On the surface, it looks as if President Trump’s bullying tactics may be working, until it comes to their application to Canada. Deals with the European Union, UK and Japan have taken the familiar form, very much one-sided. Trump initially imposes an outlandish tariff rate, as much as 50%, on imports from abroad. In return for dropping the tariffs down considerably, Trump squeezes out concessions in the form of commitments that host country will purchase vast amounts of U.S. energy exports and also agree to expand their investments in the US. Given the lack of specifics regarding these proposed investments, seasoned US trade officials are very skeptical that such investments will actually materialize. Hollow promises made to get tariffs down.

Canadian exports account for nearly one quarter of Canada’s GDP, putting Canada high on the list of most vulnerable nations to experience the brunt of Trump’s tariff sledgehammer. Yet, Canada has not inked a trade deal, despite facing Trump’s deadlines. Bilateral negotiations are continuing, behind the scenes, but clearly Canada is in no rush to make a deal  Prime Minister Carney has indicated no deal is better than a bad deal. And, the American officials seem to have taken the summer off work.

What makes it more difficult for the US to bully Canada? Does Canada have any cards to play in this high-stake poker game?

• Above all else, there is the Canada-United States-Mexico Agreement (CUSMA/USMCA) renegotiated in the first Trump Administration. The agreement is so wide reaching, that it allows for more than 85 % of Canadian exports to enter tariff- free. 
• Canada supplies nearly 70% of US crude oil imports. Energy products are not compliant with CUSMA but are subject to a lower 10% tariff.  Canadian oil is heavy- graded and require special refinery equipment to process. A replacement for Canadian oil can only be attained from Venezuela which is politically out-of-bounds for the US.  US customers are absorbing the 10% tariff. 
• US imports almost all its natural gas from Canada.  The US pipeline system does not serve all of the country, and so Canadian natural gas is essential . 
• Canada is the major supplier of US imported electricity. The interconnected electrical power grid is one of the cornerstones of the continent’s economic strength.

Upon taking office, Trump famously said that the US “did not need anything from Canada” and that the US held all the cards. He now knows differently that Canada is not without cards of its own.

Canada is not intimidated by US tariffs and has so far slapped retaliatory tariffs on nearly C$70 billion of US imports. The Canadian government has prepared a list of some C$155 billion imports that may be subject to tariffs, should the US raise the stakes.

The Canadian automotive sector is at considerable risk of import duties on cars and light truck vehicles produced in Canada. The complexities of cross border shipment of parts makes the whole North American car industry subject to tariffs at different points of the production cycle. Recent announcements by the big three auto manufacturers claim that the industry suffered US $10 billion in loss in profits directly attributed to the US tariffs. 

One important feature of Canada’s response to US tariffs is to provide adjustment assistance to those industries that are critical to the health of its economy. For nearly 35 years the US has imposed countervailing duties on softwood lumber from western Canada.  PM Carney recently announced a series of measures to help companies and workers to offset the lost of some of the American market.

So, despite it being a long, hot summer, Canada is playing it cool on the trade war.

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