The Decibel - Making sense of Carney’s tactics in the U.S.-Canada trade talks

Episode Date: July 3, 2025

Prime Minister Mark Carney set a deadline of July 21 to reach an economic and security deal with the United States after last month’s G7 summit. But negotiations were derailed last week when U.S. President Donald Trump called off talks, blaming Canada’s digital services tax, which was set to come into effect on June 30. Two days later, Carney rescinded that tax, and talks were back on.Adrian Morrow is the Globe’s U.S. correspondent, based in Washington. He’s on the show to talk about the risk Carney took by giving up on the digital services tax so quickly, whether this is really in line with his ‘Elbows Up’ campaign, and what Trump seems to want from negotiations.Questions? Comments? Ideas? Email us at [e-mail]

If it feels like the deadlines keep moving in the Canada-U.S. trade negotiations, that's because they are. We've been back and forth at it for months now, ever since U.S. President Donald Trump first imposed tariffs back in February. The next deadline is July 21st. That's the date that Prime Minister Mark Carney sat for making an economic and security deal with the U.S. And that deadline is fast approaching. Negotiations were derailed last week when Trump canceled them because of Canada's digital services tax.

It would have imposed a 3% tax on tech giants like Amazon, Meta, and Alphabet, Google's parent company. And it would have generated a multi-billion dollar lump sum payment this week, as well as hundreds of millions of dollars in annual revenue for the Canadian government going forward. But on Sunday night, Ottawa scrapped the policy. This move raised questions about what kind of leverage Carney was giving up. It's very simple. Prime Minister Carney in Canada caved to President Trump in the United States of America.

Adrienne Morrow is the Globe's U.S. correspondent based in Washington, D.C. He joins us to talk about what we can understand about Carney's approach to trade with the US, whether it's really in line with the elbows up approach he campaigned on, and what it seems like Trump actually wants at the end of these trade negotiations. I'm Madeline White, and this is The Decibel from the Globe and Mail. Hi Adrian, thanks for joining us. Thanks for having me, Maddie. So you covered the US Canada trade talks back when NAFTA was evolving into the USMCA, you know, before the pandemic. Are

you having flashbacks, my friend? Yeah, I mean, so many, everything that's old is new again, isn't it? Where the same kind of threats from Donald Trump, the existential ennui over the state of the Canadian economy. You know, it's a little bit different this time around where the same kind of threats from Donald Trump, the existential ennui over the state of the Canadian economy, it's a little bit different this time around in the sense that like everything in Trump's second term, it's more Trumpy than it was the first time

where in the previous NAFTA USMCA negotiations, things very quickly got channeled into a relatively conventional, well in some ways conventional trade negotiation. Whereas this time around, it's a very kind of slipshod, we're gonna make a deal in a month that will probably not cover everything, but then we'll also cover everything and bring in security and the military and you know missile defense from outer space and just as you know it's sort of pique Trump in a sense that maybe it wasn't as much last time around.

Mm-hmm. Okay, so I want to get into some of the specifics of the recent hurdles in these trade talks. I want to get into some of the specifics of the recent hurdles in these trade talks. What's Trump's explanation for why he called off the talks over Canada's digital service tax? I mean, poor went out for big tech, you know, these sort of poor, hard done by, you know, companies and tech bros that just can't seem to catch a break from these mean old governments taking their money. You know, that's essentially what his argument was, is that it's unfair to tech companies, and specifically US tech companies,

to have to pay these digital services taxes. You know, no US government likes it, because obviously they want to defend their companies from paying taxes in other countries. And there's no percentage for them, because the money is going to foreign governments, it's not coming to the US government. So for them, there's no kind of public pressure on them

to want these taxes in place. This is something that the Biden administration didn't want Canada to do. And the Trump administration has carried that over. So this tax was voted into law in Canada in 2024. So why did Trump single it out now? Yeah, it's unclear. I mean, if this was strategic on Trump's part, it would have to do with the fact that he and Mark Carney set this July 21st deadline to conclude some kind of trade, security, border, military deal between Canada and the US.

And as we're getting closer and closer to that point, Donald Trump may have seen this as an opportunity to turn up the pressure on Canada. The first tranche of money was set to be collected on Monday, and Donald Trump made his threat on Friday. And so if this was strategic on Trump's part, he may have just been waiting until sort of the last possible minute to say, this is the best time to get the pressure on. The other possibility is that Trump being Trump,

it's just, you know, sometimes the last person to have had the president's ear influences him. And it may just be that this is something he hadn't really thought that much about until Friday afternoon. And either it occurred to him or somebody brought it up with him and it may just be that this is something he hadn't really thought that much about until Friday afternoon and either it occurred to him or somebody brought it up with him and he thought, oh yeah, this is something that I should go hard on. We don't really know for certain, but certainly the fact that this money was about to be collected on Monday and Trump saw this as a good opportunity to turn the pressure up, it looks like it

at least had something to do with it. Okay, I want to shift gears a little bit because the digital service tax was not the only Canadian policy that Trump has recently complained about. We also heard him talk about his issues with supply management, which is a protectionist policy Canada has that limits imports of dairy and poultry products. Trump sounded off about this in an interview on Fox News. They've had farmers that are getting like 300, 400, 200 percent in tariffs. in an interview on Fox News. Is this Trump just moving the goalposts again, Adrian, or is there something different about

the supply management issue? I mean, supply management is a bit unusual in the sense that most of the Donald Trump versus Canada or Donald Trump versus the world trade issues are usually Trump wanting to be more protectionist and other countries wanting to preserve as much market access or go further in terms of getting more market access and more free trade than currently exists. And in this case, it's actually the reverse where Canada has this protectionist system on eggs and dairy. And it's the US demanding that it be opened up and not just Trump.

I mean, these are other US administrations have demanded the same thing. But there is a certain irony in the sense that Donald Trump loves him some protectionism for the United States, but he gets very upset when somebody else does it. Trump complaining about supply management is certainly not new. It was something that he targeted during the NAFTA renegotiations during his first term and did get a little bit more market access for the US. And it was actually sort of one of the original things that he seized on to complain about Canada during his first term, where I think it was in the spring of 2017 2017 he was visiting Wisconsin and he met with some dairy farmers who were complaining about

ultra-filtered milk which is a very specific issue within the supply management framework and Donald Trump got very worked up about that and sort of threatening Canada during a subsequent speech after meeting with these with these dairy farmers and so it's something that I remember it being a big moment even before those NAFTA talks had gotten underway, something that Trump had seized on to say that, you know, exactly what he's saying on Fox News now that Canada is cheating the US, taking advantage of the US, and this is, you know, very unfair and it has to be gotten rid of. Right. And you know, these two issues are just the latest in a long litany of complaints from Trump about Canada.

You know, first this all started with fentanyl and the border, and then it became about our auto and our steel and our aluminum sectors. But anything the Canadian government does to try to address these issues doesn't really seem to appease him for that long. So, Adrian, what do we know about what Trump really wants at this point?

Yeah, you're exactly right, Maddie. You know, there's this fallacy that sometimes comes up with people trying to deal with Trump or trying to say how other countries ought to deal with Trump that says, oh, well, if you could just mollify him on this issue or that issue or the demand of the day or the demand of the week, you could satisfy him and things would be great. And then you wouldn't be poking the bear as much. But that just isn't how Donald Trump works because, you know, poking the bear as much. You know, but that just isn't how Donald Trump works, because, you know, any time somebody tries to mollify him

on one particular issue, he then makes a subsequent demand or finds another issue. And it's exactly because at the center of it all, these issues are either subsidiary issues or in the case of certain things like national security and the fentanyl situation may even just be, you know, sort of rationalizations that he's come up with for what's really the central issue that he cares about it and his central goal for the US economy,

which is that he wants as many industrial products, many products in general, but especially industrial products as possible to be made within the US and for the US to stop importing them from other countries. You know, Donald Trump has talked about it and Howard Lecknick, his commerce secretary, had kind of talked about how great the economy of the 1890s and early 1900s was in the United States. The 1890s. The 1890s, not the 1990s. Not the 1990s or the 1980s for those of us with dyslexia. The 1890s. The 1890s. They talk about what a great economy this was when the United States economy was behind

this tariff wall, was segmented off from much of the rest of the world and was producing so much of its own industrial products itself. And Trump has, he and Leutnick have both said this, how he didn't want the US to be importing cars from Canada, he didn't want the US to be importing cars from Canada. He didn't want the US to be importing steel from Canada or probably from anybody at all. You know, that his sort of ideal notion of the US economy is this place that produces as many of its own consumer goods as possible. And that to do that, you know,

either some sort of managed trade agreement that stops other countries from sending goods to the US, or if not that, then these tariff walls that essentially make it prohibitively expensive for the US to import these sorts of things. And so I think that, you know, understanding that is key to understanding Donald Trump, that any other issue he raises in trade talks, you know, some of them may be sincere, some of them may be just excuses, but all of them are kind of subsidiary to that, to this kind

of way that Donald Trump sees the world and the way that he feels the US economy should be. Okay, so if we're talking about an 1890s economy, though, like, what are the actual implications for Americans if Trump is successful at this goal? Yeah, I mean, I hope they enjoy living in Upton Sinclair novel with seven people in a two bedroom cold water flat, you know, working at the stockyards for 16 hours a day. You know, I mean, I certainly take the point of Trump and Lutnick that the U.S. economy in the 1890s, you know, may have

been good by the standards of the time, or at least good for the subset of people at the very top of the economy. But A, for, you know, for the majority of people living in the United States, the working class at the time, it was not it was not a good economy. And B, of course, compared to the modern day, the kind of standards of living are just, you know living are just so much higher now, in part because of free trade and other things

that have been done over the last century and a bit to improve the economy. So the idea of actually going back to this almost sort of autarky type model of walling off the US economy, it's very, very hard to see how that would work out for the US. Just ask Argentina if it's very, very hard to see how that would work out, you know, for the US. You know, just ask Argentina, you know, if it's if it's had a really good time since it decided to start doing import substitution, you know, over the over the

last the last several decades. I assume Argentina has not had a really good time based off that. Oh, yeah, no, it's like a classic like economists love it. So it's a case study of Argentina used to be one of the wealthiest countries in the world and now it's obviously not and one of the big reasons is that starting about the middle 20th century they decided we're going to start manufacturing more stuff in Argentina instead of importing it and so in order to do that they were supporting all these like inefficient industries to manufacture goods rather than focusing on exporting natural resources and agriculture and things like that where they had a comparative advantage and so it's generally sort of the economic consensus is that that's the reason why Argentina

went from, you know, having an economy that was comfortably wealthy to Canada's, for instance, in the early 20th century to being, yeah, to being in the developing world now. We'll be right back. So Mark Carney has now been the prime minister for just under four months. In that time, he and Trump have actually seen a lot of each other. Carney visited the White House in May, and then in June, they were both at the G7 summit in Alberta, and then again at the NATO summit later that month. So we have a little bit of a data set, so to speak, to kind of look at their relationship,

at least their relationship in public. So Adrian, how would you characterize Carney's style when it comes to dealing with Trump? He so far walked a little bit of a fine line, at least in public with Trump, in being clear about saying the sorts of things that he did during the election campaign about Canada is not for sale.

I think everybody remembers that from his first meeting with Trump at the White House, wanting to assert that Canada's sovereignty is not up for debate, is not up for negotiation, and trying to do that without provoking Trump or without getting into an argument with the guy. Right. But I think when you get away from the rhetoric and you sort of look at the reality of how Carney has so far dealt with Trump, he does seem to be taking in some ways a more deferential approach than than Justin Trudeau did. And I think what happened on the digital services tax really shows that where the strategy that that Trudeau and and Christian Freeland and and their advisors adopted during the first

round of NAFTA negotiations was not to concede anything until the very end. And it was this whole sort of idea that, you know, anytime you make a concession to Donald Trump, he will ask for another concession. And so you don't want to concede anything until you know exactly what the full panorama of issues are going to be, what the full panorama of the deal is going to be. So Carney giving up the digital services tax, but the caveat that who knows, maybe there is, you know, the deal that's in the works for July 21st is going to be so good that it was worth it to Carney to give up on the digital services tax preemptively in order to get to that deal.

But certainly on its face, it looks like Carney essentially making a concession without any clarity at this point on what, if anything, Canada is getting from the Americans in exchange for it. And it certainly looks like he's taking a big piece of leverage off the table rather than than holding on to it until the very end. And so his strategy looks very different from Justin Trudeau's in that sense. You know, Trudeau did not have to deal with as many consequences from Donald Trump as as Canada is currently facing.

The number of tariffs that Trump put on Canada during his first term is significantly less than what he's imposing on Canada now. And so, Carney is certainly under a lot more pressure from Donald Trump than Justin Trudeau was. But even so, it's very notable in this instance that the strategy for dealing with Trump is very different. So you know, we've been talking a lot about the difference in their strategies here, because we've changed prime ministers. But something that hasn't changed is that Trump continues to talk about Canada as an adversary.

Canada has been a very difficult country to deal with over the years. He likes to kind of go on and on about how hard of a trading partner, how difficult of a trading partner, maybe stubborn of a trading partner Canada is. And I just want to ask this, is that a fair characterization? How do experts kind of see Canada's trading negotiation practices? I don't get the impression that Canada is any different from any other, you know, especially it was certainly free market country. I mean, it's a whole other kettle of fish if you're talking about China and places that have, you know, much heavier government involvement

in the economy than we've got in Western capitalistic countries. But no, I don't get the impression that Canada is any harsher than countries in the European Union say in terms of how it handles trade. I think the difference might be, I mean, it's two things. One may be that Donald Trump expects Canada to be more deferential to him because of the historic Canada-U.S. relationship. Yeah, I think more likely though, and it's sort of counterintuitive because previous U.S. presidents always saw Canada as a good, close trading partner because the economies

were so integrated. And Mexico too, the fact that you had this kind of North American supply chain for the auto industry that made the car sector here more made it competitive. For Donald Trump this may actually be a bad thing because given that his number one goal is getting as much steel production auto production other industrial production into the United States as possible it probably bothers him that so much of the US's you know auto industry is integrated with Canada that so many car parts are made in Canada, that so much steel and aluminum is imported from Canada. And so I think that that may be why Donald Trump sees Canada in a particularly harsh

light because it's one of the countries with which the US deals with the most on trade. It's one of the countries with which the US economy is the most integrated. And so if your goal is Donald Trump is to get rid of as much foreign steel as possible, well, the largest single percentage of that foreign steel is coming from Canada. If your goal is Donald Trump is to get rid of auto imports, well, that the country that's exporting you all of these autos is Canada, that may be why he sees us so negatively

compared to other countries. So to simply put, you're saying that because Canada has cooperated with the US on trade, that that is in fact played into his view that Canada is ripping off America. Yes, exactly. I mean, this entire system of global trade was largely driven since the second World War, but more recently since about the 1980s by the United States. It's the United States that wanted, especially through the 80s and 90s, to kind of construct this much more open, free system of global trade.

And Canada and Mexico have obviously been the closest because they're the US's immediate neighbors and because they agreed to this. Starting in the 80s with the free trade deal between Maruni and Reagan, Canada has agreed to do this and to be part of this kind of this US vision of more integrated trade. But Donald Trump disagrees with all of that. He disagrees with this kind of idea of, okay, let's all just lower our trade barriers and create this sort of much freer, more capitalistic system of global trade. Donald Trump wants to go back to some earlier era of managed trade, and maybe to an earlier era where the United States was just producing

as many of its own goods as possible. And so, and so for that reason, yeah, it's ironic that that Canada sort of working with the US to construct this system of free trade is the sort of thing that Donald Trump dislikes about Canada. So I just want to take a step back and look at the bigger picture. In the last six months, Canada has made a number of major policy changes, changes that affect Canadians, be it around border security, spending more money on defense, and now canceling attacks that would have generated the Canadian government millions of dollars. I just want to point out that all of these changes seem to be happening because of the trade frictions with the US, because of demands from Donald Trump's White House.

You know, I'm thinking about for all of his talk of annexing Canada, his threats do seem to have a real impact on Canadian policy. And I just wonder what happened to the elbows up, Canada strong approach that Carney campaigned on. Am I just being naive here, Adri Adrian, about how negotiations play out though? Like, I think from a policy point of view, yes, you may be able to justify it by saying, well, some of these things we should be doing anyway, that, you know, having a stronger border or having more military spending, that these are good public policy goals in and

of themselves. And so if in doing these things we're also sort of fulfilling these these nominal demands from Donald Trump, you know, can't hurt and it might help. I think if you get to a point where you start making decisions that are different from what you would have otherwise done like on the digital services tax, I think that's when you start getting into this kind of risk versus reward calculation. And certainly, yeah, certainly in terms of public perception, you do get into this, you know, how many times can can Carney agree to something because of Donald Trump before it starts to look like he's totally putting his elbows down. The calculation that he's clearly made is that it's

worth doing things like this to mollify Trump that you would not have otherwise done in exchange for in the hope of getting a better deal down the road. And if he does get a good deal on July 21st, then then he can say that this was the correct strategy. But it down the road. And if he does get a good deal on July 21st, then he can say that this was the correct strategy. But it's a gamble. And if he ultimately doesn't get a great deal, then he is going to look like all of the talk during the election campaign and the hockey videos of Mike Myers,

you know, we're ultimately all for naught, that it was just sort of hot air and spin because he's agreed to give things up and it's not clear sort of what candidate is going to get in exchange. So it's a huge political risk for Carney. It's a policy risk as well. If you think, you know, the Liberals clearly do that the digital service attacks is good policy and you've decided to give that up in hopes of getting something, you know, you

have to be able to show that you then did get something for it. Yeah. And just quickly here, Adrian, what will you be watching for ahead of this July 21st deadline? Well, number one, obviously, if there were more threats from Trump, if he does, if he does start making more demands outside of the negotiating process. And we talked earlier about how different this was from, from NAFTA. And that's, and that's sort of one of the two that in the USMCA NAFTA

negotiations, you know, all of these things kind of played out at the bargaining table. You know, so I think we'll be watching to see, given that that Carney has now shown his willingness to make concessions outside the negotiating process, will Donald Trump make more such demands and how will Carney react to that? And then I guess the second thing is, you know, on Canada Day, I was at the Canadian Embassy's Canada Day party and I asked Kirsten Hillman, who's the Canadian ambassador and the chief negotiator with the Trump administration, if the Carney government is still aiming to have all the tariffs taken off in the July 21st agreement. And she said yes. And I think

that was interesting in the sense that, you know, if they actually get that, there'll be a much better deal than the UK got. You know, the UK essentially agreed to, you know, a few tariffs being lowered as part of their deal. be a much better deal than the UK got. a deal that's sort of half the loaf of bread that's kind of half of what we wanted then that's good enough they're still saying no we're going for the whole enchilada to mix food metaphors here and and and they're they're saying that that's that that's what they're going to achieve and so that's the other thing that we'll be watching for you know on July 21st is whether they actually do come out with a deal that takes all the tariffs off and if so if

they have to give something up in terms of agreeing to export quotas on steel and aluminum or what have you in order to get that. So I think that'll be the really, you know, the two things to watch for is number one, does Trump make more threats outside the negotiating process and how does Carney react to that? And number two, when they actually get to a deal, you know, does the deal actually get you back to a place, you know, somewhat resembling free trade or does it look like the kind of managed trade that Trump has imposed on the United Kingdom, where Canada agrees to either artificially limit its exports or some of the tariffs stay on,

just in order to mitigate some of the sort of worst effects of what Trump is doing to Canada? Adrienne, thank you so much for joining me. Thank you, Maddie. That was Adrienne Morrow, The Globe's U.S. correspondent based in Washington, D.C. That's it for today. I'm Madeline White. I produce the show along with Michal Stein and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer and Angela Pacenza is our executive editor. Thank you for listening.