The Dynamics of a Trade War With Canada

Trade policy has been elevated under the Trump Administration as the President has used tariffs as a key part of his economic policy. The big questions here are (1) how much elasticity trading partners have to handle current tariffs and (2) whether the White House will bring together a solution that will help bring the current U.S. - Mexico trade war to an end (bringing a close to a breakdown in negotiations around cross-border tariffs.  

Canada is the second largest trading partner to the United States (only slightly behind Mexico).  With the U.S. - Mexico - Canada Agreement (USMCA) now being renegotiated and new tariffs being issued by both the United States and Canada, a new trade dispute has erupted. The question is…inventing resolved?  

The United States is busy implementing (and defending) recent Section 301 tariffs related to forced labor.  There is also an additional Section 301 investigation likely to be finalized around excess capacity.  Negotiations with China are expected in September.  It is a busy trade season, and a new (and very public) trade dispute with Canada only adds complexity to an already complex situation.

So, solutions include more robust negotiations around USMCA that allow both sides to reconcile their differences through long-term policy.  Additionally, a new bilateral agreement between the two countries could also help to find a solution, but would put a broader USMCA agreement at risk. Also, there is some hope that both sides will come back to the negotiating table and align around core areas of dispute.  

The ongoing disagreements between the United States and Canada remain at a standstill, although the dispute is still in its early phases. Both countries have an incentive to find a solution, and consumers on both sides of the border will be pushing for a solution.