Here’s how Canada and the U.S. can find an off-ramp and avoid a tariff war

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“I think the other reason is that Canada is going to do its due diligence on which sectors might be targeted by those new retaliatory tariffs, and will try to identify products that are of particular importance to swing districts in the U.S. House and swing states in the U.S. Senate, which may be in play in the midterm elections.”

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He noted that Ottawa would likely favour products for which Canadians have easy alternatives, such as U.S. alcohol. 

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“That’s been Canada’s approach in the past,” he said.

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As for the likelihood of finding an off-ramp, however, he said, “I think the challenge is that this government in Washington does not want to compromise on its vision of tariffs and its restructuring of the U.S. economy in ways that we now know and understand.”

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“That is their right, but it means that it will be very difficult for Canada to accept some of the conditions that would be necessary for a deal to be reached …”

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But Canadian retaliation is likely to invite a further U.S. response, making any eventual settlement more difficult.

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“Once Canada puts in counter tariffs, I think the U.S. will respond quickly with its own set of escalatory measures. And once you get into that escalation spiral, it just gets harder and harder to reverse the direction,” warned Cutler.

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Cutler said a plausible off-ramp could begin with a narrower deal, stripping out issues that accumulated in the final days of negotiation.

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“I think what happened was, over time, more and more issues were added,” she said. “Maybe if they went back to the bare bones of what the U.S. tariff threat was, and given that Canada, through these negotiations, did agree, it seems to address U.S. concerns there, I think a scaled-back deal would be one way to look at this.”

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She also suggested both sides could delay their tariffs for 90 days, giving negotiators more time to try again.

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Thompson said that kind of deal would likely require back-channel talks before a leader-level intervention. While a call between Trump and Carney could help, he said it would be more productive if trusted intermediaries had already established a basis for an agreement.

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“Something has got to be done behind the scenes and quietly rather than out in public, because both sides publicly have an incentive to escalate,” Thompson said.

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Cutler seemed to agree, noting that both governments may need trusted emissaries working alongside their trade teams — as Jared Kushner did with then-U.S. trade representative Robert Lighthizer during the final phase of the original CUSMA talks.

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“Both sides should pick emissaries that have the president’s and prime minister’s trust to work with the trade ministers to try and get some kind of deal over the finish line,” she suggested. 

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Cutler said she sees little evidence now of the political will required for a resolution.

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“I’m not sensing that right now,” she said. “But … as each day goes by, I’m hoping cooler heads will prevail because this is a lose-lose outcome for U.S. and Canadian businesses and consumers, and our overall relationship of two neighbours that have been historically very close.”

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National Post

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