In a significant development affecting North American trade relations, former President Donald Trump has announced the cessation of trade negotiations with Canada. Further north, Canada has recently introduced a DST in Bill C-47. This tax will begin on Monday and will be applied retroactively back to 2022. The stop in progress on talks has greatly concerned economic leaders and politicians. They are particularly worried about the future of bilateral trade since Canada is the largest customer for American goods.
Last year, Canada purchased $349 billion worth of American goods. This further cemented its importance as a key market for U.S. exports. Canadian shipments to the U.S. were $413 billion, underscoring the deep connection between the two economies. New tariffs implemented by both countries have created a wedge in this prosperous partnership that could potentially flood it with the storm of economic protectionism.
The response to the DST was swift. They backtracked from a 25% tariff on U.S.-made vehicles in violation of the United States-Mexico-Canada Agreement (USMCA). This move is the center of a broader strategy. Similarly, Canada has retaliated with a 25% tariff on $43 billion of U.S. goods, including U.S. made whiskey, sporting equipment and household appliances. In addition, Canadian products that do not conform to USMCA requirements have been hit with a 50% tariff rate.
Trump’s decision to end negotiations stems from his assertion that the DST represents “a direct and blatant attack on our Country.” And he has called for all Canadian metal imports to be hit with a 25% tariff. If trading relations remain strained, the tariffs on certain products may increase even further.
BoC Governor and (then) PM Mark Carney made clear that they wanted to continue talking with the United States even after that proposal fell apart. His office has suggested that the Canadian government is still weighing its response to any possible U.S. tariffs.
We’re going to keep making these complicated negotiations work for Canadians. It’s a negotiation,” Carney stated.
Pierre Poilievre, the leader of the official opposition Conservatives, immediately called these stopped negotiations a “disappointment.” He reiterated the importance of getting back to the table soon. He noted, “Hopefully they resume quickly.”
Economic leaders of both these Republican and Democratic states are deeply concerned on how the DST affects them and about the unfolding trade tensions. Goldy Hyder, president and CEO of the Business Council of Canada, warned that unilateral digital service taxes could jeopardize Canada’s economic relationship with the U.S. In the wake of this, he suggested that Canada abolish Daylight Saving Time. In exchange, the US would remove its tariffs.
For several years now, the Business Council of Canada has been sounding the alarm on a go-it-alone Canadian digital services tax. Hyder explained that implementing such a tax would risk Canada’s most important economic relationship, specifically with its largest trading partner, the United States.
Candace Laing, president and CEO for the Canadian Chamber of Commerce, agreed with these speakers. She made it clear that although she was not changing Canada’s position on the DST, we have to accept that it might do more harm than good. “That said, it’s a pivotal time for Canada-U.S. relations,” she remarked.
Laing conceded that in the last few months there’s been a marked change in the atmosphere around negotiations. Today, relations between the two countries are moving in a more promising direction. “We respect that Team Canada is conducting these negotiations at the table, and we need to give them the space to navigate,” she added.
Canadian industries and councils of advocacy have been warning about the severe trade punitive impacts posed by the DST. They are calling on the government to change its tune. Many are concerned that if we don’t address these problems, we will have a repeat of the retaliatory tariffs on U.S. exporters. That would be a serious blow to both economies.
