U.S. trade actions have raised questions about validity of USMCA, Carney says

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The Trump administration’s threatened and imposed tariffs have raised doubts about the soundness of the trade deal signed in 2018 by Canada, the United States and Mexico and make necessary a “broader conversation” with Washington over its business and security relationship with Canada, Prime Minister Mark Carney says.

The Prime Minister was asked Tuesday by media during a visit to Iqaluit whether he shared the opinion of predecessor Justin Trudeau that U.S. President Donald Trump’s conduct toward Canada is economic warfare designed to bring about a “total collapse of the Canadian economy because that’ll make it easier to annex us.”

Mr. Carney declined to say whether he agreed with Mr. Trudeau and spoke in a conciliatory manner about how he understood Mr. Trump’s rationale for his actions.

“He wants to end the fentanyl crisis in the United States. I respect that,” Mr. Carney said. “He wants good, high-paying jobs in America. He wants more investment in America. He wants repatriation of many American industries and firms to the United States. And I fully respect that.”

Asked what he would say in a future phone call with Mr. Trump, Mr. Carney said the United States’ behaviour in recent months – threatening and applying tariffs to a country that has a free-trade agreement with Washington and is integrated with the U.S. economy – has raised concerns.

“There are a series of trade initiatives from the U.S., such that they have called into question the validity of the USMCA,” Mr. Carney said, referring to the United States-Mexico-Canada Agreement.

“That means that we should have a broader conversation about our commercial relationship, which also involves a conversation about our security relationship, with the United States,” the Prime Minister said.

“So I’m less interested in reacting to every initiative,” Mr. Carney said, adding he was “putting on the table that we want to have that broader conversation.” He acknowledged this won’t happen overnight. “There’s no one, magic meeting that is going to unlock things.”

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Since returning to office in January, Mr. Trump has pursued an aggressive and erratic trade agenda, aimed at reshaping the international trading system and boosting domestic manufacturing. It’s unclear how much tariffs are a tool to gain leverage over trading partners ahead of negotiations, and how much they’re a permanent feature of new ultra-protectionist trade policy.

This month, Mr. Trump placed a 25-per-cent tariff on steel and aluminum imports, which disproportionately affects Canada, America’s largest supplier of both metals.

He also imposed a 25-per-cent tariff on imports from Canada and Mexico, with a lower 10-per-cent tariff for energy, critical minerals and potash, ostensibly to force both countries to do more to address border security issues. This measure was partly lifted only two days later, with a one-month reprieve granted to imports that comply with the USMCA.

Canada responded to both sets of tariffs with its own 25-per-cent tariffs on around $60-billion worth of U.S. goods.

International trade lawyer Lawrence Herman said he agrees with Mr. Carney that Mr. Trump’s actions have called into question the validity of the continental free-trade deal. “By applying unilateral tariffs for a variety of specious reasons, Trump has violated the very premises of the USMCA,” he said.

He said the United States is supposed to resolve trade beefs through the dispute mechanisms of the trade deal. “Trump has shattered the relationship on trade and security matters,” he said.

The USMCA is up for renewal in 2026, but Mr. Trump and his officials have said they want to begin negotiations sooner. They have pointed to Canada’s supply-managed dairy sector, digital services tax and content rules for North American auto production as grievances the U.S. wants addressed in any renewed trade pact.

In near term, the trade war could escalate further on April 2, when Mr. Trump has promised to put “reciprocal” tariffs on all trading partners.

It’s been unclear exactly how these reciprocal tariffs would work in practice: whether the U.S. would raise tariffs country-by-country and product-by-product, or look for a simpler method for imposing the duties. U.S. Treasury Secretary Scott Bessent offered some new details in an interview with Fox News on Tuesday morning.

“What’s going to happen on April 2, each country will receive a number that we believe represents their tariffs. So for some countries, it could be quite low, for some countries it could be quite high.,” Mr. Bessent said.

He said that the number will include both the tariff rate that other countries put on U.S. goods, and other measures that the administration believes disadvantages U.S. companies.

“We are going to go to them and say, ‘Look, here’s where we think the tariff levels are, non-tariff barriers, currency manipulation, unfair funding, labour suppression, and if you will stop this, we will not put up the tariff wall,’” he said.

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It is not clear how the U.S will calculate this single tariff rate, nor how it will interact with other tariffs Mr. Trump has either imposed or threatened. It’s also unclear whether Mr. Bessent is speaking with the full backing of Mr. Trump, as previous comments he and other officials have made in public about tariffs proved inaccurate.

With a few exceptions, Canadian tariffs on U.S. goods are very low, with most products entering the country duty-free under the USMCA or at low “most-favoured nation” rates offered to all countries.

Trevor Tombe, an economics professor at the University of Calgary, calculates that the average effective tariff on all imports from the U.S. in 2023 was 2.07 per cent, while the effective tariff on Canadian goods entering the U.S. was 2.4 per cent.

Claire Fan, a senior economist at Royal Bank of Canada, noted that Canadian customs duties collected were only around 1.3 per cent of the value of imported goods in December, 2024.

In other words, any “reciprocal” tariff would be low if the U.S. focused on effective tariff rates alone. However, the administration has said it will also look at non-tariff barriers, and has specifically mentioned Canada’s supply-managed dairy sector, digital services tax and value-added taxes such as the goods and services tax (GST).

Mr. Trump seems particularly incensed by other countries’ value-added taxes, and analysts think this will form a large part of the reciprocal tariff plan the administration is set to unveil in April. In Canada, the GST is 5 per cent, while provincial sales taxes range from zero to around 10 per cent.

Ms. Fan said it makes little sense to see value-added taxes as equivalent to tariffs. “It really doesn’t matter if what you’re consuming is imported or produced locally or domestically, it’s charged at the same rate, so it’s not discriminatory against imported products,” she said in an interview.

What reciprocal tariff rate the U.S. finally comes up with for Canada remains highly uncertain, Ms. Fan said. “It could really be, at this stage, anything. Anything could be targeted, anything could be used as an excuse,” she said.