Canadian leaders have spent weeks scrambling to avert a threat from U.S. President Donald Trump to impose 25 per cent tariffs on goods heading state-side from this side of the border.
The U.S. leader repeated that threat as recently as Thursday afternoon, a mere two days before the Feb. 1 date his administration has suggested tariffs could be implemented.
Amid these tensions, CBC readers have been asking how it’s even possible for the U.S. to do this when it signed the Canada-U.S.-Mexico Agreement (CUSMA) — the trade deal that emerged after Trump forced a renegotiation of the North American Free Trade Agreement (NAFTA) not that long ago.
Yet economics and trade law experts say the U.S. could, under CUSMA, cite national security as a rationale for its actions and plow ahead with tariffs knowing Canada can’t prevent that from happening.
“A trade agreement is just a treaty … and treaties can be broken,” said Gus Van Harten, a professor of trade and investment law at Toronto’s York University.
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Erin Brown, a partner at the Norton Rose Fulbright law firm and a member of its cross-border trade law task force, concurred there’s not a way for Canada to pre-emptively halt a U.S. tariff action from occurring, via CUSMA alone.
“The reality is that CUSMA … has a lack of teeth,” she said in an interview.
In any case, the willingness by the U.S. to threaten Canada — and Mexico, too — seems to underline the Trump administration’s dissatisfaction with the status quo, when it comes to trade.
“I would interpret the [threatened] tariffs as a statement that they are tearing up the trade agreement,” said Torsten Søchting Jaccard, an assistant professor at the University of British Columbia’s Vancouver School of Economics.
Why CUSMA?
Trump had been critical of NAFTA before he ever reached the White House. CUSMA was negotiated during his first term in the Oval Office.
Canada, Mexico and the U.S. agreed to terms on the CUSMA deal in the fall of 2018, but it was further amended the following year before ratification eventually occurred in 2020.
The Canadian government’s summary of CUSMA’s outcomes says the agreement aimed to reinforce the economic ties among the three parties while preserving the trade benefits that NAFTA brought, with some adjustments “to address modern-day trade challenges and opportunities.”
Robert Lighthizer, the U.S. trade representative during Trump’s first administration, at the time hailed CUSMA’s emergence as “a landmark achievement” in efforts to spur manufacturing and investment in the North American economy.
Brown, of Norton Rose Fulbright, said the goal for Canada when signing trade deals like CUSMA is to make trade easier — and that includes addressing tariffs.
“The fundamental tenets of CUSMA and the other trade agreements is that we are reducing or eliminating tariffs,” she said.
Another goal of a trade deal like CUSMA is to achieve “a sense of stability moving forward,” says UBC’s Jaccard, noting that any actions the U.S. takes to the contrary could undermine its reputation on trade.
There are indications, however, that the Trump administration may have a mix of motivations for wielding a tariff threat now.
Tariffs before, after CUSMA
Canada already faced U.S. tariffs during Trump’s first term in office — both before and after CUSMA’s existence.
In the spring of 2018, a Trump-led White House cited national security when targeting Canadian steel with 25 per cent tariffs and aluminum with 10 per cent tariffs. Ottawa retaliated with tariffs of its own. It wasn’t until nearly a year later, however, that the two sides announced they were withdrawing tariffs.
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But Trump again turned to tariffs in August 2020, slapping a 10 per cent tariff on Canadian aluminum, again citing national security when imposing them. Canada, in turn, threatened retaliatory measures, and on that occasion, the U.S. president paused the tariffs the following month.
A series of exceptions are laid out in CUSMA including an article on “essential security,” which states that nothing in the agreement precludes the any of the parties from “applying measures that it considers necessary for the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.” Â
The translation is that the U.S. is able to move ahead with tariffs using this justification.
Hearing Trump and other administration officials invoke concerns about fentanyl trafficking and migration, Brown said the president’s administration may well be accordingly driving toward “a national security-type exception” to justify tariffs.
What can Canada do about this? It could seek a dispute resolution process, but York University’s Van Harten said that’s not an overnight process and, in his view, there’s no guarantee Canada would be successful in the end.
“Even if we win, the remedy is to authorize retaliatory sanctions,” said Van Harten, noting that by the time that happened, any tariffs imposed would already have hurt Canada’s economy badly.
On a broader level, Brown said Trump does not appear “to feel overly constricted” by the international rules-based order that has long governed trade. That may have implications for what to expect from his administration.
“I don’t think he’s ready to tear it up completely,” Brown cautioned, noting Trump has indicated he wants to renegotiate CUSMA.
The future
Van Harten argues that Trump’s recent actions amount to “a whole policy shift that takes us out of this whole globalization era,” with his administration’s stated focus on putting America first.
And he says he believes Canada will perpetually find itself at risk from the whims of the U.S. unless it chooses a different path forward.
“If we don’t shift … we will always be under threat,” said Van Harten, who says Ottawa has long projected a misleading picture of the benefits of trade deals like CUSMA, after making a decision to go in that direction prior to NAFTA.
UBC’s Jaccard, by contrast, would look more to continuing Canada’s open approach to conducting trade in the world as the way forward.
He said this could include working to extend Canada’s reach into other markets around the globe, or to seeing this country buying more internationally — rather than from the U.S.