Trump threatens 35 per cent tariff on Canadian goods

The new tariffs would exempt goods compliant with the US-Mexico-Canada agreement – at least for now.

Donald Trump has written to Canada's Prime Minister Mark Carney warning him of 35 per cent tariffs. Picture: AFP.

The US will put a 35 per cent tariff on imports from Canada effective Aug. 1, President Trump announced on Thursday evening.

But an exemption for goods that comply with the nations’ free-trade agreement, the US-Mexico-Canada Agreement, would still apply, a White House official said, stressing that could change.

Mr Trump previously applied 25 per cent tariffs to non-USMCA goods and the new rate, announced in a letter to Canadian Prime Minister Mark Carney and posted on social media, would mean that number rises to 35 per cent, the official said. The US and Canada had been involved in talks to lower tariffs ahead of a self-imposed July 21 deadline.

A spokeswoman for Mr Carney declined to comment.

Mr Trump’s letter stands to derail Mr Carney’s efforts to set a better tone with the US. Mr Trump had clashed with Canada’s former Prime Minister Justin Trudeau, whom he mocked as “governor,” a reference to Mr Trump’s desire to make Canada the 51st state. He has had a better relationship with Mr Carney, referring to him as a “gentleman” and a “nice man.” But the warmer tone hasn’t yet achieved Mr Carney’s goal of lowering US tariffs that have already hurt Canada’s economy.

One senior Canadian government official said that Canada was growing increasingly resigned to a future deal that includes some tariffs, and negotiators have been trying in recent talks to keep tariff rates as low as possible.

Mr Trump’s post comes less than two weeks after he announced that he had terminated trade talks with Canada over what he called an “egregious” tax that unfairly targeted US tech companies. Mr Carney responded by announcing he would rescind the tax, which got talks back on track.

In the letter to Mr Carney, Mr Trump said he would raise the 35 per cent again if Canada retaliated. He also complained about Canada’s dairy market, which restricts imports, and said Canada had to do more to restrict the flow of fentanyl into the US

“If Canada works with me to stop the flow of Fentanyl, we will, perhaps, consider an adjustment to this letter,” Mr Trump said in the letter. “These Tariffs will be modified, upward or downward, depending on our relationship with your Country. You will never be disappointed with the United States of America.” Canadian officials have argued that very little fentanyl gets into the US from Canada, but have nonetheless taken steps to placate Mr Trump on the issue. The government has announced it is investing almost $1 billion to boost border security, and appointed a “border tsar” to oversee the file.

Trade with the US accounts for about one-fifth of Canada’s economic output. Canada’s economy has hit a tailspin because of trade-policy uncertainty. The unemployment rate has climbed to a roughly nine-year high – excluding the Covid-19 pandemic period – and domestic demand has weakened.

Trade analysts in Canada have warned that Mr Carney is unlikely to secure a deal with Mr Trump that lifts all US tariffs. “A tariff-free US-Canada trading relationship going forward is unlikely,” said Toronto-based trade lawyer Julia Webster from the Baker McKenzie law firm.

The Canadian dollar initially weakened sharply against the US dollar before recouping some of the losses in Thursday night trading. “Traders remain broadly convinced that the President will ultimately fail to follow through on his threats, but this may not be a safe assumption,” said Karl Schamotta, chief market strategist at Corpay, a foreign-exchange and global-payments company.

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