No Trade Deal With US Yet? Why PEI Premier Says That May Be a Good Thing

P.E.I. Premier Rob Lantz in a file photo. The Canadian Press/Darren Calabrese

News Analysis

With the nature of the trade deals struck by U.S. President Donald Trump in recent weeks, P.E.I. Premier Rob Lantz said it’s better that Canada remains without one.

The Trump deals have maintained a baseline level of tariffs on trading partners, have mostly kept in place the steep sectoral tariffs, and have included pledges of hundreds of billions in investments into the United States.

“We’ve seen the EU, South Korea, Japan, sign deals that, quite honestly, don’t look very appealing to me,” Lantz told CBC News in an interview aired on Aug. 8.

Lantz, who chairs the Council of the Federation this year, added he’s not sure those deals are “even enforceable, or even on paper yet.”

U.S. deals with major economies and trading partners the European Union (EU), Japan, and South Korea were announced in late July, before the Aug. 1 deadline for Washington’s reciprocal tariffs were set to kick-in.

All three partners will face a general tariff rate of 15 percent, while the sectoral tariffs on steel and aluminum of 50 percent remain in place. Meanwhile, the universal U.S. tariffs of 25 percent on cars and auto parts was brought down to 15 percent.

A key part of each of those deals also involves promises by the EU to purchase US$750 billion in U.S. energy products and make new investments in the United States worth US$600 billion. The investment amount pledged by Japan is US$550 billion, while South Korea pledged US$350 billion.

It is not known whether Trump has asked that Canada make a similar commitment, but in his recent messaging Prime Minister Mark Carney has repeated that Canada is already the second-largest foreign investor in the United States.

No Deal

Carney has not been able to secure a deal with Trump after there had been positive signs of progress in June.

Carney had set a deadline of mid-July to reach a deal during the G7 Leaders’ Summit in mid-June. That plan was kiboshed when Trump issued a letter to Carney on July 10, threatening to raise the tariff rate on Canada to 35 percent on Aug. 1 because of its retaliatory measures and alleged failure to curb fentanyl trafficking.

There is currently no deadline to reach a deal and no known ongoing high-level talks. Carney is currently on vacation and he said last week he had not spoken to Trump in recent days.

Carney gave an update on the negotiations during a first ministers meeting last week, and there was little optimism expressed by premiers afterwards.

Ontario Premier Doug Ford suggested Canada should instead brace for early renegotiations of the United States-Mexico-Canada (UMSCA) free trade deal. “No deal is better than a bad deal,” he said, regarding ongoing talks.

This sentiment was echoed by Lantz, who recently took over from Ford as head of the Council of the Federation.

“I think there is a general feeling amongst premiers, and I have to say amongst Canadians, that we need to get the best deal we can, and if that means absorbing some economic pain in the meantime, that’s maybe what we have to endure,” he told CBC.

Amid the negotiations impasse with Trump, Carney has been emphasizing in recent days that trade between Canada and the United States is mostly tariff-free by virtue of the United States-Mexico-Canada Agreement. He said that over 85 percent of goods are exchanged duty-free, a figure also cited by entities like RBC.

What is causing more economic pain to Canada are the sectoral tariffs, particularly those on metals.

Lantz also raised this issue, saying those tariffs are starting to trickle down to his province, while adding that at this point his concern is “not too great.” He mentioned the 85 percent free trade figure cited by Carney, while noting that in Prince Edward Island that number “rises to almost 100 percent.”

Overall, data suggests that Canada is in a better position than most with a low effective tariff rate (ETR) when the various types of tariffs are calculated as a percentage of total imports. Canada’s ETR is at 10 percent compared to an average of 17 percent among U.S. trading partners, according to credit rating agency Fitch. At the same time, certain sectors, including the steel, aluminum, and lumber industries are sustaining heavy blows from U.S. sectoral tariffs.

Path Forward

As for the path forward, Lantz said he has questions about imposing counter-tariffs and believes that non-tariff measures, such as removing American alcohol from store shelves or Canadians cutting travel south of the border, is what has caught the attention of business leaders in the United States.

“The [counter] tariffs themselves, they are starting to become a point of discussion amongst premiers and how those should be dealt with going forward,” he said. “I don’t think we’ve really settled on that, but I'd like to continue that discussion.”

Months ago, Ottawa had put in place remission measures for a number of sectors and industries to reduce the impact of its counter-tariffs on the economy. More counter-tariffs could be dropped, Carney acknowledged last week, saying they end up doing “more harm than good.”

Carney said the issues at the “core” of current talks involve “strategic sectors” such as steel, aluminum, automobiles, pharmaceuticals, and lumber. “We’re concentrating on those areas where our economies are deeply integrated and working for win-win solutions between the two countries,” he said.

With Trump apparently firm on not dropping the metals tariffs, safe for the United Kingdom which obtained a 25 percent rate in its trade deal, and these tariffs being among the most damaging to Canada, it’s possible they represent a key bone of contention in the talks.

The Trump administration has also consistently complained about the high tariffs Canada imposes on its dairy farmers, due to the quota system in supply management. Meanwhile Carney, with the backing of Parliament, has sought to protect the system in trade talks.

There is also a possibility that non-trade or economics issues are having an impact on negotiations. Canada recently broke with the United States and Israel with its plan to recognize Palestinian statehood. Trump sent mixed signals on the matter, first saying this will make it “very hard” for Canada to reach a deal, while adding later it’s not a “deal breaker.”