Ottawa discussing trade concessions with U.S. in return for some tariff relief, sources say

Canada and the U.S. are discussing a prospective deal in which Ottawa would agree to a long list of Trump administration trade demands in exchange for some relief on sectoral tariffs, as talks intensify ahead of another round of threatened American levies.

According to three industry sources with knowledge of the negotiations, the two sides have discussed in-depth proposals and traded written bargaining positions, but an agreement has not yet been reached. The Globe and Mail granted the sources anonymity because they were not authorized to discuss the talks.

At the centre of the proposals is a swap: Canada would concede on a range of trade issues that the U.S. considers the biggest bilateral trade irritants, including the removal of retaliatory tariffs on U.S. products such as autos; the return of American alcohol to shelves; removing provincial procurement restrictions; and agreeing to Washington’s interpretation of how dairy quotas should be allocated. One of the sources said the U.S. has a priority list of around 10 items it wants dealt with.

In return, the U.S. would lower sectoral levies, known as Section 232 tariffs, on steel and aluminum, with Ottawa also pushing for relief on autos and forest products. Canada is also hoping to avoid U.S. President Donald Trump’s latest round of threatened tariffs, scheduled to take effect in less than two weeks time.

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The U.S. is not expected to remove the Sec. 232 tariffs entirely, the sources said, and a key part of the negotiation revolves around the tariff levels that would remain in place. The Globe and Mail previously reported that the two sides have discussed tariff-rate quotas on steel and aluminum, intended to limit how much of the metals Canada exports to the U.S. One of the sources said steel could face a 10-to-15-per-cent tariff inside the quota, while aluminum would face a single-digit tariff inside the quota, with higher tariff rates above the quota.

The deal under discussion, two of the sources said, would represent only the first phase of trade talks and is being described as an “interim deal.”

An agreement along these lines would continue Mr. Trump’s sweeping campaign to dismantle the global free-trade architecture his country spent decades building. It would also formalize the change in the continental commercial relationship to one of managed trade and continue Mr. Trump’s practice of having trading partners agree to protectionism from the U.S. while restricting their own ability to impose trade barriers.

The office of Intergovernmental Affairs Minister Dominic LeBlanc, who has been leading negotiations, did not immediately provide comment on Friday morning. His spokesperson, Gabriel Brunet, said he was leaving Washington on Friday and would return on Monday.

In addition to the Sec. 232s, which Mr. Trump imposed last year and which have inflicted harm on key Canadian industrial sectors, the President is also threatening 50-per-cent tariffs on US$20-billion more of Canadian products starting on Aug. 19. The aim of talks is to reach a deal before then.

Prime Minister Mark Carney signalled this week that discussions are difficult. “The tone is pretty tough,” he said in Toronto on Wednesday.

On Thursday, he said he wanted a deal that addressed all sectors hit by Sec. 232s. “Will we get all that by the 19th of August? We’ll see. But we want to have pathways in order to get that.”

Later rounds of negotiations that could happen this fall and next year could include discussions about defence and security, aligning external tariffs on certain Chinese goods and increased co-operation in sectors like energy and critical minerals, one of the sources said.

Another source said security issues, such as Canada fulfilling its long-delayed plan to buy $19-billion worth of U.S.-made F-35 fighter jets, which Mr. Carney put on hold last year amid Mr. Trump’s tariffs and annexation threats, are also a topic for later negotiations. If Canada joins Mr. Trump’s planned Golden Dome missile defence system, Ottawa would buy other U.S. military gear such as radar planes, the source said.

There would also be later trilateral discussions about structural changes to the United States-Mexico-Canada Agreement, including around tightening rules of origin for automobiles and other key industrial goods. In its trade talks with Mexico, the U.S. has pushed for tighter North American auto content rules and a new requirement that 50 per cent of a vehicle must be made of U.S. parts.

U.S. Trade Representative Jamieson Greer said last month that he’s looking to land “interim arrangements” with Canada and Mexico that address bilateral trade irritants by the end of the year. Deeper discussions about structural changes to the USMCA would likely extend into 2027, he said.

Mr. LeBlanc and Canada’s chief negotiator, Janice Charette, met with Mr. Greer on Thursday to discuss the proposals – their second meeting in as many weeks. The sit-down, which was scheduled for 30 minutes, stretched to an hour and a half, Mr. LeBlanc’s office said. Earlier in the week, one of the sources said, Canada gave Mr. Greer a response to his latest bargaining position.

Another meeting has been lined up for Monday, according to a different source.

Trade talks have intensified over the past two weeks, after Mr. Trump brought up the new Aug. 19 tariffs. The threat was widely seen as a move to increase pressure on Canada and break an impasse in trade talks. The U.S. had been unwilling to have deeper trade discussions with Canada without more concessions from Ottawa, including an end to retaliatory measures Canada took in response to earlier U.S. tariffs. Meanwhile, Canada has been unwilling to give ground on a number of issues without getting some relief on Sec. 232 tariffs.

Last year, Mr. Carney scrapped Ottawa’s planned digital services tax and removed retaliatory tariffs on billions of dollars of U.S. goods at Washington’s request, only to have the U.S. walk away from the negotiating table after pocketing the concessions.

The Prime Minister has made further concessions in recent weeks, including agreeing to share revenue from the Canadian-financed Gordie Howe International Bridge between Windsor, Ont. and Detroit, and ending an Online Streaming Act requirement that Netflix, Amazon and other companies support Canadian content creators. So far, Canada has not received any U.S. concessions in exchange.

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On the U.S. side, there is optimism that a deal can be reached, one source said, and Mr. Greer appears to have recently received more latitude from Mr. Trump to negotiate. But the source cautioned that the details remain fluid and Mr. Trump has not signed off on any of them.

The source said U.S. officials have argued that while some level of tariffs will remain in place on key Canadian exports, the country will have more preferential access to the U.S. market than most other trade partners.

Still, the agreement could be a tough political sell after Mr. Carney won last year’s election in part by promising an “elbows up” response to Mr. Trump. The Prime Minister has often said that no deal is better than a bad deal – although the President’s threatened tariff escalation may have changed Canada’s calculus.

Another source said the Canadian negotiating team was optimistic a deal could be reached by Aug. 19 and was not pushing for an extension, but the team remained cautious as negotiations were in a state of flux.

Canada and the U.S. first signed a free-trade agreement in 1988, which was expanded to include Mexico, as NAFTA, in 1994. In his first term, Mr. Trump had the deal renegotiated. The resulting accord, the USMCA, added some protectionist rules but left most of NAFTA’s free-trade architecture unchanged.

In his current term, Mr. Trump has gone much further on the protectionist front, launching a global trade war with tariffs on nearly all countries and demanding punitive trade deals in exchange for lowering them. His argument is that such a tariff wall is needed around the U.S. economy to bring back manufacturing jobs from other countries.

In Canada’s case, the Sec. 232 tariffs on metals and autos breach agreements Mr. Trump signed with Ottawa during his first term. The USMCA, for instance, includes a side letter guaranteeing that Canada can send up to 2.6 million vehicles to the U.S. tariff-free.

As it stands, steel and aluminum face a 50-per-cent tariff, metal-containing derivative products are subject to a 25-per-cent tariff, and autos face a 25-per-cent tariff with a carve-out for U.S auto parts. Softwood lumber faces a 10-per-cent Sec. 232 tariff (on top of other duties) while wood furniture and cabinets are subject to a 25-per-cent tariff.

The U.S. opted not to extend the USMCA for another 16 years on July 1, pushing the continental trade agreement into a period of annual reviews until 2036. The deal would expire at that point if no extension agreement was reached.

Editor’s note: This article has been updated to correct information about current tariffs: steel and aluminum face a 50-per-cent tariff, while metal-containing derivative products are subject to a 25-per-cent tariff.