Free trade carveouts key in potential deal with U.S.: business groups

Business leaders and academics say they hope Canada and the U.S. will maintain free trade protections for most goods once an agreement is reached — even if the negotiations can’t stave off certain sectoral tariffs.

It’s unclear if the two countries will stick to the Aug. 1 deadline for wrapping up talks. Prime Minister Mark Carney said Monday the negotiations were in an “intense phase,” but U.S. President Donald Trump told reporters last week that Canada wasn’t a priority for his administration amid trade talks with other partners.

Whether a deal is announced Friday or later, Canadian Federation of Independent Business president Dan Kelly said his organization’s members feel “a good chunk” of trade must remain tariff-free for talks to be considered successful.

A deal struck by the U.S. with the European Union on Sunday imposes a 15% tariff on most goods imported into the U.S., including European automobiles, and includes no carveouts for key products like pharmaceuticals and steel.

Kelly said he would not consider it a win for Canada if its trade agreement with the U.S. ends up looking similar to that deal. He said the goal should be to keep zero tariffs on products currently protected under the Canada–United States–Mexico Agreement.

“What’s most critical, I’d say, for businesses right now is … whether we’re going to be able to protect the CUSMA exemption,” said Kelly.

“The sectoral tariffs on cars, on copper, on aluminum and steel — they’re definitely hurting. But for most manufactured goods, there is a pathway to have them effectively tariff-free at the moment, and we’re hoping that is maintained.”

The U.S. doubled tariffs on steel and aluminum imports to 50% in early June and announced a 50% tax on imported copper, set to take effect in August.

Carney’s position in the ongoing negotiations likely centres on lowering those sectoral tariffs, as he’s unlikely to find success in eliminating them entirely, said Drew Fagan, a professor at the University of Toronto’s Munk School of Global Affairs and Public Policy.

That’s because the Trump administration has applied those levies globally, not just on imports from Canada.

“If and when they [are removed], it’ll probably be done globally,” he said.

Despite the pain being inflicted on the economy, the average tariff currently applied to Canadian products is only about 2%, said Fagan.

“That’s 10 times higher than what it was last year. I mean, basically all tariffs were gone. But we can live with 2% and look to the future,” he said, adding it would be disastrous if Trump wound up CUSMA and applied across-the-board 15% tariffs on Canada.

“That would be a pure disaster,” said Fagan.

“A 15% tariff would be something that I would expect the prime minister would walk away from.”

Kelly said Canadian business leaders will also be watching to find out what levies will remain on imports from the U.S., noting Canada’s ongoing retaliatory tariffs “are really crippling small businesses even more than the U.S. tariffs.”

A survey commissioned by the CFIB this month found nearly 7 in 10 small businesses importing from the U.S. paid the full Canadian tariff, with a median cost of $9,000.

While Carney assured Canadian businesses earlier this week that Ottawa would “only sign a deal that’s the right deal,” Kelly said many just want “a conclusion to this ugly chapter in Canadian–U.S. relations.”

“I don’t disagree that no deal is better than a bad deal,” he said, “but the second worst-case scenario is the uncertainty created by no deal.”