The Decibel - High-stakes trade talks begin as Trump tariffs persist

Episode Date: September 25, 2025

After months of informal back-and-forth talks about Donald Trump’s tariffs, a new chapter in the U.S.-Canada trade war has begun. Last week, the U.S. officially started the review process of USMCA, the current North American free trade deal.Mark Rendell covers economic issues for The Globe and explains what the U.S. wants and what Prime Minister Mark Carney’s goals are in this crucial trade negotiation.Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Last week, the U.S. officially triggered the review of our North America Free Trade Agreement, USMCA. When it was originally agreed upon, Trump called it, quote, the fairest, most balanced and beneficial trade agreement. But that was in his first term. Now he has taken a sledgehammer to the global trade order and is causing all kinds of uncertainty, especially for Canada. We don't know exactly what will happen next, or even if there will be a free trade deal at the end of it.

Canada has had a free trade deal with the U.S. for decades now. And as our biggest trading partner, the stakes are high. Mark Rendell covers economic issues for the globe. He's on the show to tell us what the U.S. wants and what Carney's goals are in this crucial trade negotiation. I'm Cheryl Sutherland, and this is the Decibel from the Globe and Mail. Hey, Mark, great to have you on the show. Thanks for having me on.

So last week, kind of quietly, an important development happened in Canada-U-S trade relations. And this is a review of USMCA that began. What does that mean exactly? So you might remember NAFTA, which is the trade agreement we signed in the 1990s between Canada, the U.S. and Mexico. Back in the first Trump administration, there was a renegotiation of NAFTA, and it became, you know, what we call USMCA or, you know, in Canada we call it Kuzma. down in Mexico they call it T-MAC. There's a, you know, it's just raining acronyms. Point is, you know, what emerged from that was a clause that said every six years

you have to review the agreement. And that was new. That was something that was added to this North American free trade pact. So for a long time, people thought this six-year review was going to be pretty bureaucratic, pretty technocratic. You know, each side could ear their complaints and deal with it in a sensible way. then all of a sudden the Six-Year Review lands in the middle of the second Trump term. So we are now trying to renegotiate this continental free trade pact at a moment where Donald Trump is essentially blowing up global trade.

You know, he's put tariffs on all of his trade partners. He has put significant tariffs on Canada and Mexico in direct contravention of this continental free trade agreement. And so we spent months and months and months talking about trade negotiations, deals, all this kind of stuff between Canada and the U.S. which is essentially amounted to a little more than, you know, a couple officials texting back and forth. It's been very informal, essentially offers and counter offers on the back of napkins, scribbled in crayon. That's got to nowhere, you know, those talks collapsed at the end of July. But what we are getting into now is a very formal process. So instead of informal texting, you know, we're going to see armies of trade lawyers, armies of bureaucrats,

sitting down, trying to hash out, you know, what is everything? actually mean to proceed with continental free trade in a new protectionist era. What are the possible outcomes of this review? I understand there's like three possible things that could happen. Yeah, there's essentially three things built into the review process. So the three countries can agree to renew the entire agreement for 16 years. They can also agree to go to an annual review process, which will kick off basically annual reviews for 10 years. Or, you know, at any point in time, the three countries can actually, you know, pick up sticks and walk away and agree to basically kill the agreement with six months notice. So we don't actually know exactly

how this is going to play out. A lot of this is being driven by the United States. We're at the very early stages of this process now. So it's a consultation. They'll get into formal hearings in November. So Canada has also kicked off its own consultations. This is the second time it's done them. It did them last year, but obviously a lot has changed since then. We're not going to know until January whether the U.S. wants to seek a comprehensive free negotiation of the agreement or wants to make smaller tweaks around the edges. The deadline everybody's working towards isn't until next summer. So it's basically by July 1st of next year. The three countries need to come to some sort of agreement about what they're going to do. But they could very well

come to some sort of negotiated agreement before then. So then what is that stake for Canada in this moment? Yeah. So just like NAFTA before it, USMCA or Kuzma, as we call it, underpins hundreds of billions of dollars of Canadian exports to the United States. It is the bedrock for, you know, our very integrated supply chains with the United States. It has also become a significant shield for Canada in the, you know, ongoing trade war with Trump. So when back in February, when Trump first started, you know, slapping massive tariffs on first Canada, Mexico, and China, and then everybody else, you may remember we're talking a lot about something called the fentanyl tariffs, which was initially like a 25% across the board tariff, placed on Canadian goods.

It's since risen to 35%. But the crucial thing is, you know, Trump turned around and offered a massive carve-out from those tariffs for goods that comply with the USMCA's rules of origin. Now, what that has essentially meant is the vast majority of Canadian exports are continuing to enter the United States tariff-free. So upwards of 85, 90% of products, even though, you know, we get all these big headlines about these massive tariffs on Canada, the reality is because of the widespread compliance with the USMCA, most goods are still entering the U.S. tariff-free.

So given the carve-out, the average effective tariff rate on Canadian goods entering the U.S. is only about 5.5%. That's the lowest of pretty much any country in the world. So that exemption is absolutely critical. You know, while it is protecting Canadian trade, it's also raised the stakes of a successful renegotiation for USMCA because if the deal was to... suddenly collapse, then, you know, that 35% quote-unquote fentanyl tariff would suddenly come into an effect. And, you know, we wouldn't be talking about 5.5% average effective tariff rate. We'd be

talking about something closer to 35%, which, you know, for Canada's very trade-oriented economy would be absolutely devastating. Right, right. You mentioned that we don't know exactly how those would play out. We had these kind of like three scenarios. What's the impact of having so much uncertainty around how this process will go? So since Trump started levying tariffs on everybody, you know, that has had a direct impact on company's ability to sell into the United States, but it's also had a impact on, you know, business confidence, business willingness to invest, all of that, the uncertainty about what type of renegotiation of the USMC we're going to get, you know, whether it's going to remain in place, how it could possibly change across different sectors.

You know, that's putting a freeze on business investment in the country. So Canadians would obviously love to see a renewal in which you get another 16-year extension. If we get to a process of annual reviews, which is one of the possible outcomes, you know, that's, that's very bad. That sounds very complicated. It's very bad. Again, we don't get that kind of certainty because the question about the future of the USMCA will continue to be at stake. And then obviously the worst possible outcome is they just, you know, pick up and walk away. You know, there's a possibility that they could try to seek rather than a trilateral deal with the U.S. and Canada.

You know, the Trump administration may look to do bilateral deals with Canada and Mexico. So there's a range of possible outcomes. Yeah. On the question of certainty, we've seen over the last nine months that Donald Trump has little to no respect for rules-based trade. So why should we believe this review of USMCA will be any difference? Yeah, that's the trillion dollar question. How much does Donald Trump actually care about the USMCA? He has contravened the letter and spared of the USMCA in a number of ways in the last, you know, seven, eight months.

the tariffs on steel aluminum and autos, you know, that is a direct breach or direct violation of a number of, you know, side agreements we signed in 2018, 2019 to disallow, you know, those Section 232 tariffs. There are also signs or signals that he does still care about the USMCA. I think the biggest and most important one is the fact that we did get that carve out for USMCA compliant goods. So there is also a lot of pressure from, you know, U.S. companies who have supply chains in Canada and Mexico, who rely on Canadian and Mexican markets, you know, there's a lot of pressure

on the White House to keep USMCA, to keep some sort of free trade in place. But yeah, who knows? I mean, I think people would point, yeah, very much to that exemption as a, you know, a positive sign. Okay. And just briefly, you mentioned Section 232 tariffs. That's steel aluminum and some other industry specific tariffs that exist. And Section 232 is a reference to the legislation Trump is using to instate them. Yeah, that's correct. So there is a number of other Section 232 investigations. So one of the complicating factors of the USMCA is we're going to see more tariffs before we see fewer because they've launched investigations into aerospace, into trucks, pharmaceutical, semiconductors. So, you know, it's very probable that we're going to see tariffs

on all of those industries in the coming months as we're trying to negotiate the USMCA. So that's very complicated. A lot of things happening at once here. Okay, let's dig into this. So what do we know about the issues that the U.S. will likely bring up in this review. Yeah, so it's not a mystery. Donald Trump talks about it all the time. You know, he doesn't like Canada's supply management system. Of course, supply management, yes. For dairy, for poultry, he has complained about restrictions on U.S. financial institutions operating in Canada. Autos are going to be a huge one. You know, back in 2018, during the first NAFTA negotiations, they pushed for 85% North American content in vehicles in NAFTA, it was like 62%. Everybody settled on 75%. It's pretty clear they're going

to push for a higher North American auto content as well. They may also press specifically for a certain percentage of vehicles to be made of U.S. auto parts. So this is a longstanding issue for the United States. They want to see higher American content in North American-made vehicles to get that tariff-free trade across borders. The U.S.T.R. also publishes a list. That's a U.S. trade representative also publishes a list of grievances or gripes they have with other countries. You know, it runs the gamut from a whole range of kind of agricultural issues down to things like they don't like our French language labeling, which gets, you know, pretty dicey once you start talking about language laws in Canada, you know, all the way down to the Online Streaming Act.

There was a longstanding complaint about the digital services tax that was just introduced this year and then walked back. So, you know, in many ways, I think Canada recognized that the digital services tax was going to become a major point of contention and preemptively backed off to keep the negotiations going. So you can also look at, you know, what he has pushed for with other countries. That usually includes things like massive investment by those other countries into the U.S. Big agreements to buy, you know, U.S. products, whether that's Boeing's or U.S. energy or all that kind of stuff.

So there is this real sense that in the new kind of Trump approach to trade, you've got to buy your entrance. You've got to pay the emperor to get entrance into the market. So I think that's probably all going to be part of the ask as well. And the final point I'll make is that Trump is using trade agreements as leverage to pursue a whole range of other political goals. So the big one is he's threatened NATO countries with tariffs unless they raise defense spending. You can expect to see that all to be part of this package as well. I want to go back to supply management for a moment. The Canadian government passed legislation to try and protect it from trade negotiations last year.

How will that affect how this issue is handled during the review? Yeah, I'd say that's a juicy one. Yeah, the Block Quebecois pushed through a bill that was supported by all parties, which basically says thou shalt not offer up additional quota access to our supply managed industries in future trade negotiations. It's very clear that the U.S. does not like our supply management, and it's very clear that that's going to be a major ask for them. So, you know, some trade experts think we're kind of backing ourselves into a corner that we're going to come to regret.

You know, there is a possibility that there's enough flexibility in the legislation to still allow Canadian trade negotiators to offer something. You know, at the heart of the U.S. complaint about Canada isn't just, you know, the amount of quota they're allocated, but it's how that quota is allocated between different product categories, think like fluid, milk, cheese, different areas within the dairy supply chain. So, you know, there's nothing in the legislation that prevents us from saying, okay, we're going to change how we allocate those quotas. You know, Canada goes hard for supply management.

So, you know, Godspeed, it's going to be a pretty contentious issue. This won't be the last time we hear about supply management. That's for sure, right? Certainly won't, yeah. Keep your eyes on supply management, on autos, on a whole range of other things, yeah. We'll be back after this. Okay, let's talk about Canada. What do we know about what Canada wants to accomplish in this review?

Well, the biggest thing is they want the agreement to survive. You know, NAFTA and then subsequently USMCA has provided the bedrock for a huge amount of Canadian trade and prosperity. It is also, in the current context, as we talked about before, protected a lot of Canadian trade. from Trump's very aggressive tariffs. The big question is, you know, what are they going to be willing to give up to preserve that agreement? The other thing Canada is going to want to try to get is some relief for these 232 sectoral tariffs. Yeah, I was going to ask you about that because, yeah, what about these specific tariffs?

Like we're talking about the aluminum, the steel, the auto, copper. Is there any hope that these will be lifted if Canada can successfully renew our trade agreement with the U.S.? So they're trying to strike a deal right now. The big question in kind of trade policy circles in Canada is whether they're going to be able to, first of all, get agreements on these sectors at all. Secondly, whether they're going to be able to get them before the USMCA renewal really kind of kicks into high gear or whether, you know, discussions about steel, aluminum autos will simply be rolled into the broader USMCA discussions. It seems to be that if we're going to come to some sort of agreement with the United States, it would probably be around things like quotas. So, you know, the U.S. will accept a certain amount of Canadian aluminum, certain number of Canadian cars into the United States at a lower tariff rate, probably not a zero tariff rate, but, you know, down from 50 or 25 percent down to maybe low single digits or low double digits. You know, it's kind of a best of a bad situation, potentially. You know, quotas can be very negative. They can limit how much you can grow.

Carney has said he's working on a number of what he calls, quote unquote, small sectoral. deals alongside the broader preparation for the USMCA renewal process. So whether these small sectoral agreements can kind of come to fruition in the next weeks or months, that still remains to be seen. And if not, all these issues are going to show up in the broader USMCA talks. So we may have to accept some export quotas. But you also mentioned we're probably going to have to give some things up. So what are the most likely concessions Canada may have to make? I mean, it's things we talked about before. It's around what the U.S. clearly wants.

So it could be things like quote allocation for supply management. It could be things like higher U.S. auto content in North American automobiles. It could also be around stricter limits on how Canada and Mexico deal with China in particular. So in the USMCA compared to NAFTA, there was a clause that was entered in that basically said, And Dow shall not negotiate with what they called a quote-unquote non-market economy, which is just a code word for China, without letting the other countries know. And the idea was it was meant to limit Canada and Mexico's ability to increase their trade links with China.

Since then, Canada has largely aligned with the U.S. on things like Chinese EV tariffs, tariffs on Chinese steel, that kind of stuff. Mexico's taken a slightly different approach. And there is considerably more Chinese investment into the Mexican auto industry and the other Mexican industries, which has raised the hackles of, you know, trade professionals in the United States and politicians in the United States. That's a tricky one. It's a tricky one because limits on how Canada can deal with other countries is tough at a moment where we're trying to diversify trade. Yeah. And on China as well, I mean, like the U.S. alignment has hurt Canada, right?

Because China has retaliated with tariffs on our canola oil. I mean, that was our own doing. You know, we chose to put 100% tariffs on Chinese electric vehicles, and in return, we have seen significant tariffs on Canadian canola. Now, how much was that tariff because we wanted to keep out Chinese electric vehicles for the sake of protecting Canadian market? And how much was it because the U.S. asked us to, and because within a integrated continental market products that enter Canada,

enter the U.S., I think probably the latter. I think as we're trying to move through this process of renewal, trying to figure out how much we are trying to diversify markets, find new trade partners, new economic opportunities. You've got to balance that against the fact that the Americans are like, no, no, we do not want these guys playing in a North American backyard. And so that could be a deal breaker in, you know, the USMCA renewal talk. So that's a very delicate line Canada's going to have to walk. So we haven't really talked about Mexico that much. Is there any common ground between Canada and Mexico that could help them work together in this review? Absolutely. I mean, Mexico is the third partner in the agreement. It's a crucial part of, you know, the continental supply chain across a whole range of industries. And it's a key ally for Canada in pushing back against the U.S. on a lot of its more aggressive or, dare I say, outrageous demands. So Mexico and Canada worked closely together in the 2018 NAFTA reviews. In fact, you know, there was a period in which the Trump administration basically sidelined Trudeau and Christian Freeland and essentially cut Canada out.

of the negotiation for a period of months and tried to deal bilaterally with the Mexicans. The Mexicans said, no, you have to bring Canada back to the table. So they were very important in keeping Canada in a renewed USMCA last time. They're going to be a key partner in it again this time. There are a number of areas that can work together if they can work together. And that's the kind of big, big question mark. So last year, just shortly after Trump got reelected and he started threatening everybody with tariffs, Canada kind of, or at least the Canadian political class, kind of abandoned Mexico.

You saw a number of premieres, Doug Ford, most prominently, Daniel Smith. It was kind of echoed by Christopherland as well, basically said, well, let's cut out the Mexicans and just do a bilateral deal with the Americans. That pissed the Mexicans off to no end. They saw it as a giant betrayal, especially after all they'd done during the 2018 negotiations. And it really kind of soured the relationship. Mark Carney and his team have tried to repair that. They were in Mexico last week.

They were Mexico last week. That was to, you know, announce a new strategic arrangement between the two countries, clearly designed to patch up a relationship that had become frayed and probably to start strategizing about how they're going to, you know, work together to push back against Trump because Canada and Mexico by themselves are minnows compared to the gigantic shark that is the very aggressive and angry Trump-led America. You know, working together, they have a lot more leverage. So a successful renegotiation of the USMCA for both Canada or Mexico is going to require collaboration between the two countries. And speaking of working together, I want to take a moment to talk about this idea of Fortress North America. Can you just take a moment to explain what that means? Yes, that's a big pitch that some Canadian politicians have been making to the U.S. They're saying, you know, in your grand geopolitical competition with China, you're going to need your buddy in your backyard.

You know, China has a lock on a number of aspects, a critical aspects of global manufacturing supply chains all the way from ownership of mines to mineral refining to rare earth's battery manufacturing. There has been this real weaponization of global supply chains between both China and the U.S. The point being, one of the pitches from Canada is we can be your safe and secure.

supply of critical minerals. We can be your safe and secure supply of energy. So much of continental integration, the pitch that Canada has always made to the U.S. ever since, you know, the Second World War and the integration of the two economies around a defense industry to fight the Second World War has been, you know, we can do things together, which is not just economically beneficial to both countries, doesn't just supply opportunities for companies, but also will shore up security, all that kind of stuff. So that's the big Fortress North America pitch. The problem with it as well is that Canada is also trying to find new markets. It's trying to find new partners. We have realized that in a world with Donald Trump

where access to the U.S. market is no longer guaranteed, you know, we need to be seeking out new export markets. We need to be seeking out new trading partners, all that kind of stuff. So a inward-looking Fortress North America approach may help you successfully get a renegotiation of the USMCA, but it will also be rolling against, or it could theoretically be rowing against the goal of trying to diversify trade, trying to find new partners, all of that kind of stuff. So trying to secure the continental economy ultimately could come at the cost of trying to diversify at the same time. So you're walking a very narrow path. So just lastly here, Mark, is there hope that there will be a deal without any tariffs? Oh, there is no hope there will be a deal without tariffs. What I think Canada is hoping for is that at least for a large number of sectors covered by the USMCA that aren't being hit,

those strategic industries that aren't, you know, the 232 tariffed industries, that we can still have some semblance of free trade for that, you know, 85 to 95% of other problems. products. That would be a win. Re-securing that, that would be a win. But it's going to probably entail giving up things in the process to secure that win. Bit of a tricky road ahead. Very tricky road ahead. Mark, thanks so much for coming on the show. Thanks for having me. That was Mark Rendell, who covers economic issues for the globe. That's it for today. I'm Cheryl Sutherland. Our producers are Madeline White, Michal Stein.

and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening and I'll talk to you soon.