Many are still wondering why Prime Minister Mark Carney decided to poke President Donald Trump right as Canada and the U.S. were about to make a deal on trade. With me today is Yaroslav Baran, co-founder of Ottawa's Pendulum Group of Political Consultants, and in a past life, communications director to PM Stephen Harper.
00:02:12.540The trade negotiations between Canada and the United States are not easy,
00:02:17.160and we can't pretend that they're easy.
00:02:18.440These are highly complex and probably the trading relationship between the United States and Canada is more complex than between the United States and any other country, given the volume and given the breadth of commodities and products and services that we do trade.
00:02:32.200Now, that said, you know, let's take stock of what happened. There was this big August 1st deadline that everybody was really focused on. And that was the date when Donald Trump imposed a broad 35% across the board tariff on imports from Canada.
00:02:49.520However, I would say, you know, the sky didn't actually fall just because our negotiating team
00:02:56.880failed to finalize a trade agreement with the US. And the biggest reason for that is, I mean,
00:03:03.440the victory lap should go not to the government itself, but to Canadian exporters. Because when
00:03:09.280this trade war started some months ago, only about 38, 39% of Canadian exports to the US
00:03:16.400were covered by the Canada-US-Mexico Free Trade Agreement. But the reason it was so low is that
00:03:22.320many exporters simply didn't bother filling out the paperwork to officially register their exports
00:03:27.120as being under CUSMA because there's an extra compliance burden but with little incremental
00:03:33.200benefit to doing so because there's already a relatively free trade environment. So knowing
00:03:39.120that this deadline was coming, Canadian exporters from sea to sea to sea have been frantically
00:03:45.120filling out the paperwork, doing forms, and becoming compliant so that their exports were
00:03:51.680covered and protected by the free trade umbrella. So by the time we got to that August 1st deadline,
00:03:58.640somewhere around 85, 90, some would argue 95% of Canadian exports were covered and protected by this
00:04:07.100KUSMA force shield over the Canadian economy. So this is an accomplishment by Canadian exporters
00:04:14.060who became compliant to give themselves that protection.
00:04:17.860Now, that trade deal is, of course, up for renegotiation.
00:04:34.480So that means we're not out of the woods.
00:04:36.300We could have additional chapters of this trade war.
00:04:39.520And even so, regardless of when that Kuzma review begins,
00:04:44.060We're still not out of the woods. There are certain sectors that are still being pummeled by U.S. tariffs because they're they're being treated as outside of that of that Kuzma regime. Steel, aluminum, copper, softwood lumber.
00:05:00.220So these sectors are still being very, very hardly hit. And this is now the focus of Canada's trade negotiators trying to find some relief for those sectors. Well, at the same time, announcing domestic assistance packages, you know, loan guarantees and stuff like that as a temporary solution until we can negotiate away out of this morass.
00:05:20.820So the first question is, can you say again what proportion of Canadian U.S. trade is covered by the U.S.-Mexico-Canada trade agreement?
00:05:33.160Well, it's a moving target because different exporters are still coming online and some exporters are being scrutinized and maybe deemed not compliant. So different analysts have different figures, but the figures I keep hearing from reputed sources are somewhere between 85% and 95%.
00:05:52.080So the steel, the aluminium, the softwood, lumber, the copper, that's the 5%?
00:05:59.440Yeah, that would be outside of that. And they're still being hit very, very hard. In the case of the three metals, 50% tariff. And in the case of softwood, it's a little bit different. They're not technically tariffs. They're duties. They're levied under different legislation from the US. And it's different depending on who the exporter is. In some cases, it's 34%. In other cases, it's higher. In other cases, it's lower.
00:06:24.340So where is the auto industry in this division of Canadian assets?
00:06:30.180Well, this is also still a moving target.
00:06:32.020The audio sector is still being negotiated by both sides, but steel and aluminum are
00:06:38.940really big components in auto manufacturing.
00:06:41.980And we've all heard the adage that the typical automobile on average goes back and forth
00:06:50.460across the Canada-U.S. border eight times before it's ready to be sold.
00:06:54.860So imagine having that 50% cariff leveled on steel and aluminum parts
00:07:01.620every single time that it crosses the border.
00:07:03.920It's just ultimately this is not a sustainable model
00:07:06.480to continue to have a viable auto sector in Canada if this isn't fixed.
00:08:11.520So I would argue the Americans are really shooting themselves in the foot. They are still going to be hugely dependent on Canadian copper imports, except they're now going to be paying a much higher price of their own making because they don't really have a domestic industry yet to be able to offset those volumes.
00:08:27.960But presumably the idea of these tariffs is to force U.S. copper users to develop the industry that Trump believes should be there in the United States.
00:08:39.920Sure, but that's a long-term gain, and that's a lot of pain in the meantime for the U.S. market.