Canada considering reduced tariffs on autos, metals to make U.S. trade deal: sources

No deal was announced. And Carney’s office revealed nothing publicly of their conversation other than to confirm it happened, just as it had a day earlier. 

And Trump, uncharacteristically, had not yet posted on his social media website about any trade deal or lack of one.

Barring a last-minute deal, the latest 50 per cent Trump-imposed tariffs on about $28 billion worth of Canadian products were set to take effect at 12:01 a.m. Wednesday. 

Late Tuesday afternoon a sense of pessimism was growing, including among some advisors to the Canadian government like former Quebec premier Jean Charest who told the Star in an interview that “we’re down to the wire.”

“We expect that the Prime Minister will talk to the provinces if there is no deal to brief them on where we are. And Canada will definitely do a response and it’ll be a strong response” to the U.S. tariff plan, said Charest.

The leaders’ conversation came hours after Carney’s negotiators Dominic LeBlanc and Janice Charette met in Washington with Trump’s top trade officials, U.S. Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick, with no apparent agreement reached after nearly two hours.

On the weekend, however, Canadian officials had reached out to industry stakeholders to sound them out on impacts and possible reactions to a range of tariffs on the key auto, steel and aluminum sectors that the U.S. insists should remain in place.

A source in the auto industry with knowledge of the negotiations, speaking on condition they not be identified, said what the Americans have offered is to reduce so-called Section 232 tariffs to 15 per cent, down from the current 25 per cent, but Washington wants to maintain tariff exemptions on U.S. content only, while Canada wants to see all content under the Canada-United States-Mexico Agreement (CUSMA) exempt. 

American and some Canadian officials have argued that an agreement that includes a lower baseline tariff would still leave Canada with a better deal than other countries.

But the national president of Unifor, Canada’s largest private sector union representing thousands of affected workers in tariffed sectors, pushed back.

“We are not other countries,” said Lana Payne. “We are the country that has had 40-plus years of free trade with the U.S. which has resulted in integrated supply chains. You can’t compare us to Japan or South Korea or any of these other places — the U.K., Europe, who have negotiated whatever tariff rate they’ve negotiated — because we are not the same. That means a tariff, even if it’s lower, may still not be the best tariff when it comes to what makes us competitive and when it comes to how we protect our manufacturing sector and industrial economy.” 

As the threat of a new round of American tariffs under a different law — so-called Section 338 tariffs — loomed, Canadian industry leaders cautioned Ottawa should insist on zero tariffs for goods that comply with CUSMA, and insisted that there be zero tariffs on Canadian content as well as U.S. content. 

But a key concern expressed by three of the Star’s sources is that the American demands, if accepted, could potentially still leave an effective tariff rate on autos made in Canada that would eat into the narrow profit margins of automaking companies and within years drive them to move production out of Canada.

“If that’s the case, these guys will continue to make the cars that are currently on the lines right now, but they won’t renew them,” said one source, who also spoke on a background-only basis. “And so you’ll see a bunch of tough decisions over the next one to five years, like the Stellantis Brampton crisis right now.” 

The Brampton plant was idled when Stellantis moved production of its Jeep Compass to the U.S., and Unifor says the company has “informed the union of its intent to open discussions with another firm about the potential sale of the plant.”

A fourth source, who also spoke on condition of anonymity because the briefings were strictly confidential, said Canadian officials have also discussed what level of lower metals tariffs might be acceptable to the steel and aluminum industries.

That source said Canada would be better to pay a certain cost now in terms of more support for affected sectors than to accept a bad deal or a level of tariffs that may never be reversible, even at a CUSMA table.

“What you accept today you might have to live with exactly for a very long time and there’s no free lunch. You have to look at the price you’re going to end up paying and for how long you’re going to have to pay for it and I’d rather have my government pay to buy time to get a better deal than get the wrong deal and end up having to pay forever,” the fourth source said.

CUSMA, or USMCA as it is known in Washington, was signed by Trump in 2018, but upended in his second term as the U.S. president wielded tariffs to pressure global manufacturers to make more of their products on U.S. soil. 

After Canada’s retaliatory measures stung, Trump vowed in July to impose new 50 per cent tariffs against a range of Canadian products, using a U.S. trade law that does not require him to consult Congress. It imposes additional duties against about $28 billion worth of Canadian exports in response to Canada’s so-called “unfair” and “discriminatory” trade measures against U.S. autos, alcohol and dairy products. 

The White House is angry at Canada’s matching 25 per cent counter-tariff on autos, and furious that every Canadian province and territory except Alberta and Saskatchewan took U.S. booze off their liquor store shelves. Trump’s long-standing complaints about Canadian dairy were previously addressed in CUSMA by Canada allocating more access via tariff-rate quotas for American imports, but demands for even more access are now on the table.

Canadian Manufacturers & Exporters CEO Dennis Darby, who sits on the government’s Canada-U.S. advisory council, said whether Canada can strike a deal is the ”$28-billion question.”

Should Canada not avoid the Section 338 tariffs, which cover roughly five per cent of what Canada sells into the U.S., Darby said “many of those products would be commercially uncompetitive in the U.S.”

“There’s a lot of trepidation right now and a lot of worry in the sector,” he said Tuesday, adding businesses are “impatient” to see what happens.

Darby said the fact that the new tariffs would only apply to Canada is what makes them “particularly troublesome” and carries the risk that U.S. customers would simply move away from using Canadian suppliers.

“For manufacturers, it’s visceral.”

He said the Carney government should strike a deal that avoids new tariffs while securing some “relief” to the levies on steel, aluminum autos and lumber and “at least points to (the) direction of ultimately renegotiating or negotiating CUSMA.”

As the deadline loomed, the U.S. Chamber of Commerce urged both countries’ negotiators to strike a deal.

“The introduction of higher tariffs would damage both economies, drive up costs for U.S. families, further disrupt critical supply chains and risk the 13 million American jobs that depend on trade under the U.S.-Mexico-Canada Trade Agreement (USMCA)”, Neil Herrington, the chamber’s senior vice-president for the Americas, said in a written statement Tuesday.

“Conversely, a deal that at once significantly reduces U.S. Section 232 tariffs on imported Canadian steel, aluminum, lumber and auto components, returns U.S. wine and spirits to Canadian shelves, enhances Canadian market access for U.S. dairy producers and addresses Canadian retaliatory tariffs would be a boon to U.S consumers, producers, farmers and manufacturers.”