The Decibel - Why the absence of a U.S. trade deal might be a good thing

Episode Date: August 7, 2025

Canada failed to secure a trade deal with the U.S. by the Aug. 1 deadline. In response, U.S. President Donald Trump raised tariffs on certain Canadian goods to 35 per cent. And while other trading partners announced agreements with Trump, Ottawa enters its sixth month of negotiations. But recently, both Prime Minister Mark Carney and Trump have doubted whether a deal can be made without some tariffs in place – or if a deal’s coming at all.Today, Globe columnist Tony Keller joins the show. He’ll share what we know about the negotiations, what Trump wants, where Carney’s “elbows up” mentality has gone, and as more countries accept deals with blanket tariff rates, whether avoiding a deal could be Canada’s best strategy.Questions? Comments? Ideas? Email us at [e-mail]

Canada has still not secured a trade deal with the United States. This past Friday marked the latest deadline set by U.S. President Donald Trump for countries to make a deal. Some have landed one, but not Canada. Ottawa has been negotiating with the Trump administration for months now, and as talks continue, so do tariffs on Canadian products. Following the August 1st deadline, the U.S. even raised its blanket tariff on Canada from 25 to 35%. In the meantime, Prime Minister Mark Carney has doubted whether there can be a deal without tariffs, and Trump's not sure if a deal is coming at all. We haven't really had a lot of luck with Canada.

I think Canada could be one where they'll just pay tariffs, not really a negotiation. Today, Globe columnist Tony Keller joins us. He'll share what we know about the ongoing negotiations, what Trump really wants, and as more countries entertain deals with blanket tariff rates, whether sitting tight for now could be Canada's best strategy. I'm Shannon Proudfoot, guest hosting the decibel from the Globe and Mail. Hi, Tony. Thanks for joining us.

Thanks, Shannon. Great to be here. Now, we missed this August 1st deadline. to make a trade deal with the U.S. Can you kind of take us through what just happened and how we got to this point? Yeah. So even before Donald Trump arrived in the White House, he started making threats.

And they have escalated, de-escalated, gone sideways in various different directions, north, south, east, and west. We're now at the point where Canada was threatened with a 35% tariff on all goods outside of the U.S. MCA. And I think it was a bit of a shock that Trump actually carried through on that. It still leaves Canada in a pretty good position, or maybe the better way to put it, is a less bad position than a number of other countries. But there's obviously, you know, a great deal of uncertainty about where all of this ends up.

And I think even the prime minister and the other negotiators on the Canadian side are probably not certain. exactly what the U.S. government's bottom line is on these negotiations. Yeah, the U.S., they recently increased their tariff rate on Canada to 35%. And we're also struggling with these industry-specific tariffs. Can you explain to us what that blanket tariff on goods applies to, what is included, and which sectors are being more specifically targeted as well? Yeah, so the 35% tariff is interesting. most other countries that have either done a deal with the United States or have simply had a

tariff imposed on them are looking at a 15% or more blanket tariff. So the European Union, South Korea and Japan all agreed to a 15% tariff on almost everything. Canada is getting a quote unquote better deal because the Americans are to some degree respecting the United States, Mexico, Canada trade agreement. What that means is the 35% tariff only applies to goods in Canada, goods shipped from Canada that don't qualify under USMCA. And that, according to the Bank of Canada, is only a very small fraction of Canadian exports.

The Bank of Canada said last week that in their estimation, 100% of energy exports are moving tariff-free. or a USMCA compliant, and hence don't get a tariff, and 95% of all other exports are USMCA compliant. So, in other words, a fraction of a fraction is getting hit by this 35%, so it's pretty small. However, steel and aluminum get a 50% tariff for all steel and aluminum exports from the rest of the world, including Canada, and there's no USMCA exception. There are new tariffs on softwood lumber that are 20-something percent and are going to go up to 30-something percent, no USMCA exception, and there are auto tariffs of 25 percent, and Canadian exports that

include U.S. parts get an exemption from that to the extent they use U.S. parts, but to the extent they do not, they get hit with a 25 percent tariff. So there's a basket of things hitting Canada, and because our trade relationship with the U.S. is so close, because our economies are so integrated, you know, this is having an impact on several Canadian industries and hence could have an impact on the Canadian economy. I see. So the USMCA, our free trade agreement with Mexico and the US, kind of like an umbrella that's protecting a large amount of our goods overall, but then these specific sectors are getting hit much harder and that's where the pain point is. So can you back up and remind us why the U.S. says they're hitting us with these tariffs in the first place? Where does the reasoning go back to? Yeah, that's where things get funny. And so what you'll hear, every time you'll read a story, it will say the 35% tariff is based on fentanyl.

And it's based on the claim that Canada is a source of fentanyl exports into the United States, fentanyl smuggling into the United States, and that the United States is imposing this tariff to encourage Canada to do more to control the border and stop fentanyl. And that's a legal pretext. even the Trump administration barely believes that. So the Trump administration just wants to impose a tariff on Canada and it needs a legal pretext because Congress is actually vested with the power to levy tariffs and the president gets these special exceptions. And so Mr. Trump is using his special exception power and finding excuses to use it. Now, that's the 35% tariff.

The other tariffs come under a completely separate special power that the president has. So the tariffs on aluminum, on steel, on lumber, there's also now a tariff on copper and, of course, on automobiles. Those come under a completely different category. So that's where Canada is. And it's at the moment not a great position to be in. We saw just this week, Prime Minister Carney called Canada a rounding error when it comes to fentanyl. So it's funny that it's this sort of spoken out loud thing, that it is a pretext and excuse.

But still, that's kind of what we've got to work with because they want to do it. So what have been these effects so far of the industry-based tariffs on Canada and how's Ottawa been responding? So I think so far the impact on the Canadian economy has been real but limited. So, for example, we saw in the Bank of Canada last week say that they expected that we'd have negative economic growth in the second quarter after kind of a jump forward in the first quarter where exports accelerated because people were trying to get ahead of the tariffs. However, the Bank of Canada expects that if all remains as is, we will have economic growth in the third quarter and in the fourth quarter and into 2026. So in other words, this is having an effect on Canada, but even though we're closely integrated with the United States, even though so much of our trade is with the United States and so much

of our economy is tied up with the United States, we still have a whole huge piece of the economy that is separate from the U.S. that trades with other countries or that just trades among ourselves. And as a result, the impact on Canada so far has been small. And if tariffs don't go higher, it's likely the impact will continue to be small. However, that is sort of predicated on the assumption that the USMCA continues to hold, that we continue to have on the whole lower tariffs than the rest of the world. So less bad than the rest of the world. It's not a good deal, but it's a less bad deal than the rest of the world is getting so far. So long as that holds, the impact on Canada will be negative, but not overly negative. To the extent that the United States

ramps up tariffs, to the extent that the United States decides, let's rip up the USMCA, or let's rewrite it in a disadvantageous way to Canada, the economic impacts will be greater. I see. And earlier this week, Carney also announced $1.2 billion in support for the softwood lumber industry, which hasn't been hit with tariffs yet, but there's been some threats there of the possibility. So I imagine we're going to see more measures like that, which also, would hit the country's bottom line, right, even in sort of a less direct way. Now, with Carney, he's been working for months to secure this trade deal with the U.S. this past week just before this August 1st deadline that Trump set. We saw countries like Japan, the European Union,

South Korea, and other trading partners. There was great fanfare as the White House announced deals with them. So what can you tell us about those deals and why has Canada not been able to put itself on that list? Yeah. The deals announced with Japan, the European Union, South Korea are very, very odd and very unusual. First of all, when you say deals, you have to put it in quotation marks. They're not trade agreements in any normal sense of that word. A trade agreement is hundreds or thousands of pages long. It's a legal document. It's a binding contract. These are not that. These are essentially press releases. And the sides have actually argued over what's in the press release and what they agreed to. But broadly

speaking, those three groups, the European Union, Japan, and South Korea all agreed to accept a 15% tariff on their exports to the United States. Most of their exports, there are some exceptions in there. And in return, they agreed to not retaliate against the United States and to not put tariffs of their own on the United States. And in addition, they also agreed to make certain investments in the United States, in each case in the hundreds of billions of dollars. And that last part is exceedingly vague and nobody knows what it means or how it's going to be enforced or even where the money is coming from or where it's going. So it's all pretty odd. Canada, I think is absolutely right to have not accepted that kind of a deal because we have the USMCA.

Now, we may be forced to accept something like this in future, but for now we have the USMCA. That is up for renegotiation next year. So for now, I think it's probably a good idea to say to the Americans, look, we're not going to volunteer for a worse deal, whereas the Japanese, the Europeans, and the South Koreans all did volunteer for something worse than the status quo because the Trump administration was threatening them with something even worse. So they kind of, you know, accepted a midpoint that is less miserable than what they were being threatened with. Less bad is about as good as it gets these days. I think we've seen this week, Carney and some of key ministers responding to those quote-unquote deals, where they're sort of almost claiming

credit for time served, where they've been highlighting how much Canada already invests in the United States. Like if this is a shakedown, we've already paid a lot. You see these countries making commitments for investments in the United States. Canada is the second largest investor in the United States today in the world. We have 40 million people. We are the second largest investor in the United States in the world. But with some other countries settling for these higher tariff rates, like 15%, as you just said. How did this happen? Like, this would once have been considered quite egregious, and now people are sort of lining up with a smile on their face for it. How did we get here? Yeah, this is an example of Trump using an extremely old negotiating technique,

but he's used it successfully because he's, the United States is the biggest, so it can make these threats that others might not be able to make. And so Trump has essentially said, I'm going to punch you in the face. And countries have said, whoa, whoa, whoa, don't punch us in the face. And once you start to get worried about being punched in the face, well, when you receive a lesser blow, a lesser injury, you say, hey, I got away. I got away with less damage than I was expecting. So he's basically just changed expectations.

He has conditioned both the American public and the investing community and a whole bunch of other countries to expect very bad things to happen on tariffs. And then when he does somewhat less than the very bad thing, people say, well, well, you know, we can live with that. I was expecting worse. And because the United States is the biggest player, he's able to do it. What do you think Trump wants here? What is going on? So one of the things that I've written a few times is that Trump has a gambler's tell. Every gambler has a tell. And, you know, it's a little sign that they give at the table when they've got a really good hand or a really bad hand. It might be they arch their eyebrow or they scratch their ear or something

like that. Trump's gamblers tell, though, is way easier to read. His gamblers tell us, he tends to just tell us what he wants to do. He tends to come right out and say it. Not necessarily everything, but a lot of things. And that is what does worry me about all this, because he has said repeatedly, I don't know why the United States buys cars from Canada. We don't want to buy cars from Canada. I don't know why the United States buys steel from Canada. We don't want to buy steel from Canada. So he's signaling something that I think he really intends. And the fact that a number of his secretaries have picked it up,

a number of his cabinet members have picked this up, and they will use that same phrase. But you have to understand, the basic thing that the Trump administration is trying to do is to cause more industry. to locate in the United States and to produce more in the United States and to import less. And he's particularly focused on manufactured goods. And within manufactured goods, he's particularly focused on automobiles.

And that is a problem for Canada for a couple of reasons. First of all, because we have an integrated auto industry with the United States, we don't have an independent separate auto industry that exports things to the United States. We have an auto industry that is fully integrated with the U.S. industry. And the second thing is, if you're trying to bring industry back to the United States from other countries, well, you know, Windsor is across the street from Detroit and Sarnia is across the street from Michigan. And all of southern Ontario and southern Quebec is a very, very short drive from the United States. Whereas if you're trying to bring industry back from China, like, that's 10,000 kilometers away. That's a lot harder to do.

Canada's really easy to do and really easy to target. And that would be the thing I would be concerned about. we'll be right back now carney he was voted in very explicitly to handle trump and his tariffs and to get us a good deal we still don't have a deal and we've started to see ottawa make concessions or sort of temper expectations to kind of try to cool things off or make things happen with the trump administration like with the digital services tax that was scrapped in june so was elbows up just kind of a nice idea or a moment in time. In reality, did we always have to keep our Canadian elbows squarely on the table? So it's a very tough one because on the one hand,

it's all situational. I think that's the thing you got to keep in mind. The reason we would use tariffs against the United States is to try to encourage the United States to change course. And Carney had said some things earlier this week on Tuesday. I think he said some more things on Wednesday saying, well, you know, we're not necessarily going to keep all of these retaliatory tariffs on the United States in place. We might even lower them because the goal is to harm the Americans as much as possible and harm Canada as little as possible. And what I'd add is it's not even just that. It's that Canada wants to get the United States to change course. If the United States doesn't change course, then our retaliatory tariffs may make no sense.

They merely add to the damage. So Carney is in a difficult position here because Canada is the smaller player. We are trying to use all the tools at our disposal, and that's tariffs but also persuasion, to get the Trump administration to behave a bit differently. To the extent that the Trump administration says to Canada, as it has said to a bunch of other countries, this is the tariff rate, take it or it gets worse. retaliatory tariffs may not make sense if the Trump administration absolutely stands on that. And all the economic models that I've seen from both the Bank of Canada and some work done

by the Peterson Institute for International Economics in the States suggests that the damage to the Canadian economy is considerably greater from retaliation than from the American tariffs. So retaliation is a tool, but it's not intended to be a permanent tool. It's intended to be a short-term shock to try to get the Trump administration to change course. And if it doesn't change course, we would actually say elbows down. And I think that is, I would suggest that. And I think that is what the Carney government is kind of hinting as its course going forward. So then what do you think elbows up actually meant in that case?

Well, Mark Carney never really defined it during the election. I think we all sort of read into it what we wanted to. read into it. And I think at that particular moment when people were feeling very angry at the United States and at the Trump administration, we read into it that it was sort of a, you know, fight. It was a fight analogy. It was we're going to drop the gloves on the ice and we're going to go at it with the Americans. But that may not be what it meant. It may have simply meant that we're going to try to do the best we can for Canada. We're going to fight for Canada, not necessarily fight against the United States.

We may use retaliation against the United States, but we're going to use that strategically. We've seen Trump. He's been so back and forth on the tariff rates, the reason for it. Erratic is really kind of the way to describe it. Leading up to this latest deadline last week, he suspended new tariffs against Mexico for 90 days,

but Canada didn't get the same extension. The ministers who were in Mexico City this week were asked a lot about why they thought that was, what the difference was in treatment and they didn't answer. Do you have any sense? What's your analysis of why we're being treated different than the other country in this North American free trade agreement? It's a negotiating technique. And it is also because there are really only two countries that have retaliated against American tariffs. China has retaliated and Canada has retaliated. So this may be about trying to send a message to everybody else that the Trump administration is

saying, listen, we told you, don't retaliate. We are going to punch you. Do not punch back. And it may be the Trump administration trying to say, see, if you punch back, this is what we will do. So that is probably part of it. And there's probably also a bit of a divide and conquer of making sure that Canada and Mexico are not given the same treatment so that Canada and Mexico have less incentive to sort of come together and be on the same side of the table against the United States. Last week, we heard Carney temper our expectations. for a Canada-U.S. trade agreement. Is there any sense that he might have set the bar too high on this in the first place? I think, you know, elections are always about promising people

the moon and promising people that the person running for office can make it all better. The truth is that Mark Carney does not have a magic wand. Nobody does. Because we are the smaller player, because we are, you know, an economy about one-tenth the size of the United States, and because we do relatively so much of our trade with them and they do relatively less trade with us, you know, the United States has leverage over Canada and can push a long way. There will be damage to the U.S. economy, depending on how far the Trump administration pushes, but the damage to us will always be greater. So we're in a tough position, and I don't think it really matters who the prime minister is.

we cannot make magic things happen and we cannot make it all better, really only the Trump administration can. And ultimately, it comes down to the American people and American businesses and the American courts. I think all of them have a lot more leverage over the Trump administration than Canada does. I love it when someone provides a perfect segue. What I wanted to talk to you about next was USMCA is protecting us, as we discussed earlier, from a lot of these 35% blanket tariffs, a lot of our goods. Is there an argument to you that the status quo is better than striking a bad deal? Or is there an idea that maybe Carney should stall until USMCA is set to be renegotiated next year?

They may actually be stalling right now. I take it that that is kind of what's going on with Canada being able to say to the Americans, hang on a second, we're not accepting the deal. that you gave the Europeans and the Japanese and the South Koreans because that's so much worse than what we have right now under U.S.MCA. So, in effect, Canada may be stalling and may be using the umbrella of the U.S.MCA to keep the rain off us as long as we possibly can. And again, I think it's important to remind people that the effective tariff rate on Canada

is estimated by the Bank of Canada to be about 5%. In other words, if you combine all the tariffs on Canada, all the goods that do not face any tariff at all, and then steel aluminum and others that are facing a pretty high tariff, you get to an average about 5% on all Canadian exports. Whereas if you're the Europeans, the Japanese, the South Koreans, you're looking at basically 15% across the board, the British 10% across the board.

A bunch of other countries are getting 19, 20%, or more across the board. So Canada is in, at the moment, a less bad position than a number of other countries, and we're in a less bad position because the USMCA still exists and the Americans continue to respect the USMCA for now. What about the consequences, the retaliation, if you will, that has nothing to do with Canada? What about Trump's own approval ratings, the American economy, the things that are going to work their way through his. own country system that might make him second guess this. Do you think that fits into this stalling strategy you're perceiving from the Canadian government? Yeah, I think that is important to bring up because time may be on Canada's side. Time may not be on Donald Trump's side. We have court challenges to the use of some of these tariffs. We have public opinion and to the extent

the public opinion shifts, the president may have to react. We have some businesses that are going to push back against the tariffs. The auto industry has been, I think, the most vocal in saying, listen, you're actually harming the U.S. auto industry because of the way you've structured these tariffs right now. So all of those could push back. And then, of course, there is an election barely more than a year away that could change the makeup of at least one house in the U.S. Congress. and shift it to being a democratic majority, House of Representatives.

So it's another thing that I think encourages the Carney government to say, hang on a second, we're not rushing into something the way some other countries did because we have some protections that the other countries don't. That election you're talking about a year from now is the U.S. midterm elections. Last question, we've been at this for months with Trump, Canada has. Where do you think this goes from here? So I think the big, big question, and it is the big, big unknown is whether the USMCA survives and in what form it survives.

And that ultimately comes down to how does Donald Trump and the Trump administration and this new Trumponomics that they are creating? How does all of that see Canada's economic relationship with the United States? Does it see Canada as a special trading partner that will get a best? deal than the rest of the world and will be integrated with the U.S. economy? Or does it see Canada as just another country which can get hit with fairly high tariffs like the rest of the world? And if it's the first category, we may continue to have a whole bunch of closely integrated industries like the auto industry. If it's the second category, if Canada is simply going to

get hit with the same tariffs as the rest of the world, that is going to have a fairly big impact on a number of Canadian industries, and in particular, it is going to have a big impact on the auto industry, and it will essentially, I would think, take apart the Canadian automobile industry, because right now the Canadian automobile industry is a North American automobile industry. And if you put up high enough tariffs, that becomes no longer tenable. So there are still serious pain points there. Thanks for walking us through this, Tony, and thanks for joining us today. Thank you very much. That was Tony Keller, a columnist for the globe.

That's it for today. I'm Shannon Proudfoot. 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. Thank you for listening.