Trump, Carney talk trade as negotiators battle over autos

PRESDIENT Donald Trump and Canadian Prime Minister Mark Carney spoke by phone about trade negotiations on Monday (Aug 18), a little more than 24 hours before the US is due to implement punishing new tariffs on Canadian products. 

Negotiators have been working for days to try to craft an agreement that would avert 50 per cent duties on a range of US imports from Canada, including milk, beer, plywood and hockey equipment. Both sides are also seeking to reduce existing tariffs and trade barriers they have on each other. 

The Trump-Carney call was confirmed by a spokesperson for the prime minister. 

Automotive sector rules are proving to be a major obstacle toward an agreement, according to people familiar with the matter.

Trump put a 25 per cent tariff on foreign cars and trucks last year, but offered Canada and Mexico a partial break based on US parts in the supply chain. A vehicle assembled in Ontario with half US content would have an effective tariff rate of 12.5 per cent, for example. 

Canada has pushed to reduce the headline tariff rate on autos to 10 per cent or expand the exemption, according to people with knowledge of the discussions who spoke on condition of anonymity. But the Trump administration has held firm to a minimum 15 per cent rate, the people said.

US Trade Representative Jamieson Greer has demanded Canada drop all of its trade retaliation measures — including the counter-tariffs it placed on US vehicles last year and provincial bans on the retail sale of American-made alcoholic drinks.

Canadian officials spent the weekend in Washington, locked in talks to try to avert tariffs that Trump has threatened to impose on Aug. 19 at 12.01 am Washington time if a resolution isn’t reached.

The president signed an order using a Depression-era law, the Tariff Act of 1930, allowing for 50 per cent duties on countries deemed to discriminate against the US on commercial matters. 

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Officials with the White House and USTR didn’t respond to requests for comment on Monday. A Canadian official, speaking on condition they not be identified, said that Canada’s top two trade negotiators met with Greer and US Commerce Secretary Howard Lutnick. 

Speaking with reporters earlier Monday, Carney gave scant detail about the nature of the trade talks. But he said his government is preparing for “all eventualities” if the two nations can’t come to terms. 

Canadian officials have been studying options for retaliation if Trump goes through with this new round of tariffs, according to people familiar with the matter. 

Carney also has to navigate a complicated political environment at home.

All of Canada’s major car plants are located in Ontario, whose leader, Premier Doug Ford, has said he will not reverse his province’s alcohol ban unless the US gives significant relief on tariffs. 

General Motors, Ford Motor and Chrysler parent Stellantis NV all have factories in Canada, but their production has waned over time and they accounted for less than a quarter of vehicles made in the country last year. The rest are built by Toyota Motor Corp. and Honda Motor. Protecting the Japanese automakers’ interests is a key concern for the Carney government. 

Greig Mordue, a former Toyota executive who now teaches at McMaster University, said a 15 per cent levy on non-US content would likely be too high for the Canadian auto industry. It would amount to a 7 to 9 per cent effective tariff rate, depending on the model — still a huge burden in a business of low margins, he said. 

“If you seal it with this permanency of 15 per cent, or whatever they land on, then that seals the long-term future of the Canadian auto industry,” Mordue said. “It will continue to wither.”

Canada must also keep an eye on the review of the continental trade deal, the US-Mexico-Canada Agreement. Those talks are expected to pick up sometime in the next year, and any deal Carney signs now on autos could set a new baseline — and potentially impact Mexico’s ability to protect its own auto sector.

There are other difficult aspects to the trade talks, according to people briefed on the matter. Canada’s dairy rules and the US tariffs on lumber and steel are also potential sticking points.

Greer has indicated the White House would consider holding off on the new tariffs only if Canada acts on major US trade irritants, including the provincial booze bans. “If a country retaliates against us, we’re obviously not going to tolerate that. We’ll take action,” he said on Friday. “My sense is the Canadians want to have a more conciliatory approach, but we’ll see.” BLOOMBERG