada move sharply away from purchasing U.S. goods. And so, and then at the same time, you also see policy action.

So if the U.S. just walks away and you have this kind of worst case scenario, it could get very, very ugly. And what global investors will look at is a situation that could be akin to panic, because this is all tied up with escalating U.S. debt levels and the questions about the future of the dollar in the centrality of the U.S. and the global system going forward. And so there's no guarantee that any of this plays out. But what you want to do as a policymaker is not put yourself in a situation where the worst could happen. Yeah. I mean, just as a final point, I wonder if I could put to you some comments made by former Canadian finance minister John Manley recently. He said, I think we did perfectly well in Canada before we had the Canada-U.S. free trade.

agreement came into effect in 1989. We were a very successful country at that point. Yes, free trade has worked well for us, but if we can't have it, we can't have it. We'll carry on. There's nothing the United States buys from Canada that they don't want or need. How would you respond to that? Oh, first of all, full disclosure, I worked for John Vanley for three years at the Business Council of Canada. So I know him personally, and I agree with him. I think if given the scenario of no deal versus a bad deal that is very hard to change and modify in the future, I think no deal is something that is certainly not preferred by anyone. We certainly want something like an open, functional North American market. But if Canada is faced with the very hard situation of, do you? you take a bad deal or do you have no deal and figure it out? I think you have to do the case of no deal because, you know, anybody can negotiate a bad deal in an hour, but that's a deal that you would

have to live with for decades. And that's not something that really will put Canada on a position to prosper going forward. And after all, you know, you could go back if there is no deal and get a good deal in the future. But if there's a bad deal, that becomes the basis for all negotiations. Okay. Eric, always good to have you on. Thank you. Thank you very much. All right. That's all for today. I'm Jamie Pousson. Thanks so much for listening. Talk to you tomorrow. For more CBC podcasts, go to cbc.ca slash podcasts.