The Decibel - What Trump’s trade deals could mean for Canada

Episode Date: May 15, 2025

Over the past week, the U.S. has brokered trade deals with Britain, China, and the Middle East, signaling a shift in President Donald Trump’s trade war. What this means for Canada, however, is not yet clear.Mark Rendell is an economics reporter for The Globe’s Report on Business. He joins us today to help break down what these deals mean, how the trade war has been playing out in Canada, and what might come next.Questions? Comments? Ideas? Email us at [e-mail]

Over the last week, the U.S. has been busy making deals. First, it was a new trade deal with the U.K. Then, on Monday, the U.S. and China announced an agreement to roll back tariffs. U.S. tariffs on China went from 145% to 30%. China's tariffs on the US went from 125% down to 10%. And then in the last few days, President Donald Trump has been in the Middle East making deals. So as the US is striking deals with all

of these other countries, what happened to Canada? Where does our trade relationship with the US stand? Mark Rendell reports on economics for the globe. Today, he's on the show to break down what these deals actually mean, how the trade war has started to affect our country, and what might come next for Canada. I'm Manika Raman-Wilms,

and this is The Decibel from The Globe and Mail. Mark thanks for being here. Thanks for having me again. So you and I are talking about midday on Wednesday and there's been a lot of news on US trade over the last week or so. Let's talk about this deal with China because before this deal was announced, the US had tariffs of 145% on goods from China and China had a tariff of 125% on the US. What do tariffs on that scale, like what do they do to

trade between countries? That's like nuclear level destruction to trade between two countries. When you get to triple digit tariffs, that effectively makes it impossible to sell goods profitably in one country to another. So once tariffs got up to this triple digit level, and that's happened essentially over the past, let's call it month and a half, as China and the US went tit for tat, you know, Trump raising tariffs on China, China responding, they went through a couple of these rounds of ratcheting up tariffs until you got to, as you say, quite ludicrous levels, 145% tariffs on Chinese goods coming into the US, 125% going in the opposite direction.

So that's why the deal that was announced on Monday is such a big deal because it seriously ratchets back these tensions that were risking, essentially, stopping trade between the world's two biggest economies. Tariffs are still in place, but at a much less completely ludicrous level. Yeah. Okay. So walk us through this deal then so we can understand what they did agree to earlier this week. What exactly does this entail? So over the weekend, top-level US officials and Chinese officials met in Geneva to discuss how to kind of de-escalate this trade war that had

broken out. There were very low expectations for the deal. Everybody thought it would just be the opening of talks. All of a sudden you get this blockbuster announcement on Monday morning, which is the majority of these massive tariffs have essentially been walked back. The US agreed for 90 days to lower the tariff from 145% down to 30%. Now, that's still a very high tariff. That's twice as high as tariffs were before this latest trade war broke out, but it is a massive de-escalation. On the Chinese side, you saw the tariff level

go from 125% all the way down to 10%. This is a 90-day truce. It may break down. Who knows what Donald Trump is going to do, but it's hard to overstate how important this about face or this backdown was. Markets reacted with absolute euphoria. You saw a giant spike in US stock markets. The US dollar got a bid. US yields went up. Investors around the world basically had been, in the last month or so, expecting this incredibly high level of tariffs between China and the US to tank the US economy, pushed into a recession, lead to shortages, higher prices, all this kind of stuff. With the trade deal announced Monday, a lot of those expectations have been walked back, and that's why stock markets and other financial markets reacted with such euphoria.

You mentioned how there was fear before this agreement happened about the effect these tariffs are going to have on the US economy, probably on the Chinese economy too. What kind of impact does this change actually have on consumer goods? So the trade war was already starting to have a big impact on shipments of goods from China to the US. You saw that in Chinese trade data, exports had been of goods from China to the US. You saw that in Chinese trade data, exports had been rerouted away from the US to other countries. In recent weeks you'd see the number of container ships crossing the Pacific from Chinese ports to

US ports had absolutely dropped off. There was all sorts of weird stockpiling and backlogs as goods were being moved around. Companies were trying to figure out how to dodge the tariffs, even moving some goods into Canada, elsewhere. So supply chains, you know, were starting to really, really buckle. There started to be warnings from companies that they were going to have product shortages. The most famous example was, you know, a lot of toys come from China into the US. And, you know, Donald Trump basically said, you know, we're going to have to do with instead of 30 dolls at Christmas, maybe American kids will have to have two dolls at Christmas, which kind of gives you the sense of, you know, what the expectations had this trade

war continued or had the tariffs continued at that level. There would have just been shortages then on toys. Shortages, much higher prices. So economists were warning about, you know, a huge inflation shock. The U.S., like many countries around the world, has only recently started to buck this very serious inflation shock that happened after the COVID-19 pandemic. The fears, again, were this incredibly challenging,

what economists call a stagflation shock, which is you get a contraction in economic activity. At the same time, you get a rise in prices. That's a really tough thing to deal with. So the fear was, you a rise in prices. That's a really tough thing to deal with. So the fear was, you nuke trade between the world's two largest economies, you're going to have major, major implications that's going to hit countries all around the world. The Chinese side of the story was really tough too. I mean, China is in an economic contraction.

It is coming through a major property market crash in recent years. It has essentially tried to restart or kick its economy back into high gear by investing heavily in export-oriented manufacturing. So they're really relying on exports to drive economic growth in the country, where domestic demand is very, very weak. So for China, the stakes were very high as well. They needed to get a deal because their economy is also in a fragile position. Yeah. OK, so it sounds like some of these concerns are a bit alleviated now, at least with this new deal between the US and China. But as you mentioned, Mark, this is only a

90 day pause. So this is going to take us to three months from now or something. What happens if the US and China don't reach a more permanent agreement by then? Yeah, the deal is fragile. I mean, it is the opening of broader trade talks that are meant to happen between the two countries. And Trump has said if the trade talks don't go the way the US wants, he may reimpose higher tariffs. Now, he has said we're probably not going back up to the 145% on Chinese tariffs because

even he acknowledged that was essentially ludicrous. That would have led to a decoupling of the world's two largest economies. on Chinese tariffs because even he acknowledged that was essentially ludicrous, that would have led to a decoupling of the world's two largest economies. But he has said if trade negotiations do break down, tariffs could go up again. There's also the fact that a wallet is a significant reprieve and has been widely celebrated by investors and economists. It doesn't change the fact that tariffs are still in place and are still much, much higher than they were only a few months ago. So a 30% tariff on Chinese goods is still very disruptive to trade between the two countries. At that level, certain types of goods, whether it's sportswear, shoes, toys, all these very

low margin goods may not actually be profitably sold coming from China into the US market with tariffs of 30%. You know, higher margin goods, electronics, computers, that kind of stuff will still probably keep trading. But we got to remember 30% is still a very high tariff to put on one of your largest trading partners. Yeah, it seems small compared to 145%. But originally, like if we just looked at a 30% tariff, that's that's a huge deal. It is a huge deal Yeah, all right I want to also ask you about the trade deal that the US has made with the United Kingdom because this was also announced

Recently in the last week. What exactly does this deal entail? So this deal is interesting because it is Being seen by other countries as a potential model for what other trade deals will look like. Just to back it up a second, the reason where we are is because in early April, Donald Trump announced tariffs on pretty much every trading partner the US has. He said we're going to do a baseline 10% tariff on everybody and for dozens of partners, both close allies and adversaries, he announced much higher tariffs. Now, we had you on the show to talk about that, the liberation day tariffs.

The liberation day tariffs. Exactly. Quote, unquote, liberation day tariffs. He freaked out a week later. Stock markets crashed. Investors started abandoning U.S. treasuries, U.S. dollars. It was totally wacko, and it was crazy enough that even Trump saw he should probably back down. So he announced a 90-day pause on all of these reciprocal tariffs except on China.

And he said, we're going to take the next 90 days and we're going to cut deals with individual countries. The UK is the first of these deals to emerge. So it is being looked at, again, as a potential model for other deals. So what does it entail? Bad news is the 10% baseline tariff is still in place. Trump did not do away with that. And the big takeaway from that is that kind of seems to be the new normal.

10% baseline tariff is probably what a lot of countries are going to end up with. But there were specific kind of sectoral agreements. baseline tariff is probably what a lot of countries are going to end up with. But there were specific kind of sectoral agreements. So the tariffs on steel and aluminum that the US had put on for the UK have been removed. Tariffs on automobiles have been lowered for the first 100,000 automobiles that the UK is going to send to the US. It hasn't been completely removed, but it was dropped from the high 20s down to about 10%.

So that's really good news if you're Jaguar Land Rover. The UK responded by offering to buy more ethanol and lowering the tariff on ethanol imports from the US. And this is a really interesting part of the deal. They also agreed to buy a ton of Boeing planes. Now this is a really interesting part of it because Donald Trump's approach to trade seems to be very much based on individual deal making.

He's not a guy for like multilateral rules, for kind of broad agreements that are going to cover every single country in the same way. He wants to go country by country, company by company, sector by sector, and make specific deals and often he wants to cut like actual deals that you will buy X amount of Boeing country by country, company by company, sector by sector, and make specific deals. And often he wants to cut actual deals, like you will buy X amount of Boeing planes or what have you. So like very specific deals is what you're saying. Very specific deals.

Yeah, exactly. So like one of the reasons the UK deal happened was because they agreed to buy Boeing jets. So that's essentially the structure of the UK deal. There's interesting tidbits, like they've agreed to open each other's beef markets up. But there's lots of concerns in the UK because they don't want genetically modified beef. So how much US beef will actually come in

remains to be seen. But the headline is 10% tariffs remain in place. But on kind of a sector by sector basis, there's definitely been concessions made. And then, Mark, in the last few days, we've seen Trump in the Middle East. And it looks like they've been making some deals there as well. So what do we know about those?

So Trump's in Qatar and Saudi Arabia kind of as America's salesman in chief. He's basically got a whole bunch of CEOs in tow and trying to drum up investment in the United States. And this is, again, part of kind of how Trump seems to be approaching trade and deals. It's like country by country, deal by deal. So after the Qatar meetings, he announced,

Qatar Airways was buying 210 Boeing jets. Again, we have, you know, Trump essentially brokering deals for jets. It's kind of crazy. You had announcements of Qatari energy companies investing in the U.S. as well. Coming out of the Saudi arrangements, you had big announcements from Saudi Aramco of investment partnerships and potential agreements with U.S. companies as well. So it's a strange part of how Trump seems to be operating in the world right now is it's going not only

negotiating trade deals, but also kind of cutting deals for individual companies and then trumpeting the investment that he's supposedly bringing back to the US. That does seem a little unusual, right, for these smaller deals? Like you're saying, like with airplanes, again, that's not really something we usually hear about. It's strange when it's paired against the fact that he is disrupting private commerce

in many ways by blowing up the trading system and then he's going around brokering these individual deals. It's very kind of, you know, Trump deals with things in his very personalist way. The whole trip though has been kind of overshadowed by the fact that the Qatari royal family has offered to donate a $400 million jet to Donald Trump to be the new Air Force One. This has sent people back in the US absolutely wild. The Democrats are calling it a giant bribe. It is very strange. Trump is saying, why wouldn't we accept a free jet? Come on, people, we're saving American taxpayers money. But again, you're accepting what looks like tribute from a foreign government

after doing all of these deals. It looks pretty iffy to say the least. This is the Trump model, the feudal or Emperor Trump model where he goes around and he brings his courtiers with tow and people give tribute to him. Boeing's look like to Trump, maybe what horses looked like to old European aristocrats. It is not how trade deals and arrangements have typically been done. And yeah, it's going to be interesting to see whether that actually that Air Force One deal flies to use a part.

So to speak. So to speak. We'll be back after this message. All right. So, Mark, we're seeing the U.S. starting to reach trade deals with other countries. So where does that leave us? Where does Canada stand with the U.S. right now? So Canada was one of the main targets of Trump in the early months of his presidency. He came out the gate and targeted Canada and Mexico and China with, you probably remember these tariffs that were supposedly tied to fentanyl.

He then started announcing a range of sectoral tariffs that really hurt Canada, like steel, aluminum, automobiles being the big ones. Since the quote unquote liberation day in early April, Canada's been in a somewhat better position than other countries. We weren't hit by the baseline 10% tariff. We also got a major carve out on those fentanyl tariffs for goods that comply with the Continental Free Trade Agreement. It used to be called NAFTA, it's now called KUSMA or the USMCA.

So if your goods, if you're a Canadian manufacturer and you make goods that get the stamp saying, you know, enough of this good was made in Canada, the US or Mexico, it can cross the border into the US tariff free. That is a major, major concession because that means, you know, economists are still debating exactly what percentage of Canadian trade will be tariff free, but could be 80%, 90% of goods coming from Canada into the US will trade tariff free. Most, most of the goods then. The vast majority of goods.

Again, it's not entirely clear, but economists have estimated once Canadian companies get the USMCA compliance and they get the paperwork in order, the average effective tariff rate on Canadian goods going to the US will be somewhere between five and 7%, which is again below the 10% baseline tariff. Still much higher than it was. Remember pre-Trump, we're talking about two, 2.5% average effective tariff. So it is much higher, but it is lower than other countries.

Now, the caveat on that is we still face, you know, tariffs on a number of very important Canadian industries, steel and aluminum. Autos is a big one. Again, there's been a couple of carve-outs for autos in what was a major win for the Canadian and specifically Ontario automaking sector. They exempted auto parts that come from the USMCA countries from tariffs. But if you're shipping a finished vehicle, you're still going to be facing tariffs on the portion of the vehicle that isn't made up of US parts. Anyway, it's very confusing as all of these kind of tariff

conversations do, but the headline is broadly, we're in a better position than other countries. And we're no longer like the only or even the main target of Trump's trade war. But it's still very bad news for specific sectors. And you see that showing up in jobs numbers already in Canada. Yeah, what do we know about that? Like how has it affected our jobs?

You're starting to see it. Like you're seeing it in specific company announcements. So you know, GM and Stellantis have essentially cut shifts or- These are both automakers, yeah. Idled factories in Windsor, Oshawa, Ingersoll. A very dramatic move earlier this week, Honda, which had promised a $15 billion investment in EV manufacturing in Canada,

basically said we're gonna put that on pause for two years. Now, they described that as being because there's a fall off in demand for electric vehicles. There's no doubt that there are other things at play here. For example, the US is cutting consumer subsidies for EVs. So there is a falling demand for EVs, but it's hard not to see Honda's decision to pause this investment as being tied to the broader impact of tariffs on the Canadian auto sector. In the latest jobs numbers, you see a significant contraction of about 30,000 jobs in manufacturing

in Canada. The biggest hit in the latest jobs numbers was in Ontario and Quebec, which again is where you would expect if you're looking at the most targeted sectors, steel, aluminum, and automobiles. So the tariffs are starting to show up in the real data, I guess is the way to put it. For months, we've had very negative sentiment data. So when you go out and ask people, it was very clear that people were nervous, that they were talking about cutting back on spending and all of that. But it's taken a while to actually show up in the hard data in Canada. Over the past couple

of weeks, we're starting to see in the trade numbers and in the employment numbers that these tariffs are having a real effect. So we talked about the job numbers. What about the trade numbers? Like, do we have any idea about how this trade war has affected what we ship and where? Yeah, so it's been really interesting in recent months because basically since Donald Trump's election and the expectation that tariffs were coming in, Canadian companies rushed to ship goods into the US to kind of front run these tariffs. So in late 2024 and early 2025,

you saw a huge surge in Canadian exports heading to the US. That has dropped back in March. So in March you saw a 6.6% decline in Canadian exports heading to the US. That's again coming back from a very high level. So how much is that just a slowdown in the front running? You still saw pretty significant I guess tariff front running in the auto sector because auto tariffs didn't come into effect until April. Companies were rushing cars into the US. But you're starting to see this fall off in exports

from Canada to the US. The same time, and this is really interesting in the latest trade numbers, is you saw a 24% jump in exports to other countries. So when you just look at the headline numbers, we all go, yay, that's a story of diversification. You know, that's trades dropping to the US, but it's increasing to, you know, the Netherlands, to the UK, to Asia.

That seems like a good thing, right? That's what we want. It is a good thing. It is a good thing. It's very much what we wanted. It's very much what people are hoping for. There are caveats, however, when you look at the data, you know, a lot of those big spikes in shipments were probably one-off things.

There's a big gold shipment to the UK, for example. It's pretty clear when you talk to economists who are looking at the data and you look at other forward-looking indicators like orders for Canadian goods, it's clear that it's contracting. We are very likely going to see a contraction in Canadian exports in the coming months. And the reality is, as much as we want to diversify away from the US, they are by far our biggest customer. So it's a big lift if we're going to see those potentially hopeful trade numbers in March

really start to take hold. OK, so Mark, as you just emphasized there, our biggest trade relationship is still with the US. We are really dependent on this. And last week, of course, we saw Prime Minister Carney and Donald Trump meet for the first time since Carney was elected prime minister at the White House. Could there be a shift in the trade relationship between Canada and the US as a result of this new relationship, new prime minister we have? Like could Canada be next for a trade deal here? It seemed to be a positive meeting.

Mark Carney and Donald Trump clearly get along better than Justin Trudeau and Donald Trump. I mean... Lauren Henry He didn't call him governor for one thing. Peter Van Doren He didn't. I mean, he very clearly had a very low opinion of Trudeau and had a low opinion of Christopher Freeland. He seems to like Mark Carney. That's a positive thing.

The flip side is there's no indication that there was any immediate progress made in the meeting last week. There was no promises made to lower tariffs. There was no indication that we are going to be fast-tracked or jump to the front of the line. Again, we're in a world where the US is now trying to cut deals with dozens of different countries. I think it's fair to say that Canada's probably not at the front of that list.

They're trying to do big deals with the European Union, with Japan, other countries, and in that kind of 90-day frame, remember, deliberation day tariffs were only paused for 90 days. So Trump and his team are in go mode on this kind of global deal making. I don't see any indication that Canada is gonna be at the front of that line. There's still an expectation that the Continental Trade Agreement, the USMCA or CUSMA is probably gonna be renegotiated earlier than previously expected.

The renegotiation date was originally in 2026. We could see that start to get moved up. That is gonna be the next phase of the kind of nitty gritty trade debate that're going to be having between us and the US. There is no doubt there is, you know, potentially in the interim efforts from Canada to try to get better deals on autos, steel, aluminum. We are likely going to get hit with another round of tariffs on lumber and on copper and maybe some other kind of critical minerals. The US has kickstarted a process, like an investigation process, into those sectors. So we're probably going to see more tariffs before we're going to see fewer, I

guess, on those specific industries. How we move forward into the USMCA negotiations, I think is going to be the key thing to watch. The new cabinet that Carney announced on Tuesday suggests that the Canadian government's putting a premium on that negotiation on those deals. Dominic LeBlanc, who's a well-regarded minister, was essentially given a portfolio to deal with, I mean, it was, I think, US-Canada relations, which was broken out from the general international trade portfolio. So he was basically given marching orders to go and do deals with the US. He was for the first number of months of the Trump presidency, he was Canada's finance

minister, does seem to have good relationships with people in the US. So he's going to be the kind of key person to watch on that file. Okay. Just lastly, before I let you go here, Mark, we've talked about these deals and the effects with people in the US. So he's going to be the kind of key person to watch on that file. OK. Just lastly, before I let you go here, Mark, we've talked about these deals and the effects of the tariffs. But I guess I wonder about the overall impact on the global economy. People are wondering about the prospect of a recession, right? Is that still a possibility?

The agreement on Monday between China and the US is a major step forward. It is a very positive development for the global economy writ large. A lot of forecasters have dialed back their expectations of a recession in the US. Likewise, Chinese growth will likely be better. You know, this is positive. It's also a very positive signal.

I mean, I think we've all been living in this insane world where it looked like Donald Trump was preparing to rip up every single rule of global trade and was really quite prepared to tear down the whole international trading system and move the US towards something that looked like autarky, like everything US consumes is produced in America. The deals with the UK and China over the last week or so suggest a much less hard line on that. It seems like he is paying attention

to advisors like Treasury Secretary Scott Besant, who's a Wall Street guy. And he's paying perhaps less attention to his hard line advisors on trade, like Peter Navarro, who was really pushing the let's decouple from everybody narrative. But the big caveat is we're still in a world in which the US has pushed tariffs up to levels

not seen since the 1930s. It has dramatically increased trade barriers. It has effectively is trying to unilaterally rewrite the global rules of trade. That's not an environment that's conducive to global commerce. It's not a environment that is good for the global economy. It is a world in which inflation will probably be higher.

Companies won't be making decisions based on the most effective or efficient way to do business. They're going to be looking at how do I dodge tariffs? How do I move things around? And it's not a good world for Canada. Canada is a trading nation. We're a country that benefits from a open, free flow of goods. The deals over the last week are, you know, they're clearly positive, but we're still

in a whole new world for trade and it's a precarious one. Mark, thanks so much for taking the time to be here. Thanks for having me on. Mark Rendell reports on economics for The Globe. That's it for today. I'm Maynika Ramon-Wilms. Our intern is Kelsey Howlett. Our associate producer is Aja Souter. Our producers are Madeleine White, Michal Stein, and Ali Graham.

David Crosby edits the show. Adrian Chung is our senior producer and Matt Frainer is our managing editor. Thanks so much for listening and I'll talk to you tomorrow.