Trump Gives Carney a Fresh Start But No Concessions on Tariffs

The U.S.-Canada trade dispute, now in its second year, remains a stalemate despite periodic talks. President Donald Trump’s refusal to budge on tariffs has left Canadian Prime Minister Mark Carney with a "fresh start" but no meaningful concessions. The conflict, centered on automotive, steel, and energy sectors, has reshaped North American supply chains and introduced significant risks for investors. Here’s what the data reveals—and why the path forward is anything but clear.

The Tariff Standoff in 2024: A Zero-Sum Game

In 2024, the U.S. imposed 25% tariffs on Canadian steel, aluminum, cars, and auto parts under the revised U.S.-Mexico-Canada Agreement (USMCA). Canada retaliated with $43 billion in tariffs on U.S. goods, including whiskey and appliances. The U.S. trade deficit with Canada stood at $35.7 billion in 2024—far below Trump’s falsely cited $200 billion—but the president doubled down, arguing the U.S. subsidizes Canada. Carney, meanwhile, rejected annexation demands and defended Canada’s sovereignty, stating, “Canada is not for sale.”

The negotiations stalled as corporate pushback mounted. Mattel paused its annual guidance, citing 20% of its U.S. toy imports coming from China—a number it aims to reduce. Ford warned of financial strain, while Trump dismissed concerns, urging Americans to “get used to buying fewer things.”

The data shows a steady rise in the deficit, driven by pre-tariff import surges, but Trump’s rhetoric has amplified its perceived impact.

2025: Escalation and Half-Steps

The first half of 2025 brought incremental changes but no resolution. In January, the U.S. and Canada agreed to a 5% tariff reduction on automotive parts and a 3% cut on technology goods, aiming to boost trade by $15 billion over three years. However, these modest steps were overshadowed by new escalations.

In March 2025, the U.S. imposed 25% tariffs on Canadian automobiles and parts, targeting non-USMCA-compliant products. By April, duties on Canadian cars and auto parts had triggered retaliatory measures: Canada levied 25% tariffs on $30 billion of U.S. goods, including agricultural products and machinery. Yale University’s Budget Lab estimates these tariffs could reduce Canada’s real GDP by 2.2% permanently, with 18,000 jobs at risk in Ontario’s auto industry alone.

General Motors, a major cross-border manufacturer, saw its stock dip 12% in early 2025 as tariffs drove cost increases and profit warnings.

The Investment Crossroads: Winners and Losers

The tariff war has created clear winners and losers in key sectors:

1. Automotive:
2. Losing: U.S. automakers like GM (GM) and Ford (F) face higher production costs due to tariffs on Canadian steel and parts.

3. Winning: Mexico, now a favored destination for U.S. auto investment under Trump’s “friend-shoring” push, may capture market share.

4. Steel and Energy:

5. Canadian steel producers, such as ArcelorMittal (MT), face reduced U.S. demand, while U.S. steelmakers like Nucor (NUE) benefit from tariffs.

6. Energy exporters, including Canadian Natural Resources (CNQ), see constrained U.S. sales, potentially boosting liquefied natural gas (LNG) exports to Asia.

7. Agriculture:
   Canadian farmers, hit by U.S. tariffs on dairy and grains, are accelerating trade diversification. China’s recent purchase of Canadian canola may offset losses, but long-term uncertainty persists.

Currency volatility adds another layer of risk, with the Canadian dollar weakening 5% against the U.S. dollar in early 2025.

Conclusion: A Risky Gamble for Investors

The U.S.-Canada tariff dispute is a high-stakes game with no clear end in sight. While Trump’s “America-first” stance may temporarily boost certain domestic sectors, the broader economic cost is steep. Yale’s 2.2% GDP hit to Canada—and similar ripple effects in U.S. manufacturing—suggest prolonged damage to North American integration.

Investors should proceed cautiously:
- Avoid overexposure to U.S. auto stocks (GM, F) until tariffs ease.
- Consider plays in Mexico’s manufacturing sector, which benefits from diverted investment.
- Monitor the Canadian dollar as a hedge against U.S. trade policies.

The path to resolution hinges on political will, not economics. With Carney’s government refusing to capitulate and Trump’s rhetoric showing no flexibility, the stalemate could last well into 2026. For now, the only certainty is uncertainty—and that’s a volatile environment for investors.