The US and Canada are moving closer to a potential trade agreement that could reduce tariffs on certain Canadian aluminium and steel exports to 25 per cent and reduce duties on the non-US content of Canadian automobile exports to 15 per cent. The proposed tariff changes could offer some relief to Canadian exporters while easing cost pressures across highly integrated North American supply chains.
However, the agreement remains under negotiation, with key details still to be finalised.
The potential deal follows US President Donald Trump's call for postponing the decided 50 per cent tariffs on about USD 20 billion worth of Canadian imports, originally scheduled be effective on 12:01 AM, Wednesday, allowing for an additional three-day window for negotiators to reach an agreement.
Although important issues remained unresolved on both sides, Trump noted that the two nations have finalised a deal in principle.
"I have paused the 50 per cent Tariffs against Canada, that were scheduled to kick in tomorrow morning for a three-day period," he stated, adding, "based on the fact that Canada and the USA, subject to the finalisation of documents, have a DEAL!"
Aluminium tariff remains a key sticking point
The proposed reduction would bring tariffs on certain Canadian aluminium and steel exports down to 25 per cent. This is an especially important development for the aluminium industry since Canadian supplies account for about half of US aluminium consumption.
The existing tariff burden has largely been passed through to US buyers, increasing costs for downstream users. US manufacturing groups are urging continued protection on derivative aluminium products.
The Coalition for a Prosperous America (CPA) and other industry stakeholders have argued that combining a lower tariff on primary aluminium with 50 per cent duties on derivative products would provide greater protection for US fabricators.
The groups have warned that around 125,000 US jobs remain at stake, associated with aluminium rolling, drawing and extruding.
Auto tariffs may fall to 15 per cent
The proposed agreement could also reduce tariffs on the non-US content of Canadian automobile exports to 15 per cent from 25 per cent. Canada's automotive industry, closely linked to US manufacturing supply chains, could see lasting significance for this.
Seemingly referring to such preferential treatment, Canadian Prime Minister Mark Carney said thatnegotiators were moving towards a deal offering "the best terms in each of Canada's most important strategic sectors."
Why Trump paused the tariffs
The decision to delay the tariffs came less than two hours before the new levies were due to take effect, highlighting the pressure on both governments to avoid another escalation.
Trump and Carney have spoken twice over two days, including a call on Tuesday afternoon, as officials on both sides worked towards an agreement. Carney mentioned that substantial progress had been made but acknowledged that important work remained.
The two countries have strong economic incentives to settle. Around 72 per cent of Canada's goods exports went to the US last year, valued at around USD 880 billion, thereby rendering the American market critical to Canada.
At the same time, higher tariffs could raise costs for US importers and consumers, potentially adding to inflationary pressure.
Trump's layered tariff strategy
The Canada negotiations form part of Trump's broader tariff strategy, under which import duties are being used to push trading partners towards concessions and support domestic US manufacturing.
The White House reported that Canada committed to removing measures that the Trump administration perceives as discriminatory against US motor vehicle, alcohol, and dairy exports. No confirmation has been made by Canada yet.
The concessions form part of Washington's broader push to improve market access for US producers.
The administration has turned to Section 338 of the Tariff Act of 1930, warning that it would raise tariffs of up to 50 per cent on selected Canadian imports. The provision allows for the imposition of duties on countries deemed to have discriminated against US businesses.
The administration has increasingly relied on alternative legal authorities for tariffs following the US Supreme Court's February ruling that Trump had exceeded his authority in imposing a separate set of broad tariffs.
Washington is also renegotiating the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA during Trump's first term.
Implications of the deal on the North American landscape
Any preferential arrangement for Canada could have implications for Mexico, the third major economy in North America's integrated trading system.
Mexico is also seeking an agreement with the US and has made concessions during the negotiations.
A tariff deal favouring Canada could therefore increase pressure on Mexico to secure comparable treatment as the wider North American trade framework comes under review.
The proposed tariff reset could ease pressure on Canada's aluminium and automotive sectors, but the final deal will determine whether the latest truce becomes a durable shift in US-Canada trade relations.
Note: This article is published in accordance with an article exchange agreement between Mysteel and AL Circle.
