Trade war is a dirty business. Canada must not get dragged into the mud

Fred Gallagher is chief executive of Canadian Vitality Pathway Inc.

Canada seems to have inadvertently slid into negotiations toward a new trade “deal” – essentially legitimizing U.S. tariffs and effectively destroying or, at the very least, sidelining the USMCA.

Have we allowed our normally calm demeanour to be penetrated by the rantings of a mercurial President? Or, have we perhaps been skilfully maneuvered into sabotaging our own free trade agreement by an expert trade negotiator?

Jamieson Greer’s recent interview with the CBC gave us the strongest clue. Channeling his boss, he clearly doesn’t view the USMCA as a legal agreement by which the U.S. administration must abide.

He said in the interview that the U.S. offered Canada “the best deal available to any country on the planet” and the country walked away. If this is anywhere close to true, why did Canada pull out? Perhaps the Prime Minister suddenly realized that, by entering those talks in the first place, our negotiators had been outfoxed.

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Clearly, by saying the U.S. offered Canada “the best deal,” Mr. Greer is singularly focused on eliminating U.S. free trade with any country, and the USMCA is dead to him. It seems like he is trying to convince us that we should accept permanent tariffs to at least save the furniture from the burning house. By even discussing permanent tariffs, we legitimize the U.S.’s questionable position.

The USMCA is not dead, it is a legally binding agreement between our nations, with enforceable dispute mechanisms and 10 years to run before it expires without renewal.

Canada has not fully used its established rights and provisions under Chapter 31 of the USMCA to escalate our challenge to both previous and current U.S. tariffs. Let’s not forget that for all the Trump administration’s disregard of rules, it did back off when the Supreme Court struck down its “emergency” tariffs.

Canada has only chosen to use the very first gate for USMCA Chapter 31 dispute resolution – the request for consultations – on the round of steel and aluminum tariffs in October, 2025, but not on subsequent tariff impositions and threats.

Under our current “deal,” a complaining party has the unchallengeable right of escalation to establish a panel to review a dispute. This panel has specific time requirements to report fault (or not), cannot be vetoed by the responding party and is bound to deliver a final decision within a specified time frame (approximately 180 to 255 days).

The escalation opportunity has been open to Canada for more than 500 days – 75 days following the initial consultation requests in March and April of 2025. Had Canada escalated the 2025 tariffs immediately, a panel would very likely have delivered a final report in late 2025 or early 2026, authorized retaliatory measures and potentially shut down further tariff imposition by the U.S. in 2026.

It would seem Canada voluntarily missed the optimum USMCA dispute resolution window to have a decision well before now. Canada can still escalate to a panel within USMCA, but we must not play Mr. Trump’s game by imposing retaliatory tariffs on Sept. 8, an action outside of the USMCA.

According to Statistics Canada’s latest figures, exports to the U.S. represent less than 17 per cent of Canada’s GDP. Total export trade represents 25 per cent of Canada’s GDP. The Bank of Canada estimated in January that the 2025 tariffs would reduce Canada’s GDP by around 1.5 per cent, or approximately $50-billion. Experts estimate that the 50-per-cent tariffs on Canadian goods the U.S. imposed in August represent a hit of 0.4 to 0.5 per cent to Canada’s GDP.

This is not a small loss, and it will seriously affect specific Canadian businesses. But for comparison, the government of Canada estimates that interprovincial non-tariff barriers – for which we currently have limited resolution – cost the Canadian economy $200-billion a year.

We pride ourselves on being a country that respects the rule of law, yet we are not using the established USMCA dispute resolution path that was created for such cases. The U.S. has chosen a path of purposeful intimidation, insults and skillful negotiation to undermine the USMCA. Sadly, Canada has entertained and emboldened that approach by entering the most recent negotiations, and by making ongoing non-reciprocal concessions, such as the Digital Services Tax.

And while walking away from talks was right, our subsequent actions do not help us either.

Why are we playing into Mr. Trump’s hand by responding in kind to sucker insults and threatening the atomic weapons of trade, export quotas? Unauthorized retaliatory tariffs and export quotas are offside of the USMCA agreement. That’s not what a reliable trading partner does, especially if we want to encourage more countries to trade with and invest in Canada.

Let’s cut to the chase. If we damage Canada’s global reputation as a reliable trading partner, the country will pay a much bigger price than absorbing some short-term exorbitant tariffs that we can afford to mitigate.

We have two and a half years left in Mr. Trump’s term and the midterm elections may clip his wings sooner. Proving our case with the dispute mechanisms through the USMCA will provide far more leverage with future U.S. administrations and worldwide trading partners.

In the meantime – only after elevating the disputes to a USMCA panel – we should continue to negotiate interim and temporary relief but not legitimize permanent tariffs. We should retract concessions made on the Digital Services Tax and to streaming service providers. And, only where provided for – following a USMCA final decision in Canada’s favour – impose authorized and proportional retaliatory measures.

Our priority should be maintaining our long-term relationship and mutually beneficial trade with the people of the U.S. We must not damage or exchange a great agreement, the USMCA – ratified by Congress and signed in ink – with any expedient flaky deal signed in pencil.

Prosperity’s Path