Trump’s New Warning to Canada Signals Tough USMCA Talks Ahead

US-Canada Trade Tensions Rise Amid Tariff Threats

Photo by Aaron Schwartz/CNP/Bloomberg

President Donald Trump has recently intensified his rhetoric on tariffs, hinting at a possible early escalation in what is anticipated to be a turbulent period of negotiations as the United States, Canada, and Mexico gear up to revisit their trade agreement this year.

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On Saturday, Trump criticized Prime Minister Mark Carney for strengthening economic relations with China, warning that Canada would be making a grave mistake if it assumed the US would tolerate Canadian ports being used for Chinese imports. He threatened to impose tariffs of up to 100% on Canadian goods if a trade agreement with China were reached.

Dominic LeBlanc, Canada’s minister overseeing US trade, responded by clarifying that Canada is not seeking a free trade pact with China. He explained that the recent limited agreement between Carney and Chinese President Xi Jinping was intended to resolve existing tariff issues, and he described the US-Canada relationship as exceptionally strong.

Although Trump’s comments were ostensibly about Canada’s recent tariff arrangement with China—and came as Carney gained international attention for his Davos address on resisting major powers—they also foreshadow a contentious lead-up to the review of the US-Canada-Mexico Agreement (USMCA).

According to a Bloomberg survey, most economists still expect the negotiations to end positively, but Trump’s aggressive stance has introduced new uncertainty.

“This certainly increases the risks for the formal trade talks between the US and Canada,” said Dominique Lapointe, macro strategist at Manulife Investment Management, in an email.

Canada’s economy is particularly vulnerable, as exports to the US make up a significant share of its GDP. Trump’s targeted tariffs on sectors such as automobiles, steel, aluminum, and lumber have already dealt a blow to crucial Canadian industries. However, many products remain exempt from tariffs if they are traded under the USMCA.

This exemption is now in jeopardy, as the agreement is due for a mandatory review this year. Experts warn that losing these protections could have severe consequences for Canada, potentially raising tariffs on exports to the US far above the current 5% to 7% range estimated by most analysts.

Earlier this month, Trump remarked that the US gains “no real benefit” from the deal, even though it was a hallmark achievement of his first term, replacing the North American Free Trade Agreement (NAFTA).

The agreement outlines several possible negotiation routes as its sixth anniversary approaches on July 1. Unless all three nations agree to extend the USMCA for another 16 years, annual reviews will be required until the pact expires in 2036. The framework allows for flexible negotiation formats and includes a clause permitting any country to withdraw with six months’ notice.

Business Community and Economic Outlook

Many American business organizations, even those dissatisfied with aspects of the USMCA, are opposed to the idea of scrapping the agreement. Industries such as automotive manufacturing have developed complex, cross-border supply chains that would be severely disrupted if the deal were terminated.

Derek Holt, head of capital markets economics at the Bank of Nova Scotia, remains unconvinced that the USMCA will be dismantled.

“Despite the rhetoric, the US has not shown a desire to abandon the deal, and most US industries that participated in USTR hearings have voiced strong support for USMCA,” Holt wrote in a recent investor note.

Ongoing trade uncertainty is dampening business confidence and complicating Canada’s efforts to attract long-term investment. According to a recent Bank of Canada survey, companies are delaying expansion plans and focusing on maintenance and replacement instead.

Bloomberg’s economist poll predicts that Canadian investment will rise by 1.3% in 2026, up from 0.6% last year. However, this projection depends on a successful USMCA outcome boosting investment in the latter half of the year.

“This only adds to the uncertainty, but the environment was always expected to be volatile and unpredictable,” said Randall Bartlett, deputy chief economist at Desjardins Group. “It was never going to be an ideal climate for Canadian business investment, especially in the early part of the year.”

Matthew Holmes, chief of public policy at the Canadian Chamber of Commerce, expressed hope for a swift resolution: “We urge both governments to reach a better understanding soon to ease the concerns of businesses facing immediate uncertainty.”

Nevertheless, Bartlett noted that Canada’s engagement with China could provide some negotiating leverage.

“This move may give Canada a bit more bargaining power. Other major trading partners are interested in working with us,” he said.

When Carney and Xi finalized their agreement, Trump initially responded favorably. “That’s what he should be doing,” Trump said of Carney on January 16. “It’s good for him to sign a trade deal. If you can secure an agreement with China, you should go for it.”

Bartlett added that if Canada successfully diversifies its trade away from the US, it could create challenges for American businesses and consumers as well.

Reporting assistance by Josh Wingrove and Mario Baker Ramirez.

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