U.S. Commerce Secretary Howard Lutnick played a central role in derailing a prospective trade deal with Canada, pushing for harsher terms than his own country’s chief negotiator, said three sources with knowledge of the talks.
The agreement collapsed less than an hour before the deadline to finalize it on Friday evening, with Canada objecting to a range of U.S. demands hitting everything from exports of Canadian trucks and aluminum products to Canadian content streaming rules to Ottawa’s ability to make trade deals with other countries.
In many cases, said one of those sources and three others, Canadian negotiators believed they had agreed to one thing on Tuesday – when U.S. President Donald Trump crowed that the two sides had reached a deal – only for the Americans to insert surprise language into the final text of the deal.
Prime Minister Mark Carney, meanwhile, faced intense domestic pressure. Ontario Premier Doug Ford and industry figures pushed him to get a better deal on steel and autos, two sources said. Quebec cabinet ministers, meanwhile, objected to the streaming rules, said a separate source. One Canadian source said Ottawa gave Washington a list of new demands after the Tuesday agreement.
The Globe and Mail is not naming sources mentioned in this story as they were not authorized to disclose information about the closed-door bargaining.
Opinion: The U.S.’s deal was no deal at all
Now, Mr. Trump has heated up his trade war with new 50-per-cent tariffs on US$20-billion worth of Canadian goods – in addition to pre-existing levies on autos, steel, aluminum, forestry and other sectors. Mr. Carney has vowed further retaliation, and the White House has said it will hit back.
It all damages Canada’s dominant international trade relationship, with escalating pain for businesses, workers and consumers on both sides of the border.
The morning after Mr. Carney ended trade talks and recalled negotiators to Ottawa, he offered a succinct explanation for why the deal unravelled: “We were not prepared to compromise Canada’s sovereignty or to undermine key industries,” he told reporters. “You are at war when you get attacked. We got attacked.”
On Sunday, Mr. Trump fired back by reviving his annexation talk. “Canada wants the benefits of being a State, without being one!!!” he wrote on social media.
U.S. Trade Representative Jamieson Greer, who led negotiations for Washington, pointed the finger at Ottawa late Friday. “New demands and walk backs from Canada” were the real reason the agreement fell apart, he told reporters.
Canada, however, thought it had a deal with Mr. Greer, three of the sources said. The agreement, reached late Tuesday, just two hours before Mr. Trump’s new tariffs were set to kick in, prompted the President to put the levies on hold for three days until text of the pact could be finalized.
Although Mr. Greer is statutorily responsible for negotiating trade deals and reports directly to Mr. Trump, Mr. Lutnick’s department directly oversees the tariffs on autos, steel, aluminum, forestry and other sectors under Section 232 of the Trade Expansion Act of 1962. The President also gave Mr. Lutnick broad oversight of all trade policy, including over Mr. Greer.
The tentative agreement reportedly would have cut Mr. Trump’s auto tariffs to 15 per cent from 25 per cent and preserved an exemption for U.S. content; cut steel tariffs to 25 per cent from 50 per cent with a four-million-tonne quota (steel above the quota would have remained tariffed at 50 per cent); cut aluminum tariffs to 25 per cent from 50 per cent; and removed a 10-per-cent tariff from softwood lumber. The President would also have scrapped his latest levies.
In exchange, Canada would concede on several American demands, including ending retaliatory tariffs against the U.S. auto industry, changing how licences are allocated in the dairy supply-management system, and ensuring that provincial governments ended boycotts of American alcohol and Buy Canadian procurement programs.
Prime Minister Mark Carney announced 'dollar-for-dollar' retaliatory tariffs on imports from the U.S. Saturday morning. New 50-per-cent tariffs were imposed by the U.S. after Canada withdrew from trade negotiations late Friday night.
Reuters
The deal, from Ottawa’s perspective, was already harsh: Canada would accept high tariffs from Mr. Trump and make a long string of concessions in exchange for the President not setting his levies even higher or adding more. But when the U.S. presented written text of the agreement, it was even harsher, three of the sources said.
One of those sources and two others said that Mr. Lutnick played a key role in tanking the deal because he felt it wasn’t sufficiently hard on Canada. Two of those sources also pointed to Peter Navarro, another White House trade adviser, as backing Mr. Lutnick’s position. Two sources said Mr. Lutnick was hearing from U.S. industries that wanted to maintain trade barriers against their Canadian competition.
Mr. Lutnick has a fraught history with Canada.
In June, three sources said, he was instrumental in getting the Trump administration to slam the brakes on the planned opening of the Gordie Howe International Bridge from Windsor, Ont., to Detroit.
One of those sources said that Mr. Lutnick wanted to make sure that, before the bridge opened, there was an agreement in place to protect the profits of Matthew Moroun, the Detroit billionaire who owns the rival Ambassador Bridge. Mr. Moroun donated US$1-million to a Trump campaign group earlier this year.
In the end, the Canadian government had to agree to a U.S. veto over its ability to lower tolls on the Gordie Howe and to share toll revenue with the U.S., even though Ottawa paid the full price for building the span. That agreement got the bridge opened in July.
At an event in Washington in April, Mr. Lutnick argued that the Canadian economy was dependent on the U.S. and Ottawa should therefore not play hardball in trade negotiations. “They suck,” he said.
Between Mr. Carney’s public comments and conversations with a half-dozen sources, several sticking points that derailed the deal have become clear.
One was that the U.S. told Canada at the last minute that its tariff reduction for autos would apply only to light vehicles and not to mid- and heavy-duty trucks. This would eviscerate the business of General Motor Co.’s Oshawa, Ont., plant, which produces the Chevrolet Silverado, and Ford Motor Co.’s planned retool of its Oakville, Ont., plant to build the F-Series.
Ottawa readies tariff-relief plan for businesses
Another was that products that use aluminum would be excluded from the reduction in the aluminum tariff, one of those sources said, adding that Mr. Lutnick had pushed for this.
A third was that Canada get rid of requirements that U.S. streaming platforms, such as Netflix and Amazon Prime, promote Canadian content to users in Canada, including prioritizing French-language content. One of the sources said that this demand was made mere hours before the talks collapsed.
A final problem was that the deal would have obliged Canada to mirror U.S. trade restrictions against other countries. Mr. Carney did not make clear how wide-ranging this provision was and how broadly it would have applied.
Ottawa already agreed in 2018 not to make free-trade deals with “non-market economies” such as China. But the language in U.S. trade deals with Britain and other countries last year suggest that Washington wants to push its trade partners further in matching its treatment of countries against whom it is taking punitive measures. Such rules could hamper Mr. Carney’s agenda of striking trade deals around the world.
The rules on autos and steel tariffs drew a sharp reaction from Mr. Ford to Mr. Carney, said one of the half-dozen sources and another source. The Prime Minister needed Ontario’s sign-off, along with all provincial governments, in order to fulfill his agreement to end bans on U.S. alcohol as part of the deal. The Premier and the auto industry pushed Mr. Carney to get a better deal with the U.S.
Mr. Ford, those sources said, also asked Mr. Carney for other concessions in order to agree to the deal: removing a federal carbon levy from the steel industry and loosening tailpipe emission standards. The Premier reiterated these in a letter released after the deal collapsed but sent earlier to the Prime Minister.
“I spoke to the Premier midweek, and we agreed that the numbers as they were being proposed … did not work for the Canadian automotive sector and that we needed to keep at it. He was going into his briefing with the PM,” Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said in a text message.
The Canadian side wanted the tariff carve-out for U.S. parts in vehicles to be extended to Canadian parts as well, while the Americans pushed back. A number of auto-industry experts have argued that Canadian car production is only profitable if U.S. tariffs can be lowered into the low single-digits; otherwise, final assembly of autos in Canada could wither away entirely as the big Detroit and Tokyo-based auto companies look to shift production to the U.S.
Premiers present united front behind Carney, but divisions emerge on next steps
The digital trade rules were a particular problem in Quebec, where preservation of the French language is a top policy imperative. A separate source said members of the federal cabinet from that province put pressure on Mr. Carney over it.
The breakdown in trade talks will extend the pain that Canadian exporters have felt over the past year and could further chill business investment in the country.
“This will be a body blow to North American competitiveness in this self-defeating trade saga. A whopping, non-absorbable tariff is not sustainable or viable for business,” Candace Laing, CEO of the Canadian Chamber of Commerce, said in a statement.
The new levies, imposed under Section 338 of the Smoot-Hawley Tariff Act of 1930, will hit around 5 per cent of Canadian exports to the United States. While Bay Street economists estimate that the direct macroeconomic impact will be relatively contained, the new tariffs could have a devastating impact on the targeted sectors, including electronics, plastics, paper products, furniture and home appliances.
Some of the economic impact will be determined by Ottawa’s retaliation and the supports it puts in place for affected businesses. The federal government has already spent billions over the past year helping tariff-affected industries retool for new markets. Canadian countertariffs on U.S. goods will raise prices for those products in Canada. Mr. Carney has promised dollar-for-dollar retaliatory tariffs against the U.S. beginning on Sept. 8.
A Bank of Canada study of Ottawa’s retaliation last year found that prices for targeted products rose by about 6 per cent. The countertariffs added roughly 0.3 percentage points to the overall inflation rate at the peak of the price shock.
Retaliatory tariffs could be dangerous for both Canada and U.S., trade experts warn
One member of Mr. Trump’s cabinet, meanwhile, tied the trade talks directly to Canada’s national security and said it was “foolish” for Ottawa to believe it could win a trade war with the U.S.
“The fact that we provide their security for them, and they take advantage of us?” Transportation Secretary Sean Duffy told Fox News on Sunday, “I think you’re going to see Mark Carney come to the table because it’s going to be devastating for his country.”
He also incorrectly asserted that Canada “doesn’t have a military.”
In the U.S., the tariffs could cause economic problems for the U.S. importers and consumers who pay them and potentially political problems for Mr. Trump. The President is already being hammered by accusations that his war on Iran is driving inflation.
Michigan Governor Gretchen Whitmer, who leads a swing state with open gubernatorial and Senate races in November, said American auto companies “face the difficult decision of laying off workers or passing costs onto their customers.”
“This must end. Michiganders literally cannot afford to keep paying these Republican tariff taxes,” she wrote on X.
California Governor Gavin Newsom, a likely Democratic presidential contender in 2028 who often trolls Mr. Trump on social media, was typically blunt.
“Our closest ally. Our critical trading partner. And Trump is hitting Canada with 50% tariffs,” he wrote. “What the actual fuck are we doing?”