What’s the Next Policy to Walk the Plank? (The Canadian Content Industries Are Uneasy.)
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It used to be that when concessions were made during trade negotiations, they were announced as part of a final, balanced deal. That appears to be no longer the case, at least with respect to the dragged out Canada-US trade talks that are supposed to address the unilateral imposition of US tariffs on a range of Canadian products, such as steel, aluminum and copper along with many products manufactured from these commodities, and other Canadian products that do not qualify for CUSMA/USMCA tariff-free treatment. Last week, Prime Minister Mark Carney announced that effective September 1 Canada would lift retaliatory tariffs against a range US products that it had imposed back in March when the US imposed steep “fentanyl” tariffs on Canadian products. Since then, the US has confirmed that products falling under the CUSMA/USMCA Free Trade Agreement will be exempt (for now) from the 35% tariffs that the Trump Administration has imposed on non-CUSMA compliant goods. The tariffs that Canada is lifting cover only CUSMA/USMCA compliant goods, thus matching US policy.
Maybe this is a sensible and timely move to preserve the existing but tenuous CUSMA/USMCA zero tariff treatment enjoyed by qualified Canadian products. The fact that US compliance with a carefully negotiated trilateral treaty, personally signed by Donald Trump back in 2016, is considered tenuous speaks to the US President’s respect for international obligations, or rather lack of. If he doesn’t like what the US has agreed to through negotiations, he simply ignores treaty obligations by finding some specious excuse (like the accusations of Canada being a centre for fentanyl smuggling into the US) to renege on signed and Congressionally-ratified commitments. This process, by the way, is just a warmup for the upcoming renewal negotiations for CUSMA/USMCA in 2026. Trump already has Canada, and many other trading partners, on the back foot with his incessant imposition of new trade barriers on fabricated grounds. Soon he will be saying that imports of Canadian maple syrup are a security threat to the United States.
So far Canada has managed to weather the worst of the storm thanks, in part, to the existing CUSMA treaty. Negotiations with Washington to reset the relationship have been underway for some time but famously missed the August 1 deadline that Carney tried to pry out of Trump at the Kananaskis, Alberta, G7 summit earlier this year. As part of these negotiations, Canada has already made two significant concessions, one to dramatically increase defence spending immediately (probably a good idea for a host of reasons, but designed nonetheless to mollify the President), the other to withdraw its Digital Service Tax (DST) legislation. This latter move was required by the Trump Administration as a pre-condition for resuming the trade talks it had unilaterally suspended when Canada announced it was proceeding with its DST.
On the DST, while the US has dragged its feet on finding a multilateral solution to the problem of giant digital businesses engaging in tax avoidance through tax forum shopping, Canada compounded the problem by playing its hand badly. While there is plenty of justification for imposing a tax (DST) on the digital giants based on the level of revenue they generate in a given jurisdiction (since they manipulate their tax accounting to ensure that profits accrue only in offshore low tax regimes like Ireland), to actually implement a unilateral tax in the middle of trade negotiations was asking for trouble. Instead of putting the tax on pause and using it as a bargaining chip, the introduction of the DST–despite warnings of consequences–was a poorly timed move and led, almost overnight, to a hasty retreat and a humiliating climbdown on Canada’s part. And now we have the repeal of retaliatory tariffs that were instituted as part of the “elbows up” response to the unilateral imposition of US tariffs earlier this year. All just to keep the negotiations going. The only benefit Canada has received is a verbal assurance from Trump that lifting the tariffs will “kickstart” the negotiations. Not exactly a bankable document.
Trump’s strategy is to pick off one concession after another in return for just keeping the talks going. So far, he has been successful. If you impose a DST, we’ll walk! Remove your retaliatory tariffs (remember, it was the US that started the tariff war, thus explaining why Canadian tariffs are “retaliatory”) or the negotiations will go nowhere. What’s next? Canadians have every right to worry. Trump smells weakness, and serial capitulations only encourage him. On the other hand, are there any good options?
The goal clearly must be to protect Canadian jobs. Maybe a little water in the wine at the right time is the way to do this, since the old model of how trade negotiations used to work is no longer on the table. Traditionally negotiating an agreement, a balance of concessions and advantages, was resorted to by smaller economic powers in order to have some guarantees of security and access to larger markets. The larger powers respected what they had negotiated as a means of promoting a more open trading system, to the benefit of all, while winning access for key sectors of their own. Trump has upended all that, using any excuse he can think of to renege on US obligations and impose unilateral tariffs, even if this is likely illegal and a usurpation of the role of Congress.
The end result will be the proof of whether Carney’s policies, which some equate with appeasement, are working. Using hockey analogies, which Carney employed so effectively in the election campaign, (Carney played on both the Harvard and Oxford varsity ice-hockey teams; it is not known whether his opponent, Pierre Polievre, can even skate) we have moved beyond “elbows up” defensive moves to focus instead on scoring goals. But if Trump continues to control the puck, neither elbows up or elbows down will have made much difference. One wonders where Carney will draw the line and how much longer the US can continue to slice the Canadian salami (before it’s all gone).
One can argue that lifting retaliatory tariffs is not a bad idea since they have hurt many Canadian businesses by increasing costs on the imported US goods they rely on (although there were many special exemptions created through duty remission orders). Canadian consumers have also taken a hit. On the flip side, while the Canadian tariffs hurt and caught the attention of some US exporters, the economic pressure was not sufficient to deter the Trump Administration. Over the longer term, Trump’s import tariffs are going to seriously damage the US economy, but Canada and Carney don’t have the luxury of waiting for that to happen. Nonetheless, unilateral concessions are a slippery slope. What’s the next Canadian policy at risk of being pushed overboard?
The content industries in Canada are concerned they might be the next ones to walk the plank. It’s no secret that some large US companies are not happy with Canadian cultural policies such as the Online News Act and the Online Streaming Act. In fact, the whole idea of an exemption from free trade agreement obligations for Canadian cultural industries has long been unpopular in the US although accepted as the part of the balance of give and take that was necessary to reach a mutually beneficial agreement. The “cultural exemption” was embedded in the first Canada-US bilateral agreement in 1987 and has been carried over to both NAFTA and the CUSMA/USMCA. However, the “Art of the Deal” style of negotiating does not put much stock in mutually beneficial win/win outcomes, instead viewing negotiations as a zero-sum game. With Trump generally holding the better cards owing to several decades of economic integration of the Canadian and US economies as a result of the bilateral FTA, NAFTA and CUSMA, Carney is playing against the odds. What is the ultimate price of a deal that Canadians can live with?
The unilateral concessions to date have led to some domestic unease and criticism, but if Carney scores a winning goal, or even achieves a tie, no doubt all will be forgiven. In the meantime, the cultural sector in Canada (and no doubt the supply management industry, especially dairy) are nervously watching the process of the on-again, off-again bilateral trade negotiations, hoping they won’t find themselves the next ones made to walk the plank just to keep the negotiating process going.
© Hugh Stephens, 2025. All Rights Reserved.
