Unclear US, Canada Will Avoid Trade War08/26 06:21

   The U.S. and Canada have ramped up their trade war, hitting each other with 
steep new tit-for-tat tariffs. Despite the bravado coming from both sides of 
the border, though, analysts suspect the longtime allies will eventually strike 
a deal to end a conflict neither really wants.

   WASHINGTON (AP) -- The U.S. and Canada have ramped up their trade war, 
hitting each other with steep new tit-for-tat tariffs. Despite the bravado 
coming from both sides of the border, though, analysts suspect the longtime 
allies will eventually strike a deal to end a conflict neither really wants.

   The prospects for compromise looked bleak Tuesday, with Canadian Prime 
Minister Mark Carney reacting to new 50% U.S. tariffs on certain Canadian goods 
by responding in kind on about $20 billion worth of American imports, including 
steel, dairy products, appliances and farm equipment.

   "You're at war when you get attacked. We got attacked,'' Carney, who came to 
power last year on the promise that he'd stand up to U.S. President Donald 
Trump, said over the weekend.

   Doug Ford, Ontario's populist premier, told The Associated Press on Monday 
that he was ready to escalate even further by cutting off his province's 
shipments of electricity and critical minerals to the United States.

   Soon after, Trump declared his intention to hammer the Canadian auto 
industry with another set of import taxes if the Canadians don't "fall in 
line.''

   With the breakdown threatening to harm one of the world's largest trading 
relationships and clouding efforts to renew the United States-Mexico-Canada 
Agreement that Trump negotiated during his first term, experts cautioned that 
there's still time to pull back from the brink of an even bigger trade war.

   They've done it before. "If there is political will, there is an off ramp,'' 
said former U.S. trade negotiator Wendy Cutler.

   'It's not real until somebody walks away'

   U.S.-Canada trade talks typically get testy, said Christopher Sands, who 
heads the Center for U.S.-Canada Studies at Johns Hopkins University.

   The two neighbors have a long history of sparring over things like Canada's 
protected dairy market and subsidized softwood lumber exports.

   "We've gone through this with Canadians before,'' Sands said. "It's almost 
like it's not real until somebody walks away from the table. ... I'm not 
panicked.''

   There are reasons to think something can be salvaged from the rubble of 
bilateral trade talks that collapsed Friday.

   First, the U.S. tariffs that Trump imposed Saturday cover just $20 billion 
worth -- around 5% -- of Canada's exports to the United States and are unlikely 
to do much lasting economic damage. Oxford Economics reckons the trade conflict 
would reduce Canadian economic growth only slightly next year -- from a 
previously forecast 1.6% to 1.4%. On Monday, U.S. Trade Representative Jamieson 
Greer even tried to downplay the trade rift as a "tempest in a teapot.''

   Moreover, Carney's retaliatory tariffs wouldn't take effect until Sept. 8. 
"That gives us this week. It gives us next week,'' Sands said. "Time to take a 
breather and talk about how to avert'' an all-out trade war.

   Despite Trump's tough talk on Truth Social, his punitive auto tariffs 
wouldn't kick in until Jan. 1 -- well after the Nov. 3 midterm elections in 
which the president's Republican Party is hoping to keep full control of 
Congress despite voter frustration with the high cost of living.

   So there's at least enough time for the countries to find a stopgap solution.

   Cutler, now senior vice president at the Asia Society Policy Institute, 
suggested that the U.S. could tap an emissary that both countries trust to get 
talks back on track; she recalled that Trump's son-in-law Jared Kushner helped 
negotiate the USMCA eight years ago.

   Canada would likely balk at a one-sided deal

   Cutler also noted that Trump suspended his global tariffs for months last 
year to allow U.S. trading partners to negotiate with him. Many did, including 
the European Union and Japan, and ended up agreeing to lopsided trade 
agreements to dodge the worst of Trump's tariffs.

   Canadians, though, are in no mood for a Trump-friendly trade deal.

   The American president has enraged the Canadian public with inflammatory 
talk of making their country the 51st U.S. state. And on Tuesday, instead of 
trying to lower the temperature, he declared that he was considering changing 
the name of Lake Ontario to Lake America. He has also repeatedly hit Canada 
with tariffs and threats of them, including when he suggested he might punish 
Canada for wildfires that were blackening U.S. skies.

   "Fighting with Washington is hugely popular in Canada right now," said Scott 
Lincicome of the Cato Institute, a Washington-based free-trade think tank. 
"Guys like Doug Ford -- like him, love him or hate him -- understand this is a 
political winner for them.''

   The latest U.S.-Canada conflagration flared up last month when Trump said he 
planned to hit Canada with 50% tariffs. He complained that Canada had been 
unfairly restricting U.S. exports of dairy, alcoholic beverages and autos. 
Trump set a deadline of Aug. 19 -- last Wednesday -- for the two countries to 
reach a deal and head off the tariffs.

   Because the Supreme Court struck down his biggest tariffs in February, the 
president turned this time to an obscure provision of a Depression-era trade 
law that gives him the power to impose tariffs of up to 50% on imports from 
countries that have discriminated against U.S. businesses. No investigation is 
required, nor is there any limit on how long the tariffs can last. But no 
president has ever imposed such tariffs before, so they are untested in court.

   'No choice' but to walk away

   Last week, negotiators appeared to be close to resolving their differences. 
Less than two hours before levies were set to take effect, Trump announced a 
three-day reprieve, posting on social media that "Canada and the U.S.A., 
subject to the finalization of documents, have a DEAL!" Greer, the U.S. trade 
representative, later told CNBC that the United States had offered to cut in 
half existing 50% tariffs on Canadian steel and aluminum, and to sharply reduce 
levies on Canadian auto and softwood lumber imports.

   But it all fell apart Friday and the Canadians walked away, with Carney 
saying the Americans had sought "to destroy our major industries, including 
autos, steel and aluminum. ... That was one of the main reasons we said no. It 
was a bad deal.'' Carney also said that Washington viewed protections for 
French and Canadian culture -- considered fundamental rights in Canada -- as 
irritants to trade.

   Ford said he understood that late in the talks, Washington demanded veto 
power over trade deals Canada pursued with other countries, which would have 
violated Canadian sovereignty.

   Despite the differences, Cato's Lincicome said, "both sides understand the 
economic consequences of some sort of a full-blown trade war.''

   The two countries last year did $880 billion worth of trade, according to 
the U.S. Commerce Department. Canada sends 72% of its exports to the United 
States. And U.S. communities along the border depend on Canadian electricity. 
American farmers need Canadian potash fertilizer. And U.S. refineries in the 
Midwest rely on imports from Alberta's oil sands deposits.

   Then there's U.S. politics. "Voters hate tariffs," Lincicome said. "They 
associate them with higher cost of living, and (Trump has) got to be hearing 
from political folks that if he wants any chance of salvaging the midterms he 
can't start a trade war with Canada.

   "My guess -- and it's only a guess -- is that cooler heads do prevail 
somewhere in the next few weeks.''