President Donald Trump’s Tuesday backpedal from threats to impose 50 percent tariffs on Canada sparked a round of cries of TACO — that “Trump always chickens out.”
But even the administration’s adversaries concede Trump’s latest maximalist menace accomplished something important: unsticking more than a year-and-a-half of stalled trade talks between the two nations and pushing them into serious negotiations.
After months of fitful talks, Canadian and U.S. officials have in the weeks since Trump made his threat made significant headway toward resolving disputes over aluminum, dairy, alcohol and other key trade issues, potentially with some significant concessions from the administration.
That wouldn’t have happened without the president’s July threat to slap new and massive tariffs on items like beer, furs and hockey equipment, Canadian officials, former Democratic administration officials, business representatives and others told POLITICO.
“This was seen as, ‘Well, this is kind of outrageous, so we better pay more attention to it,’” said Canadian Sen. Peter Boehm, chair of the Senate Committee on Foreign Affairs and International Trade. “There was always a sense that there have to be talks, but invoking [the tariffs] did provide the leverage to do that, at 50 percent.”
And Véronique Proulx, the president and CEO of the Quebec Chambers of Commerce Federation, said that the threat “put pressure on the Canadian government to come to the table.”
“Very little had been happening over the past year,” Proulx said.
The prospect of punishing new levies, which could have hobbled the Canadian economy, is the latest example of a uniquely Trumpian negotiating ploy that relies on an ultimatum to gain leverage. The president touted the tactic for decades including in his book “Art of the Deal” and he’s used it repeatedly in his second term — and not just on trade.
To push NATO countries to increase their defense spending, he threatened to withdraw from the alliance and upend eight decades of global world order. When Trump wanted Panama to lower fees on U.S. ships passing through its canal, he threatened to retake the waterway. That threat was withdrawn only after the country approved a deal that allowed U.S. firms – instead of Chinese companies — to control ports on opposite ends of the canal.
And when Trump wanted Canada to drop a digital services tax targeting U.S. tech companies in 2025, he threatened to terminate all trade discussions with Canada, a move that scuttled the tax push.
“This is one case where his maximalist demand worked,” said one person close to the White House. “I don’t think this was [a TACO] actually. I think this is going to end up being an example of a successful negotiation.”
The tactic hasn’t always been successful, though. France still has a digital services tax despite Trump’s threat to impose a 100 percent tariff on wine. And threats to bomb Iran to the “Stone Ages” have not forced Tehran to capitulate to his demands.
Still, the latest threat on Canada appears to have produced some movement between the two countries. While it remains to be seen if Trump officially signs off on a deal, the two sides are negotiating. Canadian and American officials met once again on Wednesday to hash out a formal deal before Friday at midnight, the new deadline to reach an agreement.
Among the proposals are lower U.S. tariffs on metals, which risk backlash from protectionist circles in Washington, according to three people close to the process. On the Canada side, concessions on programs to protect their dairy and lumber industries and a commitment to back off streaming taxes — as an expected rollback remains in flux — are under consideration, while negotiators remain in talks over other long-standing irritants including tariff on automobiles.
And three days is a lifetime in trade negotiations.
White House spokesperson Kush Desai said that Trump has “consistently proven skeptics wrong” and “leveraged the power and might of the U.S. economy – the world’s biggest and best consumer market – to secure nearly 20 trade deals with historic market-access concessions from Japan, Taiwan, Vietnam, and the EU.”
Trump’s trade threats are existential for Canada, which sends roughly 72 percent of its exports to the United States.
While the U.S. tariff threat was targeted toward specific industries and only hit about 5 percent of U.S. imports from Canada, Wilbur Ross, Trump’s first-term Commerce secretary, said he believes it will force Canadian concessions.
“The 50 percent would have been a real burden because 50 percent is more than the exporter can absorb. It’s more than the importer can absorb, so it would have been a real penalty for them,” Ross said.
Canadian negotiators made repeated trips to Washington ahead of the U.S.-Mexico-Canada trade agreements July renewal deadline. But they have largely been kept on the sidelines so far regarding the USMCA update, as U.S. officials insisted that they would not negotiate unless Canada dropped its retaliation on U.S. liquor and automobiles.
When Ottawa offered what it saw as concessions — like peeling back a digital services law that would have raked in billions from U.S. tech giants — the Trump administration dismissed them as irrelevant to the negotiations. U.S. Trade Representative Jamieson Greer said Canada doesn’t “really get credit for doing something bad and then undoing it.”
“What [the Americans] are telling me — and they’ve been telling me for the last 18 months — is first of all, ‘Canada, get over it. You’re not special. I know you think you are. We are now including tariffs on everyone. There’s no exemptions for anybody,’” said one Canadian business official, also granted anonymity to discuss sensitive dynamics around the trade talks.
Productive talks between the U.S. and Canada could also pave the way to begin trilateral discussions with Mexico on the future of the trade agreement.
“They have struggled for a while to get the same attention as Mexico. A deal this week would in a way present the opportunity to move ahead bilaterally,” said Kate Kalutkiewicz, who served as a top trade adviser during Trump’s first administration.
Even as Trump has regularly reached for tariffs as a way to bully countries, the threat against Canada marked a new frontier. The president relied on Section 338 of the Tariff Act of 1930, a Great Depression-era law that had never been used to impose tariffs, to threaten about $20 billion worth of Canadian goods.
A Democrat working as a lobbyist for Canadian interests, granted anonymity to speak candidly about the political dynamics of the trade talks, added that there is “no question” the tariffs “got Canada to the table.”
“Canada was so reluctant to put a deal on the table because they felt that they would be put on the clock to make more concessions above and beyond what they already did.”
That’s why Trump’s threat was needed to push Ottawa to the table, said Kelly Ann Shaw, who served as deputy assistant for international economic affairs during Trump’s first term.
“The two sides appear to have accomplished more in three weeks than in a year of discussion,” she said.
The fact that the threat spurred Canada to the table may encourage the Trump administration to use it again, particularly because these tariffs never went into effect and therefore won’t face legal challenges.
“To me, the 338s, are in some ways, the new IEEPA tariffs,” said one trade lobbyist, granted anonymity to speak candidly about the negotiations, referring to a law Trump used to impose global tariffs, which were struck down by the Supreme Court in February.
Some U.S. businesses are already growing more comfortable with the reality that tariff threats are here to stay — particularly as they’ve watched other countries make concessions that would have been unlikely under previous administrations.
One business official, granted anonymity to speak candidly about private discussions with industry colleagues, said that the administration’s threats are bringing trading partners to the table and opening discussions on longstanding issues.
“Depending on the sector, you’re certainly seeing more understanding of how this is working and how this is being implemented, and you are seeing some of those historic logjam issues being broken,” the official said. “As industry gets more understanding of how this America First trade policy can create those opportunities, I think that there is more acceptance for being able to move forward in this way.”
Oliver Ward, Michael Blanchfield, Zi-Ann Lum and Mickey Djuric contributed to this report.