MNI INTERVIEW: Carney-Trump Deal Will Include Tariffs-Chamber

An eventual trade deal between Canadian PM Mark Carney and U.S. President Donald Trump is all but certain to include some tariffs, and the challenge will be to avoid other trade barriers that further damage investment, a Canadian Chamber of Commerce leader told MNI after meeting the finance minister.

“I don't think tariffs are going anywhere anytime soon," David Pierce said in an interview Tuesday. The Chamber's government liaison is also a former parliamentary director for Canada’s industry department and ministerial adviser, and he met Francois-Philippe Champagne Monday at a roundtable preparing the fall budget.

"The real focus needs to be on getting a deal that is recognizing the importance of the integrated supply chains that we have, hopefully building new ones, and at the same time not accepting a bad deal,” Pierce said.

“The sooner both sides come to the table and land on the path forward, I think that's critical for both sides," he said. "As was originally agreed to with Trump One, that agreement ensures that the vast majority of goods traded between Canada and the United States do so tariff-free.” (See: MNI INTERVIEW:US-Canada Deal Must Drop 232 Tariffs-Steelmakers)

CAN'T JUST MATCH

Carney says while tariffs on steel, aluminum and autos on national security grounds are unjustified, Canada has kept a preferential rate after Trump imposed global levies. Canadian and U.S. officials have also traded accusations over slowing down talks and in the meantime Carney has offered relief subsidies.

Canadian firms are still closing or moving to the United States. Four in 10 manufacturers surveyed by KPMG have moved production south of the border or are considering such a move because of trade and competitiveness difficulties. Pierce, whose chamber represents 200,000 organizations, says that figure understates the problem. 

He told Champagne about CEOs reluctant to invest because taxes and regulations make profitability unclear. Tax cuts and deregulation in Trump's second term worsen Canada's position, Pierce said.

“We can't just match these things, we need to compete (that's) certainly what we told the minister,” he said. One example is the “Eifel” tax rule limiting deductions firms can claim from interest repayments on their borrowing, Pierce said.

The United States last week declined to renew the United States-Mexico-Canada (USMCA) agreement, triggering a decade of annual reviews.

SHORT WINDOW

Champagne touts Canada's low tax on new investment, a perspective Pierce calls too narrow. “That's not the amount that companies pay at the end of the year when they look at their tax bill, that's one line of probably 20 lines.”

High energy prices are an opportunity for new investment, he said. Carney's approach to fast-tracking a handful of large projects is helpful but not enough Pierce said. 

“What about the other 500 projects?" he said. "With everything that's happened in the Middle East, the world is looking for a new supplier of energy, and this is a really short window that Canada has."

Carney and Alberta's premier said last week that after seeking a private investor governments will build a west coast oil pipeline reducing U.S. export dependence, which Pierce said indicates weak business conditions.

URGENCY WITHOUT RUSHING

“For now the government really doesn't have much of a choice, it's got a mandate to build. There's a critical need to build Canada's infrastructure, and so they've taken a very bold and I think very reasoned decision to be the funder,” he said.

After GDP stalled in Q1 most economists see modest growth over the rest of the year assuming no breakdown in U.S. trade, with some rebound in business spending leading the central bank to hike twice over the next year.

While a return to economic health may well be in the cards, that overlooks differences between firms avoiding tariffs and those struggling, Pierce said. Carney's main political rival has targeted the prime minister for failing to get a deal, though Carney remains well ahead in the polls. 

Pierce supports Carney's view of urgency without rushing to agreement. "Just signing on any deal could be unhelpful, because it wouldn't address some of these real irritants that are really keeping jobs and parts of the economy at risk.”