Canada and the US in Final-Stage Discussions on Interim Tariff Relief Deal
Key Takeaways
- •Canada and the United States are nearing completion of an interim trade agreement that would exchange Canadian concessions on multiple US trade irritants for partial reductions in American steel and aluminum tariffs.
- •Under the proposed framework, Canada would remove retaliatory tariffs on American goods, restore US alcohol products to provincial liquor store shelves, and adopt Washington's interpretation of dairy quota allocations under the USMCA agreement.
- •The negotiations include a provision for both countries to align their external tariffs on certain Chinese goods, signaling broader trade policy coordination beyond bilateral disputes.
- •An August 19 deadline looms over the talks, after which Canada could face 50% tariffs if no agreement is reached, adding urgency to the final-stage discussions.
- •The Canadian dollar strengthened following the report, with USD/CAD declining 70 pips to 1.3941, its lowest level since mid-June, as markets responded positively to the prospect of trade certainty.
Canada and the US in Final-Stage Discussions on Interim Tariff Relief Deal
The Globe and Mail has published an optimistic report on the Canadian trade situation, highlighting that trade negotiations between the United States and Canada appear to be in their final stretch.
The talks come amid a broader trade conflict that has disrupted cross-border commerce since the Trump administration imposed sweeping tariffs on Canadian goods earlier this year. Canada responded with retaliatory measures of its own, including surcharges on billions of dollars of US products and the removal of American alcohol from provincial liquor store shelves — most notably by the LCBO, Ontario's state-run alcohol retailer and one of the largest bulk purchasers of wine and spirits in the world.
According to the report, the proposed framework includes the following terms:
- Canada would address a long list of US trade irritants in exchange for sectoral tariff relief.
- Canada would remove retaliatory tariffs on the US, return US alcohol to store shelves, and agree to Washington's interpretation of how dairy quotas should be allocated.
- In return, the US would lower — but not entirely remove — tariffs on steel and aluminum.
- The arrangement would be structured as an interim deal.
- Discussions also include aligning external tariffs on certain Chinese goods.
The dairy quota dispute has been a persistent flashpoint under the USMCA trade agreement, with Washington arguing that Canada's tariff-rate quota system restricts access for American dairy producers. The steel and aluminum tariffs, originally justified by the US on national security grounds under Section 232, have weighed heavily on Canadian metal exporters and manufacturers on both sides of the border.
Both sides are working against an August 19 deadline, at which point Canada faces 50% tariffs. Securing trade certainty could provide a significant tailwind for the Canadian dollar in the second half of the year. Today's jobs report from Canada also underscored the resilience of the domestic economy.
USD/CAD fell 70 pips to 1.3941, its lowest level since mid-June.
