Canada faces taxes amid pact with Washington

Canada is preparing for a possible trade deal with the United States that includes some tariffs, as Prime Minister Mark Carney seeks to avoid escalating tensions while deepening ties with the European Union, and possibly China.

"I do think it's possible to reach a deal with the US," said Julian Karaguesian, an economics professor at McGill University in Montreal. However, he cautioned, "there's not a lot of evidence right now" that the US is willing to cut a deal without tariffs on the table.

"We want to secure a free trade agreement with the Americans. We want to take away this uncertainty, because the uncertainty is worse than the tariffs themselves," said Karaguesian, who previously served as a special adviser to Canada's Department of Finance.

Carney said on July 15 that Canada may have to accept some tariffs as part of a trade deal with the US.

While Ottawa's eyes are fixed on Washington, its hand is reaching east. A July 14 meeting between Carney and European Commission President Ursula von der Leyen resulted in pledges of closer economic and strategic ties.

Karaguesian said building deeper partnerships with Europe was still worthwhile — not for retaliation, but for long-term diversification.

"Europe is a very large, sophisticated, high-income, technology-intensive region," he said. "These are areas where we can trade."

However, the strategy must extend far beyond Europe, he said. "Obviously the most logical trade partner is China, because they need raw materials and energy.

"Europe, East Asia and South Asia — that's 50 percent of the world's GDP. There are a lot of opportunities out there."

Karaguesian said investment is just as important as trade. "We need European investment. We need Chinese investment. We need investment from the Global South. The right strategy for Canada would be investment diversification."

Deborah Elms, founder of the Asian Trade Centre and an expert at the Asia Pacific Foundation of Canada, said Canada is now learning what many countries have experienced: The US is willing to deploy tariffs even against its closest allies.

"(US President Donald Trump) has not hesitated to use them against the world, including against the largest US trade partners like Canada," Elms said.

The effects of US pressure are already visible north of the border, she said. "Canadians are far more willing now than ever to look outside the US for markets."

Canada is addressing internal trade barriers that have long been on the agenda but have seen little real progress, she said. The country's existing network of trade agreements, once underutilized, is now being heavily promoted to Canadian businesses, she added.

Reset in ties

At a meeting on July 22, senior Canadian officials expressed the need to restore trade ties with China in response to US tariff policies, Bloomberg reported.

Saskatchewan Premier Scott Moe told Bloomberg that China is his province's second-most important trading partner and called for a reset in Canada-China relations.

Still, Elms said Canada faces a difficult recalibration, especially regarding its economic ties with China.

"Canada has had a rocky relationship with China. But circumstances driven out of Washington are forcing a rethink of many policies within Canada."

While it is "still too early to tell exactly how American pressures will change the China-Canada relationship", she said, "the overall situation has changed".

Karaguesian said the real concern is how far the US will go in pressing for further concessions.

"They've already got us to drop the digital services tax. They've already told us that there's going to be a base tariff. The question mark is whether they're going to come back and ask for more."

gaoyang@chinadailyusa.com