US and Canada Race to Avert Trump’s 50% Tariffs Before Midnight Deadline
The United States and Canada are locked in last-minute negotiations to prevent President Donald Trump’s threatened 50% tariffs on approximately $20 billion worth of Canadian products from taking effect at 12:01 a.m. Wednesday. The talks, described by Canadian Prime Minister Mark Carney as “very intense and delicate,” represent a final push to avoid a trade conflict with significant economic consequences for both nations.
Carney and Trump spoke by phone Monday afternoon about the ongoing trade negotiations, according to Carney’s office, underscoring the urgency of the situation. Canadian Trade Minister Dominic LeBlanc and chief trade negotiator Janice Charette also met with U.S. Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick in Washington for about an hour and 45 minutes — expected to be the final meeting at the ministerial level, as AP News reported.
“We are negotiating,” Carney told reporters Monday, speaking in French. “The negotiations are very intense and delicate. This is not the time to talk about negotiations in public.”
An Unprecedented Trade Weapon
Trump invoked Section 338 of the Tariff Act of 1930 — a provision never before used in U.S. history — to impose the tariffs, which would cover a broad range of goods from hockey sticks and tongue depressors to cement, dairy products, wine, electronics, and industrial machinery. Energy products, potash, fish, critical minerals, and motor vehicles are excluded from the new levies.
The Smoot-Hawley tariffs, named for their congressional sponsors, are notorious among economists and historians for limiting world commerce and making the Great Depression worse. Section 338 authorizes the president to impose tariffs of up to 50% on imports from countries that discriminate against U.S. businesses, with no investigation required and no limit on how long the tariffs can stay in place, as AP News explained.
The White House said the tariffs are in response to Canada’s “discriminatory treatment of American products” and are designed to “level the playing field for crucial American exports — cars, alcohol, and dairy.” Trump is also angry that Canada and China were the only countries to retaliate against his earlier tariffs.
“If a country retaliates against us, we’re obviously not going to tolerate that,” Greer told reporters Friday at the Iowa State Fair. “We’ll take action. My sense is the Canadians, they want to have a more conciliatory approach, but we’ll see.”
What Each Side Wants
The stakes are enormous. Nearly 72% of Canada’s goods exports went to the United States last year, and the U.S. imported $389 billion worth of goods from Canada. Nearly 330,000 people and $2 billion worth of goods cross the 5,525-mile U.S.-Canada border every day, as NBC News reported.
The United States is seeking Canadian purchases of more U.S. military equipment, including F-35 fighters; participation in Trump’s “Golden Dome” missile defense; and greater access to critical minerals. Washington also wants U.S. liquor back on provincial store shelves, removal of Canada’s retaliatory tariffs on U.S. autos, and tweaks to the dairy sector quota allocation.
Canada, for its part, wants the Section 338 tariffs scrapped and substantial tariff relief for hard-hit sectors including steel, aluminum, autos, and lumber.
The negotiations are complicated by the broader context of the U.S.-Mexico-Canada Agreement renegotiation. The U.S. did not renew the 2020 trade pact in its current form, triggering new negotiations that could run until 2036. As Radio-Canada International reported, the threat of Section 338 tariffs gives the United States leverage to seek fresh concessions from Ottawa.
“From Carney’s perspective, you need (USMCA) to be renegotiated,” said Christopher Gundermann, a fellow in the economics program at the Center for Strategic and International Studies. “You can’t renegotiate it with a massive trade war going on.”
Political Pressures on Both Sides
Carney faces significant domestic pressure. A petition to expel U.S. Ambassador Pete Hoekstra has collected nearly 218,000 signatures since July 21. Polls show 69% of Canadians are unlikely to buy U.S.-made alcoholic beverages even if they return to shelves, and 48% have an unfavourable view of Americans generally, according to Al Jazeera.
Canada’s government “cannot look like it is simply caving to the Trump administration’s demands,” said Daniel Béland, a political science professor at McGill University. “Making further concessions without getting something meaningful in exchange would probably lead to a strong backlash.”
Provincial politics further complicate the picture. All but two provinces (Alberta and Saskatchewan) have blocked U.S. alcohol sales. Quebec Premier Christine Frechette has described Canada’s supply management system for dairy, eggs, and poultry as “non-negotiable.” Ontario Premier Doug Ford has said Ontario has the most to lose and wants Canada to “be on offense.”
Meanwhile, the Trump administration faces its own constraints. The tariffs could raise the U.S. tariff rate on Canadian imports to 5.6% from 3.1%, and 2025 tariffs already cost U.S. households an average of $1,000 per year, according to the Tax Foundation. With midterm elections scheduled for November 3, American voters frustrated with the high cost of living could punish the administration.
“I don’t think either side really wants these tariffs to come into effect,” said Ryan Majerus, a partner at King & Spalding and a former U.S. trade official. “There’s a pretty strong push on both sides to find an off ramp here.”
Legal Uncertainty and Economic Impact
Trade lawyers doubt the tariffs will survive legal challenges. Section 338 is “completely untested,” Majerus said, adding that “the legal case for 338 is weaker than IEEPA… There’s at least a fair probability it will get overturned.” The Supreme Court in February struck down Trump’s IEEPA-based tariffs, ruling that he had overstepped his authority, and the administration was forced to refund tariffs importers had paid.
The economic consequences of the tariffs would be significant. Stephen Brown, chief North America economist at Capital Economics, calculates that the Section 338 tariffs “will not have any major implications for U.S. (economic) growth or inflation… The consequences for Canada will be greater, but manageable.”
But the broader impact could be more severe. The U.S. Chamber of Commerce warned that “the introduction of higher tariffs would damage both economies, drive up costs for U.S. families, further disrupt critical supply chains, and risk the 13 million American jobs that depend on trade under the U.S.-Mexico-Canada Trade Agreement,” as BNN Bloomberg reported.
What Happens Next
As the deadline looms, both sides appear to be seeking an off-ramp. Carney said he has “plans for any situation that may arise,” and LeBlanc said after Monday’s meeting: “We’re going to continue working; our job is not yet done.”
Erin O’Toole, a member of the prime minister’s Canada-U.S. advisory committee and former Conservative leader, said Canada has made some progress with the Americans. “We’re not just gonna take what they throw at us,” he said. “We have to forge a deal that is fair for Canadian workers and good for our economy.”
The outcome of these negotiations will have lasting implications for the U.S.-Canada relationship, the future of USMCA, and the broader global trading order. Whether the two countries can bridge their differences before the midnight deadline remains the critical question.