Who blinks first? ‘It probably has to be Carney’ to restart U.S. talks, trade analysts say

WASHINGTON, D.C. — Over the weekend, Prime Minister Mark Carney positioned Canadian oil and diesel exports as a reliable alternative to U.S. President Donald Trump’s new diesel arrangement with Russia, noting that Canada would “continue to maximise our exports” to the United States. 

In response, U.S. Ambassador Pete Hoekstra took to Instagram on Tuesday to reject the suggestion that Ottawa’s energy gives it leverage, noting that “we are not going to sit here and be dependent on Canada making a decision.”

This mischaracterized the situation — Ottawa is not withholding diesel exports from the U.S. — but it underscored that the White House is showing no urgency to return to the negotiating table. Since trade talks between Canada and the U.S. collapsed in August, there have been mentions of informal contact between negotiators and conversations between Carney and Trump, but no formal talks have been held — and Canada-U.S. Trade Minister Dominic LeBlanc has no plans to visit Washington.

Since Canada has an economy one-twelfth the size of America’s, it has more to lose and less leverage, making this a risky waiting game. Some trade watchers say the two sides need to return talks, and some think the looming threat of higher tariffs on January 1, 2027 — and possibly a U.S.-Mexico preliminary deal — could push Ottawa back to the table. 

So should Carney be doing everything in his power to get talks back on track as soon as possible?

“​​The longer it takes, the more harm we’re doing to ourselves,” said Goldy Hyder, president and CEO of the Business Council of Canada.

“What I hear from business leaders is, ‘sooner rather than later.’ There’s a belief that reality will impose itself and some kind of an agreement that works for all sides can be reached sooner rather than later.”

But when will there be enough pressure to push the two sides back to the trade talks?

“I don’t rule out the possibility of something happening between now and even the midterms,” said Hyder, acknowledging that the timing might be tight.

But some trade analysts say pressure may build to push the sides back into talks shortly after the U.S. elections.

Christopher Hernandez-Roy, acting director and senior fellow at the Americas Program of CSIS in Washington, thinks there’s potential that the midterms could be pivotal. If the vote results in a Democratic House while Republicans retain control of the Senate, he says there will be more pressure on Canada to negotiate than if the Democrats won a sweep.

A Democratic House could try initiating legislation to alleviate the trade war, but with a Republican majority in the Senate, any bills of this sort are unlikely to become law. 

“For Canada, the picture is obviously much better if the Democrats control both houses rather than just the one,” he said.

Hernandez-Roy acknowledged that Trump will likely still be difficult and tariff-prone, but even if Congress doesn’t get a veto-proof majority, it “has the power of the purse,” he said, referring to legislators’ ability to withhold appropriations to rein in the president.

“I think there would be a lot of pushback from Congress, but whether it’s successful or not will remain to be seen,” he added.

Richard Stern, vice president of the Plymouth Institute for Free Enterprise at Advancing American Freedom, also said the period after the elections could ramp up pressure for a deal, but he was less focused on the result. Instead, he said the pressure would depend on how far Trump escalates things after the midterms.

“If Trump cools it after the election … then there’s less incentive for anybody to care. But if he ratchets it up again, everybody’s … [going to] come to the table and try to think through how to end the trade war,” Stern said.

One test, of course, will be whether the president follows through with his threat to impose the higher tariffs in the New Year. Trump has threatened to impose 50 per cent tariffs on all Canadian-made cars, large and small trucks, automotive parts, and steel.

Christopher Sands, director of the Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies in Washington, said the January deadline “will create the deadline pressure to force talks. And I think Carney will get to that point, and he’ll want to settle a deal before the end of the year.”

He also thinks Carney will need to make the first move.

“I don’t know who blinks first. I do think it probably has to be Carney, but … he needs to find some way to do it,” Sands added.

How the prime minister handles such a move could be politically risky at home, given the support his tough stance has generated.

“He doesn’t want to bend too quickly. I can understand that, but he’s going to get more and more pressure,” said Sands, who thinks Carney has a plan in mind.

Sands believes that Carney’s trade diversification and investment efforts — from his talks with Mexican, Chinese, and European leaders to his recent investment summit — are helping lay plans that will be fruitful in the future while also preparing Canadians to accept an imperfect U.S. deal. 

And imperfect it will be. Any deal with the U.S. will involve tariffs, just as reconciliation deals with countries around the globe have. But what can Canadian business accept?

Hyder acknowledged that “free trade now comes with what I’ve dubbed a price of entry,” likening it to an ante paid in a poker game. But he also noted that the heavily integrated markets of Canada and the U.S. make such concessions trickier for Ottawa.

“We have a lot more at stake because of the amount of trade that we do, and so we have to be sure that any agreement that we make keeps Canada competitive and allows Canada to continue to grow its own economy and attract capital and create jobs for Canadians.”

National Post

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