July 17, 2025 – New tariff announcements by Canada: What do they mean, and what do they really mean?
There is a theory in certain circles in Washington, D.C. that public pronouncements and positioning in the midst of ongoing trade (and security) negotiations are part of an overall strategy: concessions by the other side are made public and “pocketed"; back to the negotiating table, further concessions are demanded in private, only to be made public and pocketed … Rinse and repeat, until at some point a deal is announced. Before, of course, the deal is renounced and denounced, to be renegotiated and agreed and annulled – always with the intention of maintaining a position of “strategic uncertainty" voire imbalance to end up with a win-lose solution at the end of the day.
There is no denying the fact of ongoing uncertainty. Whether it is part of a strategy and whether the strategy, such as it is, will deliver the desired win big-lose crushingly outcome is a different matter.
Time will tell.
In the case of Canada – we are now five days, or two weeks, from various deadlines. We will know where we are when we get there, but perhaps not even then. (See CUSMA.)
Be that as it may, although the United States has been negotiating in the public for some time, the government of Canada – not unreasonably – has been reluctant to get into the fray. There are good reasons for discretion in trade and diplomatic negotiations, not the least of which is that a deal must always be assessed as a whole and not – never, as in, not ever – in the light of specific concessions in ongoing negotiations that, pocketed or not, may well not find themselves in the final text. Which final text is in any event always open to further clarification through side letters and protocols and schedules and further agreements.
(In one set of negotiations, a small concession here gave rise to big issues there, which we eventually resolved through a side text over yonder. All good in the end, but you wouldn't know it in the middle.) Which is also why Canada has been reluctant to negotiate in the public. Or had been, until yesterday.
In the last two days, the Prime Minister has made two announcements, both significant, but perhaps not momentous.
To tariff or not to tariff, is that the deal?
In an interview yesterday, the Prime Minister noted that it was not clear that the United States would be willing to give up all of its tariffs in any agreement. Some outlets characterized this as a “concession" of sorts. Perhaps.
Or, perhaps not.
Let's say the United States keeps the “fentanyl" tariff framework (despite U.S. court rulings on that) and removes the remaining sectoral tariffs. Let's even “concede" that the United States would continue to apply 35 per cent – not 25 per cent, but the higher, 35 per cent – tariffs on exports from Canada of goods that are not USMCA-compliant. That is, export of goods that do not conform with the rules of origin requirements of the trilateral Canada-United States-Mexico free trade Agreement (CUSMA or the USMCA). Is that bad?
It's complicated.
Only Canadian-origin goods – but not other goods originating from other countries and exported from Canada to the United States, or goods that a producer cannot establish are of Canadian origin - are entitled to tariff-free entry into the United States under the CUSMA. Because the United States used to have a largely free-trade framework, compliance with the rules of origin has not been that big of a deal: whether a good came from Canada or Syldavia did not matter, because there would be no tariff on it at all.
Impose differential tariffs, and the calculation changes.
Now, in the above scenario, if you keep USMCA-compliant as a limitation, it would mean that the United States could reasonably boast a big, huge, win of 35% tariffs on goods entering from Canada. But, equally, Canada could – much more quietly – consider itself lucky that the core of the CUSMA – no tariffs on Canadian-origin goods – has been maintained.
This is not without cost or disruption. But it does mean that a final outcome that has some sort of tariffs involved is not the end of the world for Canada. In fact, it might even be a really good deal. If the United States keeps to the bargain.
I won't speculate why the Prime Minister started talking publicly about the potential final outcome. But, like a plume of white smoke coming out of the Sistine Chapel, it might be a hint that habemus pactum.
Steel city blues
Optics and rhetoric aside, as noted above, we should assess the final agreement only when it comes out. A successful agreement will be one that removes the existing tariffs (and the threat of future tariffs) on Canadian-origin or USMCA-compliant steel (and aluminum, and copper, and autos).
Secretary Lutnick's latest comments might give you the impression that nothing of the sort will come to pass. Then again, Prime Minister Carney's statement at the beginning of his mandate – that he will be looking for a trade and security agreement with the United States – suggests that Canada has been playing the long game in the negotiations. (“Of course the U.S. can fight a war without American steel; it can fight multiple wars, all over the globe, with Canadian steel and aluminum and copper." Though you will not find this in any Canadian public statement.) This is speculation; we'll find out soon enough.
In the meantime, the steel industry needs help.
I started my trade career defending Canadian steel producers. I had the privilege last December to return to the sector in my appearance before the House Standing Committee on International Trade. The Canadian steel sector is heavily integrated into the U.S. economy, and it does not have an immediate alternative market to turn to. The reasons for this are global and complex, but the key point to bear in mind is that access to the U.S. market is essential for the Canadian steel sector, and no amount of internal trade will replace that in the short to medium term.
That access is threatened. Pending a negotiated resolution, the Prime Minister has announced a package of new steel measures to support the industry:
- Canada will be “tightening" its “tariff rate quote" for steel imports. This is essentially a two-tiered tariff framework: goods enter at a certain tariff up to a certain quantity (“within quota"), and then tariffs will go up above that “quota". The higher tariffs are usually set at a “prohibitive" level and not meant to be collected – the idea is, only the within quota steel enters the Canadian market. In this respect, there are similarities to Canada's supply managed sectors.
- Canada will put in place a series of support measures for the sector and its workers.
- Canada will “change federal procurement processes to require companies contracting with the federal government to source steel from Canadian companies."
These measures, though without a doubt helpful to the sector, are not long-term fixes. For that, we need the white plume.