‘Highly uncertain’: The twists and turns of Trump’s tariff threats and the future of CUSMA

Joseph Steinberg, professor of economics at the University of Toronto, breaks down the complex legal and economic landscape surrounding Trump’s latest tariff threats against Canada. He explains how the CUSMA exemption currently protects most Canadian exports, why an upcoming Supreme Court ruling on presidential tariff authority may have a limited immediate impact on Canada, and the crucial differences between various tariff statutes Trump can invoke. He also clarifies the CUSMA renegotiation process, revealing that the agreement remains in force until 2036, and that upcoming negotiations are part of an ongoing review rather than an imminent threat to the trade relationship. You can listen to this episode on Amazon, Apple, and Spotify. Program Summary This is an automated summary. Please check against delivery. The spectre of new American tariffs continues to loom over the Canadian economy, creating a climate of profound uncertainty for businesses and policymakers. A recent discussion delved into the complex legal and trade frameworks governing this fraught relationship, revealing that Canada’s primary shield is the existing trade agreement, referred to here as CUSMA. While a hypothetical blanket 10% tariff on all Canadian goods has been threatened, the expectation is that the CUSMA exemption would likely remain in force, protecting a significant portion of bilateral trade. However, precedent exists for such tariffs being applied to other nations with free-trade agreements, underscoring that legal norms are not an absolute guarantee. A pivotal moment in this saga is an upcoming Supreme Court case concerning the president’s emergency tariff powers. The ruling’s potential outcomes were analyzed. Should the court strike down the president’s authority under the specific statute in question, the immediate impact on Canada would be minimal. This is because the tariffs currently affecting Canadian exports—on steel, aluminum, automobiles, and softwood lumber—were levied under a different, more established legal authority known as Section 232. This statute, used by previous administrations, is considered on firmer legal ground and would likely remain unaffected by an adverse ruling. Consequently, the tariff landscape for Canada would see little change. The president’s ability to impose further sectoral tariffs under Section 232 is subject to constraints. This process requires a formal investigation by the Commerce Department, creating a significant delay between initiation and implementation. Most current tariffs rely on investigations launched during the president’s first term. While other statutes grant authority to levy tariffs to correct trade imbalances, these are temporally limited, capping tariffs at 15% for a maximum of 150 days, and thus cannot be used to enact permanent measures. A further critical limitation of Section 232 is that it does not allow for country-specific targeting; any tariffs applied must be uniform across all trading partners, preventing bespoke punitive measures against Canada alone. Conversely, if the Supreme Court surprises observers and affirms the president’s broad tariff powers, the immediate effect on Canada would still be negligible, as the CUSMA exemption currently holds. However, such a ruling would introduce substantial new uncertainty. It would grant the executive wider latitude to levy country-specific tariffs for virtually any reason, potentially ratcheting up trade tensions. The focus would then intensify on the ongoing CUSMA renegotiations, though the fundamental tariff situation for Canada would not shift unless the president actively decided to challenge the CUSMA protections. The long-term horizon is dominated by the process of renegotiating CUSMA, which is scheduled to begin the following year. It is crucial to understand that this is not a single make-or-break event but an extended process that will continue until the agreement’s scheduled termination in 2036. The goal of these negotiations is to arrive at a new free-trade agreement, which could be an extension of the current terms, a modified version, or an entirely new pact. A valid outcome is simply that the three parties agree the existing deal works and sign on to extend it for another 16-year cycle. This renegotiation process itself does not pose an immediate threat to the Canadian economy. A more radical possibility, however, is the potential for a party to terminate its participation in CUSMA entirely. The agreement contains a provision allowing executives to withdraw with notice, though the exact timeframe is unclear. The constitutional ramifications of such an action in the United States are deeply ambiguous. While the president controls foreign policy, CUSMA is also a piece of legislation passed by Congress. A unilateral attempt to withdraw would almost certainly trigger legal challenges and a forceful reaction from legislators, making the outcome highly unpredictable. In summary, the Canadian trade relationship with the United States is navigating a period of significant legal and political flux. The immediate threat of new tariffs is tempered by the protective carapace of the CUSMA agreement, which is expected to shield most trade. The impending Supreme Court decision, while momentous for executive power, may have less direct impact on Canada than assumed, given that existing punitive tariffs operate under a separate legal authority. The true long-term security of the trade relationship hinges on the protracted renegotiation of CUSMA, a process that offers both the promise of stability and the remote risk of a chaotic unravelling, should the political will for termination emerge. For now, the status quo is fragile, but the foundational agreement provides a decade-long runway for negotiation and adaptation.