A suite of new tariffs on Canadian goods have been paused for three days in ongoing talks between the US and Canadian teams, with the announcement made by President Trump on Truth Social just hours before the tariffs were due to come into effect.
“I have paused the 50% Tariffs against Canada, that were scheduled to kick in tomorrow morning for a three day period, based on the fact that Canada and the U.S.A., subject to the finalization of documents, have a DEAL!” wrote the president at 10:15 pm before the midnight deadline.
Trump referenced the Keystone XL pipeline as a reason for the last-minute tariff abatement. No further details were given on how and when plans for the canceled oil pipeline were to be resurrected.
President Trump and Canadian Prime Minister Mark Carney spoke earlier in the week without a breakthrough, as the 11th-hour talks are expected to continue. The Canadian negotiating team remained in Washington on Tuesday after staying in the US through the weekend for talks.
Last month, Trump announced plans for 50% tariffs on a range of Canadian goods in response to what the US claims are discriminatory trade practices around automobiles, alcohol, and dairy products, with proclamations promising new tariffs “effective as of 12:01 am eastern time on August 19, 2026.”
The new tariffs could have limited immediate macroeconomic effects, as only about 5% of Canadian goods that the US imported last year would see the new duties. An analysis from Veda Partners calculated that the average tariff rate on Canadian exports would rise to 6.27% from 4.68%.
Yet success or failure in the talks this week could provide a major signal about the prospects for renewal of the US-Mexico-Canada Trade Agreement (USMCA).
Carney described the talks to reporters Monday as “very intense and delicate.” A meeting in Washington on Monday ended with Canada’s Trade Minister Dominic LeBlanc telling reporters that “our job is not yet done.”
US Trade Representative Jamieson Greer has offered little insight into the US position, telling reporters in Iowa last week that talks have been constructive, but “there are a lot of issues.”
“My sense is the Canadians want to have a more conciliatory approach, but we’ll see,” Greer added.
Read more: 5 ways to tariff-proof your finances
A search for concessions on both sides
The talks have so far centered on concessions, including the US potentially lessening duties on Canadian metals, lumber, and auto components in return for changes to Canadian market access to US goods, such as dairy products, and a reduction of retaliatory tariffs.
But the talks have been tense. Greer described Canada’s retaliation against US tariffs last week as “the kind of things that China would do.” The Trump team often notes that only Canada and China have retaliated against Trump’s new tariffs during his second term.
One flash point: Canadian restrictions on US wines and liquors, though there is some optimism that a deal could return a significant number of US spirits to Canadian shelves.
Canadian officials have expressed cautious optimism that a deal can be struck, even as people familiar with the talks told Bloomberg this week that the auto sector remains a key sticking point.
The tariffs, if they go forward, are set to be levied under a never-before-used section of Section 338 of the Tariff Act of 1930, which allows tariffs of up to 50%.
Neil Herrington, a senior vice president at the Canadian Chamber of Commerce, warned in a new statement Tuesday that “the introduction of higher tariffs would damage both economies, drive up costs for U.S. families, further disrupt critical supply chains, and risk the 13 million American jobs that depend on trade under the U.S.-Mexico-Canada Trade Agreement.”
Fears of ‘reigniting a tit-for-tat trade war’
Beyond affecting short-term tariff rates, any areas of agreement (or lack thereof) that emerge from the current talks could send signals about future negotiations on the USMCA, which was not renewed in July.
That landmark trade agreement is in a sort of limbo that could stretch for months or even years. The pact has now entered a period of annual reviews and will expire completely on July 1, 2036, if a new agreement isn’t reached.
Indeed, an analysis from Capital Economics this week warned that a lack of a deal could have significant short-term effects for the Canadian economy and “also risks stalling [USMCA] renegotiations by reigniting a tit-for-tat trade war, hurting business confidence and slowing growth.”
Henrietta Treyz of Veda Partners added in a note to clients Tuesday that businesses should be ready for more back-and-forth tariffs if Trump moves forward in the days ahead, writing “it is prudent to anticipate further retaliation from Canada in our view.”
This story has been updated with additional developments.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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