US and Canada Near Trade Deal, Averting Tariffs

Canada and the United States are nearing a trade agreement that would prevent the imposition of threatened 50% U.S. tariffs. The deadline for these tariffs, which target approximately $20 billion worth of Canadian imports, has been extended to Saturday morning.

President Donald Trump described the emerging deal as “very fair” to both nations and anticipated benefits for U.S. farmers and manufacturers. A senior Canadian official, speaking anonymously, characterized the potential terms as “a very good deal for Canada,” while emphasizing that negotiations were not yet finalized. The official stated that the agreement would provide increased certainty, safeguard Canada’s dairy sector and jobs, and maintain favorable trade terms with the United States.

Earlier this year, Trump utilized a little-used legal authority from the Great Depression era to announce the tariffs, which would have affected about 5% of Canadian exports, including items ranging from hockey sticks to tongue depressors. Trump had claimed that Canada unfairly discriminated against American auto, alcohol, and cheese exports, and expressed frustration that Canada and China were the only nations to implement retaliatory tariffs against U.S. levies.

While specifics of the current agreement are vague, Trump asserted that Canada has agreed to eliminate tariffs on U.S. agricultural products, stating, "The tariffs will be non-existent for our farmers. Our farmers were paying tremendous tariffs into Canada, and those tariffs are going to be totally eviscerated. Down to zero."

Canada's current dairy system, known as "supply management," allows a set volume of imports at low tariffs, with significantly higher tariffs applied to volumes exceeding that limit. The U.S. argues this system hinders American dairy producers' access to the Canadian market. However, the senior Canadian official indicated that supply management was "not on the table" and that Canada’s dairy system would remain protected. This raises questions about how Canada will accommodate increased U.S. agricultural access while preserving its existing dairy framework.

As part of addressing U.S. trade complaints, Prime Minister Mark Carney reportedly asked provincial premiers to reinstate sales of U.S. alcohol. Some provincial leaders, like Nova Scotia Premier Tim Houston, expressed support for the direction of the talks, though Houston noted that consumer purchasing habits are uncertain. Canada has imposed retaliatory measures on U.S. alcohol, leading to a significant drop in U.S. spirits exports to Canada. The White House has stated the emerging deal includes a Canadian commitment to address these restrictions, though provincial governments ultimately control such sales.

The senior Canadian official also said the agreement would avert the 50% tariffs, protect jobs, and preserve Canada’s access to the U.S. market. It would also allow Canada to shift focus to its domestic economic priorities, including infrastructure, foreign investment, and export diversification. Provincial leaders have indicated that any agreement would not necessarily return the relationship to its previous state, with Saskatchewan Premier Scott Moe stating, "the old status quo is not possible."

Trump also suggested that the Keystone XL pipeline, previously canceled and revived multiple times, "may be awoken from the grave," though he did not confirm it was part of the trade agreement. Canadian officials have previously discussed reviving the pipeline with Trump.

Resolving the immediate tariff dispute is seen as a potential precursor to broader negotiations on the North American Free Trade Agreement (USMCA) renegotiation between the U.S. and Canada. Wendy Cutler, a former U.S. trade negotiator, suggested that clearing the tariff threat "should help pave the way for formal U.S.-Canada negotiations."

Both countries have incentives to de-escalate trade tensions. With nearly 72% of Canada's goods exports going to the U.S., and with midterm elections approaching, the Trump administration may be cautious about imposing new tariffs that could increase costs for American consumers.