U.S. Canada trade agreement is in deep trouble

The U.S.-Canada trade relationship took another turn for the worse this week — and a critical deadline is now less than three weeks away.

The USMCA, the flagship North American trade agreement signed by Trump in 2020, comes up for its mandatory six-year review on July 1. The review can result in an extension to 2042 — or, if it fails, the agreement converts to annual status, with any party able to withdraw on six months' notice. Trump was characteristically blunt this week: "I'm not looking to renew it," he said, adding that "we don't need anything that Canada has."

The Gordie Howe Bridge — a major infrastructure project jointly owned by Canada and Michigan, and a significant boost to cross-border trade — was set to open this week. That opening has been put on hold, reportedly under White House pressure, pending further discussions.

The deterioration in relations has been building for months. In January, Prime Minister Carney delivered a speech at Davos that reverberated well beyond the room. He declared the old rules-based international order finished and urged middle powers to act together or risk ending up "on the menu." The crowd gave him a rare standing ovation — a reception Trump had not received when he spoke there. Trump noticed. "Canada lives because of the United States," he responded. "They should be grateful to us."

The irritants are stacking up. Canada runs a modest trade surplus with the U.S., almost entirely from crude oil sold at a discount for refining south of the border. Around the time of the Davos speech, Carney signed a preliminary trade agreement with China that included a provision allowing up to 49,000 Chinese electric vehicles into Canada at a 6 percent tariff — down from 100 percent. U.S. and Canadian auto manufacturers attacked the move immediately, given how central auto manufacturing is to the USMCA framework.

The USMCA extension looks unlikely. But in practical terms, the change may be less dramatic than it sounds — the U.S. is already violating the spirit of the agreement by maintaining tariffs on Canadian aluminum and steel.

While Trump remains in office, the relationship will continue to be testy, and at times openly hostile. July 1 will tell us how much worse it can get.

 

Hilliard MacBeth

 

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