The United States and Canada are inching closer to a deal to avert the imposition of punitive 50 percent tariffs on such Canadian products as hockey sticks, wine and cement, according to industry executives and trade specialists following the talks.
Details remain fluid, and recent talks were contentious ahead of an early-Wednesday deadline. But the emerging accord could pair Canadian tariff concessions along with commitments on energy, defense and critical minerals in return for the U.S. agreeing to shelve President Donald Trump’s new Section 338 tariffs and relax levies on steel and aluminum, according to those following the talks, who spoke on the condition of anonymity to discuss confidential deliberations.
If a deal is reached, it is expected to provide momentum for the ongoing renegotiation of the North American trade deal reached in the president’s first term. An accord would also spare the administration one more legal battle over the president’s tariff powers.
“I’m optimistic that there’ll be a resolution in full or in part that will stave off the Section 338 tariffs. That’s the trajectory we’re on,” said Dan Ujczo, a veteran trade attorney in Columbus, Ohio. “Both sides want a deal.”
Trump’s Section 338 tariffs would apply to just 5 percent of the $382 billion worth of Canadian goods that the U.S. imported last year. But if they take effect as scheduled at 12:01 a.m. Wednesday, they could scupper hopes for preserving a unified North American trade bloc, industry executives said.
The imposition of new tariffs, especially at a trade-chilling 50 percent, would exacerbate anti-U.S. sentiment in Canada, which is already raw after Trump’s repeated gibes about turning Canada into the 51st U.S. state. Prime Minister Mark Carney has said “all options are on the table” in terms of retaliation for any new U.S. actions.
“You’ve now put the Canadian government, with these 338s, in a position where if we don’t do a comprehensive deal, we may just end up having to politically retaliate and we will be years away from having trade peace,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association in Toronto.
The once harmonious — and nearly tariff-free — relationship between the U.S. and its northern neighbor has witnessed a dizzying exchange of trade blows over the past year.
Last month, the president invoked an untested provision of a 1930 law known as “Section 338” to threaten the new levies, saying Canada’s retaliation for his 2025 tariffs amounted to unwarranted “discrimination” against U.S. merchandise. U.S. officials also wanted to spur Canada to engage with the president’s demand to amend the 2020 U.S.-Mexico-Canada Agreement governing North American trade.
Administration officials including Treasury Secretary Scott Bessent and Jamieson Greer, the president’s chief trade negotiator, took offense at Carney’s decision to retaliate last year, noting that only Canada and China responded to Trump’s “Liberation Day” tariffs.
The Canadian government says it had every right to hit back after Trump raised barriers against its exports. Administration officials say the Canadian retaliation unjustly penalized three American industries — alcohol, autos and dairy.
Officials in most Canadian provinces including Ontario, the most populous, removed U.S. wines and spirits from government-run stores in March 2025 after Trump imposed tariffs on Canadian goods for what he said was a failure to prevent illicit fentanyl from entering the United States.
Canada also imposed a 25 percent tariff on some U.S. autos in response to a similar move by Trump, fracturing an industry that routinely ships half-finished vehicles among the three North American nations before completing production.
The president also complains that European cheeses enjoy preferential access to the Canadian market compared with similar American products shipped north.
The current talks are aimed at averting what could prove to be a costly breakdown in trade and paving the way for the start of formal U.S.-Canada talks about refreshing USMCA.
The U.S. began talking to Mexico months ago over possible changes to the North American trade deal that Trump negotiated during his first term. But no formal negotiations occurred with Ottawa. This week could change that.
“Depending on the outcome, it’s either a confidence-building exercise that sets the stage for more progress on USMCA, or it’s another friction in the relationship that could spiral quickly,” said Jake Colvin, president of the National Foreign Trade Council, which represents companies such as Caterpillar, Coca-Cola and Oracle.
Carney has said that he wants a full settlement, not just a limited deal. Negotiators are trying to strike a balance between what Trump wants and what Canada’s domestic politics will swallow, the industry executives said.
Along with tariffs, the two sides are discussing cooperation on energy and defense issues, including Canadian participation in Trump’s “Golden Dome” missile shield and purchases of F-35 fighter aircraft. The U.S. also wants to secure access to Canadian supplies of critical minerals, which could help reduce its dependence on China.
A key goal for Canada is getting the U.S. to reduce its 25 percent national security tariffs on steel and aluminum. These Section 232 measures, named for a provision in a 1962 trade law, could become a mix of tariffs and import quotas.
Canada could pocket a politically salient win in the form of lower tariffs on its lumber exports to the U.S. Under a routine annual Commerce Department review of antidumping duties, those long-standing taxes could drop by around 10 percentage points, executives said.
Though Canada and the United States have long been close friends and allies, the cross-border friction has become a staple of the Trump era. Earlier this month, Trump lambasted Canadian leaders as “nasty” in a Las Vegas speech. Carney responded by applying the adjective to the two nations’ trade relationship.
Permanently higher tariffs resulting from the collapse of USMCA would cost the U.S. economy $1 trillion over 10 years, according to an Oxford Economics study.
“There’s a lot at stake. This isn’t theoretical. This has real-life ramifications for Americans and Canadians,” said Beth Burke, the head of the Canadian American Business Council, which represents companies such as Mastercard, Procter & Gamble and Bombardier.
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