Image: Wikimedia Commons (Flanker)
As the Canada-US trade talks went down to the wire last week, working against the artificial deadline set by Donald Trump (with a three-day extension in order to finalize the “deal” he announced on social media, a deal that was about as final as the numerous deals he has announced with Iran over the Strait of Hormuz), I like many Canadians had a foreboding sense of trepidation. Was I worried that the two sides would not come to agreement? No, I was concerned that they would, and that the price of reaching that deal would involve unacceptable concessions by Canada.
Not only that, but the deal would also be about as solid as ice cream in a hot sun. The US would require Canada to change or repeal legislation while it would simply sign an executive agreement that could be rescinded at any time. And that is precisely what would happen next. Mark Carney referred to US commitments being written “in pencil”. One of the supposed US concessions as a result of this deal was agreeing to begin formal negotiations on USMCA/CUSMA renewal. Therefore, Canada’s last and best offer in the interim trade negotiation–that were a necessary attempt to avoid additional 50 percent retaliatory tariffs on a range of Canadian goods as well as to obtain a roll back of sectoral tariffs imposed by the US in violation of CUSMA on steel, aluminum, autos, and wood and wood products–would have become the starting point for US demands for “more” when the formal negotiations got underway. Having seen how little the US was prepared to concede in terms of existing measures, but more precisely how much they wanted for the minimal concessions offered, was surely a wake-up call for the Carney government.
Carney’s last-minute decision to walk away was clearly the right political move from a Canadian perspective, especially with several by-elections coming up in a matter of weeks. Opposition Leader Pierre Polievre’s prepared notes accusing Carney of selling out were quickly chucked aside while Poilievre scrambled to climb aboard the Team Canada bandwagon. Carney’s “elbows up” mantra that got him unexpectedly elected last year was starting to wear a bit thin after unilateral concessions to the US like the eleventh-hour abandonment of the long-planned Digital Sales Tax on large online platforms, a concession that achieved nothing. That said, it is easy to talk tough, but not so easy to accept the responsibility for the economic punishment that may result. Any responsible leader owes it to their constituents and businesses to try to resolve trade issues without resorting to confrontation and retaliation. Canada gave it a good shot this time around, but in the end the price to be paid was just too high. In part, we have Commerce Secretary Howard Lutnick to thank for that.
Lutnick, one of Trump’s billionaire appointments, along with presidential advisor Peter Navarro, is a firm believer in tariffs and in using tariffs to change established trading patterns. Inconvenient trade agreements that constrain this behaviour (such as the USMCA/CUSMA) are to be bypassed or ignored. Lutnick has a particular bee in his bonnet about the Canadian automotive industry, which he essentially wants to drive out of business. There is no question that auto assembly in Canada is dependent on imports of parts from the US and the export of assembled vehicles to US consumers. But the Canadian industry was not established to export to the US; it evolved that way on the basis of a bargain. It has been around for well over a century and was originally established to serve the Canadian market, protected by high tariffs from US imports. Over the years, US companies purchased the Canadian manufacturers, and the industry became more integrated, culminating in the 1965 Auto Pact. That agreement was rolled into the first Canada-US Free Trade Agreement, which morphed into NAFTA and eventually CUSMA. The essence of the deal was that for every vehicle imported duty free into Canada, the automakers had to build one vehicle in Canada. That vehicle might be sold into the Canadian market but could also be sent south to the US, duty free. It was an arrangement that worked well for both sides and has strengthened the North American industry, which needs all the help it can get in the face of Asian and European imports. But Lutnick and Trump don’t understand and don’t like this arrangement. “We don’t want cars made in Canada”, Trump is reported to have said. As the interim Section 338 (referring to Section 338 of the Tariff Act of 1930, obscure legislation resorted to by USTR to impose retaliatory tariffs on Canada) negotiations came down to the wire last week with discussions centering on a reduction in the 25 percent auto tariffs imposed by the Trump administration on Canadian assembled vehicles (these are already a violation of CUSMA terms), Lutnick and Navarro reportedly intervened to minimize the value to Canada of the tariff reduction by excluding medium and heavy trucks from the “concessions”. This was a move aimed specifically at hampering truck production in Canada, one of the few sectors where North American vehicles dominate in both the US and Canadian markets. Lutnick’s carve-out was enough to help tip the scales, forcing the Canadian side to walk away. Thank you, Howard. You inadvertently did Canada a service.
Had Lutnick not introduced this deal-breaker, Canada might have swallowed the poison. Ontario Premier Doug Ford was a key factor too. If the deal was not sufficiently good for the Canadian auto industry, he would have refused to put US booze back on the shelves of the LCBO, (the Liquor Control Board of Ontario), reportedly the single largest global importer of liquor and wine (although this is contested—Costco might be bigger!). Mind you, there were a couple of other deal-breakers on the table as well, which shows either how greedy the US negotiators were, or how little they understand Canadian realities. Surely anyone who haa studied a modicum of Canadian history would know that attacking bilingual labelling in Quebec and support for French language music through discoverability and other requirements is a total non-starter for any federal government. Quebec also has the SAQ (Société des alcools du Québec) card to play. The final deal-breaker cited by Carney in his news conference the day after the deal collapsed was an attempt by the US to constrain Canada’s ability to freely negotiate trade deals with third parties. It is worth noting that Canada already agreed to this with respect to China when it signed the CUSMA deal in 2018. (Article 32.10), but Carney stressed that Canadian sovereignty is not on the table.
In his explanation of the decision to walk away, Carney also cited the need to protect Canadian culture, although he was non-specific. There is no question that cultural groups and content industries in Canada, such as the press and Canadian content producers, were becoming increasing anxious they might be thrown under the bus. There were reports the US was targeting both the Online Streaming Act (OSA) and the Online News Act (ONA). The enactment of the ONA (aka Bill C-18) in 2023 resulted in Meta blocking the posting of (most) Canadian news content to Facebook and Instagram but led to Google agreeing to contribute $100 million annually to support Canadian journalism. Paul Deegan, CEO of News Media Canada warned earlier last week that if the ONA was given up as a bargaining chip in the trade negotiations, the impact on journalism in Canada would be “catastrophic”.
The threats to the future of the ONA in Canada are ironic given that Australia, which was the inspiration for Canada’s legislation, has just passed new legislation (the News Bargaining Incentive) designed to address the dodge employed by Meta in Canada. When Australia introduced its initial News Media Bargaining Code, Meta reluctantly went along with it and struck a number of content deals with Australian media. It subsequently announced it would not renew them as they expire. In Canada, Meta dug in and delisted postings from Canadian media (although there have been some controversial exceptions) in order to avoid being subject to the legislation that required them to reach deals with Canadian media to license content. To address this, the new Australian legislation imposes a 2.5 percent tax on the advertising revenues of the targeted platforms (Meta, Google, TikTok and LinkedIn) unless they strike agreements with news media providers. The tax would be paid into a fund accessible to local news outlets. The tax amount is higher than payments under the voluntary agreements the platforms are expected to reach, providing an additional incentive for them to reach or renew content licensing agreements. It would be hard to see Australia successfully pursue the goal of requiring the big platforms to contribute to production of the news content they use while Canada, which consciously followed the Australian example, retreats from this objective.
As for the Online Streaming Act, recall that in recent weeks the Carney government notified the CRTC that the foreign streamer contributions to the production of Canadian media and content mandated by the Commission will need to be revisited. Was the OSA part of the recently suspended Section 338 negotiations? No doubt about it. US Trade Representative Jamieson Greer in a midweek tweet congratulating Trump on the “deal” that was seemingly about to be finalized, said it would include “comprehensive market access for all American goods, economic security commitments, digital trade alignment, and many important provisions that will continue to protect our market and American workers…”
What “digital trade alignment” might include was not specified but there was speculation it could encompass a commitment to never introduce a DST, reversal of the Online News Act, data governance limits and limitation or elimination of streaming payments. Now, with the collapse of the talks, none of that will happen—for now. However, the 50% Sec 338 tariffs are now in effect and Americans will be paying much more for Canadian honey, salt and toilet paper, among other things, assuming those items will still be on US shelves.
Canada’s decision to terminate the trade talks last Friday really settled nothing, other than to confirm that the US goal is to bring the country fully into its orbit as a satellite state. Carney and Canadians are determined this will not happen and have cards to play. Those cards relate to the impact of Trump’s decisions on the US economy and US consumers, and the potential impact of these decisions on the midterm elections. Canada would do best to take its time and continue to try to find allies within the US. Whether the announced intention of retaliating against Trump’s Section 338 tariffs on a “dollar for dollar” basis is the right approach is another question, but the intent will be to inflict targeted pain on selected US export sectors in order to build pressure on the Administration. The provincial liquor bans were designed with this in mind and have been remarkably effective.
Eventually Canada and the US will need to get to the USMCA/CUSMA negotiating table. CUSMA is still in force notwithstanding the sectoral US tariffs that violate its provisions on specious “national security” grounds. It is a Congressionally approved treaty and unless renounced, which the Trump administration clearly does not want to do, it remains in force unless renegotiated. When renegotiated, and ratified by Congress, it will provide stronger guarantees of predictability than the back-of-the-envelope trade deals that Trump and USTR have been forcing on trading partners. However, if and when those negotiations take place, the issues that led to the collapse of the Section 338 talks will still be on the table.
Canada’s cultural and content industries don’t have the political clout of the dairy industry, which for decades has managed to put its self-interest before that of the rest of the economy and Canadian consumers, or the auto industry, but maintaining economically viable Canadian voices in media, broadcasting, film and literature is part of preserving sovereignty. How that is best done is the topic of ongoing discussion and debate. For now, the OSA, the ONA and Canada’s other digital legislation remains intact. The sector may have dodged a bullet for now but needs to remain alert. It’s never over until its over.
© Hugh Stephens, 2026. All Rights Reserved.