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He said the characterization of the discussion as an attack on Canadian sovereignty went far beyond the reality. He pointed out that the 2018 Canada-U.S.-Mexico trade agreement already talked about the potential termination of the deal, to be replaced by a bilateral pact, if a member signed a free-trade agreement with a non-market economy (i.e., China).
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What to make of it all? I think that the Americans had a deal but, as per Trump’s “art,” they kept pushing, even after it was agreed to in principle.
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The Netflix discoverability issue was clearly not a deal-breaker for Lutnick or Greer, but it was grasped gratefully by Carney, once he realized that Ford was not going to put American booze back on the shelves as long as there were auto tariffs. As one Canadian official told me: “We really pulled out because Ford was not on board.”
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The premier admitted as much in his weekend interviews when he said negotiations stopped after he told Carney that it was “a terrible deal for Canada.”
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The sovereignty issue on steel is also something of a red herring. Canada was, in the words of one State Department official, “deputized” in the trade war against China in 2018, when Article 32:10 was added to CUSMA and gave the Americans undue influence over future trade negotiations. Unless the Americans attempt to apply the provision to market economies like India, the damage has already been done.
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The question is not whether Canada should align its tariff policies with the U.S. as part of Fortress North America, but how the Americans can insist on a perimeter deal that collectively protects the continental market and still tariff Canadian steel and aluminum. But that scenario remains notional.
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The deal-breaker was autos. The 15 per cent tariff ends up being an effective 7.5 per cent tariff once U.S. content (typically around 50 per cent of each vehicle) is exempted. But that is roughly equal to the profit margin on a car.
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Even if heavy-duty trucks were included in the 15 per cent tariff, the prospect is that, over time, the industry will migrate south. The real production giants now are Toyota and Honda, which produce three-quarters of the cars made in Canada. Toyota has called Trump’s tariffs unsustainable and announced plans to double the size of its plant in San Antonio, Tex. Honda is “seriously considering” a new plant in North America— for which, read: the United States.
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The only way that auto manufacturing in Canada remains sustainable with a 15 per cent duty is if Canadian and Mexican content are also exempted from tariffs, which could reduce the typical effective levy to around 1.5 to three per cent.
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But why would Trump do that when his express goal is to reshore auto production to the United States?
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Ford and Carney are both enjoying substantial polling bumps after walking away from a deal. Liaison’s latest poll has Ford’s PCs up four points on the Ontario Liberals; Abacus Data has the federal Liberals up 10 points on the Conservatives, as government approval ratings have risen by four points to 56 per cent.
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There is satisfaction in standing up to the bully, but there is also a real cost, as the workers at RYAM’s paperboard plant in Temiscaming, Que. are finding out. The magnitude of tariffs means the plant is no longer sustainable, the company said last week, and will close, taking 425 jobs with it.
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The pressure is not just on Carney and the premiers. Trump is hearing from members of Congress and state governors about the impact of rising prices. The president’s hand-picked Fed chairman, Kevin Warsh, warned on Friday that inflation is running too hot and the central bank has “work to do.” Yields on 10-year Treasury Bonds rose Monday on inflation concerns to their highest level since Trump returned to the White House.
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