Description: Canadian Prime Minister, Mark Carney, has announced that Canada will not impose retaliatory tariffs on US goods in order to preserve the provisions from the free trade agreement signed with the US, which is up for review in six months. Carney announced that he and US President Donald Trump had agreed to continue negotiations on other aspects of current bilateral relations such as the tariffs remaining in place for aluminum and steel imported in the US from Canada. Canada would backtrack its 25% of retaliatory tariffs on a plethora of US products, which is a market for more than 75% of Canadian goods, while reciprocal tariffs on aluminum, steel and lumber would remain in place awaiting further negotiations. The move was perceived as Canada’s capitulation to the US transactional policies by Carney’s political opponents who have heavily criticized the Prime Minister’s concessionary move. Carney defended his position stating that Canada secured the most favorable trade conditions where more than 85% of goods remain free of taxes while the average tariff rate for other products has been set at 5.6%.
Impact: Carney’s move represents the most strategically reasonable response to Trump’s conditioning of the USMCA trade agreement in return for pressuring Canada into agreeing towards US dictated trade concessions. Trump’s administration has leveraged the trilateral free trade agreement to push concessions from Canada and Mexico as per Trump’s tariff policies which have reshaped economic and strategic alliances. Remaining in a favorable negotiating position, while ensuring the continuity of the USMCA enables Carney with the necessary negotiating leverage in terms of the upcoming review of the free trade agreement. US – Canada relations would also benefit from the current conclusion and bilateral tensions are showing signs of depletion.