By Nadia Saqib I SCN NEWS
WASHINGTON/TORONTO — The United States and Canada are holding an extraordinary final round of negotiations hours before President Donald Trump's new 50% tariffs are scheduled to hit billions of dollars of Canadian products, but behind the immediate deadline lies a much bigger contest over the future structure of trade between the two deeply integrated economies.
Canadian Prime Minister Mark Carney confirmed Tuesday that intensive discussions were continuing with Washington as negotiators attempted to prevent the tariffs from taking effect at 12:01 a.m. Eastern time Wednesday, August 19.
The threatened duties cover roughly $20 billion in Canadian exports, ranging across consumer and industrial products including furniture, clothing, dairy products, wine and other goods.
But the negotiations have moved beyond simply asking whether Trump will impose the 50% levy.
At the same time the two governments are trying to avert the new tariffs, U.S. and Canadian negotiators are discussing a potentially significant reduction in an entirely different tariff — the 25% U.S. national-security duty on Canadian vehicle imports.
Sources familiar with those negotiations told Reuters that a reduction to around 15% is under discussion.
That creates an unusual trade-policy contradiction at the centre of the talks.
Washington is preparing to dramatically increase tariffs on one group of Canadian exports while simultaneously negotiating lower barriers for automobiles produced through one of North America's most interconnected manufacturing networks.
And autos may ultimately be the issue that determines whether a wider agreement can be reached.
American and Canadian negotiators remain divided over how much North American content should be deducted when calculating duties on Canadian-built vehicles.
Washington wants tariff calculations to recognise primarily the value of U.S.-origin components.
Canada wants the calculation to recognise broader North American content, including components originating in Mexico.
The difference may sound technical, but its economic impact could be enormous.
A vehicle assembled in Canada can cross the U.S.-Canada border during production through a supply chain involving engines, transmissions, electronics and other components manufactured in different parts of the United States, Canada and Mexico.
How Washington defines the taxable value of that vehicle can therefore substantially change the effective tariff paid by automakers.
That dispute also reaches directly into the future of the United States-Mexico-Canada Agreement, the trade pact Trump himself signed during his first presidency.
USMCA was designed around deeply integrated continental supply chains.
A tariff regime that increasingly distinguishes between American content and other North American content could weaken one of the central economic assumptions underlying that agreement.
The immediate 50% tariff threat is unusual for another reason.
Trump invoked Section 338 of the Tariff Act of 1930, a little-used provision allowing the president to impose additional duties against countries found to discriminate against U.S. commerce.
The White House says Canada has discriminated against American products, particularly in markets involving automobiles, alcoholic beverages and dairy products.
Trump's July proclamation formally scheduled the additional 50% duties to begin at 12:01 a.m. Wednesday.
The use of Section 338 marks a significant escalation because Washington is not merely adjusting an existing trade agreement or imposing conventional anti-dumping duties.
It is reaching back to a Depression-era trade law for authority to punish what the administration describes as discriminatory Canadian practices.
Canada rejects Washington's characterization and is seeking concessions of its own.
Ottawa wants relief from existing American tariffs affecting strategically important Canadian industries including steel, aluminum and softwood lumber.
Provincial restrictions on American alcohol, Canada's protected dairy system and defence procurement are also part of the broader negotiating environment.
The economic relationship at stake is difficult for either country to separate cleanly.
Canada is one of the United States' largest trading partners and a major supplier of energy, industrial materials, vehicles and agricultural products.
Supply chains in industries such as automobiles frequently operate as continental systems rather than purely national ones.
That means tariffs intended to punish Canadian exporters can also increase costs for American manufacturers importing Canadian materials or components.
The White House nevertheless argues that tariffs are necessary to force more balanced access for American producers.
Its July proclamation accused Canada of discriminatory treatment affecting U.S. commerce and said additional duties were required to offset that disadvantage.
Ottawa's challenge is deciding how far it can accommodate Washington without accepting a trade structure that leaves Canadian exporters permanently vulnerable to unilateral U.S. tariffs.
The threatened duties also create a politically sensitive problem for Carney.
Canada has already experienced a surge of anti-U.S. sentiment during previous tariff confrontations with Trump, and concessions perceived domestically as excessive could carry political costs.
For Trump, the stakes are different.
Tariffs remain central to his economic strategy, but a major disruption in U.S.-Canada trade could affect American businesses and consumers at a politically sensitive moment ahead of November's midterm elections.
The current negotiations therefore contain two competing incentives.
Both governments have reasons to avoid the economic disruption caused by a 50% tariff wall.
But both also need to demonstrate that any agreement represents a victory rather than capitulation.
There is another important distinction behind the headline figure.
The 50% tariffs do not mean every Canadian product entering the United States suddenly faces a 50% duty.
Canada says the overwhelming majority of bilateral trade currently remains tariff-free, largely because of USMCA treatment and exemptions, while Trump's latest measures target specific categories of products.
Energy products, potash, fish and critical minerals were among goods previously described as outside the new 50% tariff package.
The economic impact will therefore be concentrated rather than uniform — but potentially severe for businesses operating in the targeted sectors.
For smaller Canadian exporters heavily dependent on U.S. customers, losing price competitiveness overnight could be particularly damaging.
And even if negotiators prevent Wednesday's tariffs, the deeper trade conflict will remain.
Washington and Ottawa still need to resolve auto tariffs, dairy access, alcohol restrictions, metals and lumber disputes while navigating the wider review of the continental trade relationship.
That makes Tuesday's last-minute negotiations less a final attempt to save the old U.S.-Canada trading relationship than a negotiation over what replaces it.
For decades, policymakers on both sides increasingly treated North American commerce as an integrated economic system.
Trump's tariff strategy is testing that assumption by demanding that Canada provide greater access and concessions while using national-security measures and a rarely invoked 1930 trade law as leverage.
The strongest indication of how complicated that transformation has become is visible in the negotiations themselves:
Washington is simultaneously considering lowering Canadian auto tariffs from 25% toward 15% while preparing to impose new 50% tariffs on approximately $20 billion of other Canadian goods.
Whether negotiators can reconcile those two directions before midnight will determine the immediate outcome.
But the larger question will remain long after Wednesday's deadline — whether the United States and Canada are negotiating another temporary tariff truce or fundamentally rewriting the rules governing one of the world's largest bilateral trading relationships.