Why Ottawa Blinked on US Counter Tariffs

O n September 1, Canada removed a raft of retaliatory tariffs imposed in answer to American trade actions. The exemptions spare groceries, home appliances, and many consumer staples. Levies on steel, aluminum, and autos remain.

Response has been split, with some union leaders calling the move a cave-in. But Ottawa’s decision might hinge on a simple fact of life: trucks loaded with auto parts, grain, aluminum, and countless other goods cross into the US every day. That flow is governed by a set of rules under the Canada–United States–Mexico Agreement, or CUSMA. Signed in 2018 as the successor to the North American Free Trade Agreement, or NAFTA, the pact was intended to modernize North America’s trading rules.

CUSMA today props up entire sectors of the economy: Alberta’s cattle industry and Quebec’s factories, for instance. But the pact is not permanent. Next year, it’s set to be re-examined, which will give Washington a chance to demand fresh concessions. This looming deadline is the subtext to Ottawa’s every move as it tries to protect access to a market it can’t afford to lose.

I reached out to trade expert Pascal Chan—vice president, strategic policy and supply chains at the Canadian Chamber of Commerce—to talk me through recent developments. Our exchange was held over Zoom and has been lightly edited here for clarity.

If the counter tariffs were meant to show strength, what does lifting them reveal? Weakness? Pragmatism?

The decision presumably reflects a long-term strategy that’s aimed at securing the most favourable outcome ahead of the CUSMA review in 2026. Preserving the exemption for CUSMA-compliant goods is critical for the countless businesses that depend on cross-border trade. Thanks to CUSMA, roughly 85 percent of Canadian goods continue to flow into the US tariff free. We can expect the Trump administration to use the review to raise numerous trade irritants, but it’s worth keeping in mind that 2026 is a year of midterm elections, so American politicians will be more sensitive to the harmful economic impacts of tariffs on their electoral success.

So one argument for dropping the retaliatory tariffs is to set the table for what will likely be a tough renegotiation? Reduce a bit of friction now to strengthen your hand later?

The government’s approach to this trade war has to be reactive in some measure. There’s no other way to counter Trump’s lack of predictability. But the approach also has to be calculated. It has to be forward looking. And so, yes, the announcement probably lines up with that broader tactic of reinforcing Canada’s commitment to a mutually beneficial North American framework. Facilitating trade for a broad swath of goods also drives home just how vital CUSMA is to the American economy too.

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Isn’t there an element of risk in giving away one of Canada’s bargaining chips? How do you explain this to your constituents, the people you represent, industry leaders who might be unhappy with this?

The Canadian Chamber represents 400 chambers of commerce and boards of trade across the country, 100 sector associations that roll up into about 200,000 businesses. So needless to say, there’s a diversity of opinion on the decision to drop retaliatory tariffs. Some feel that it doesn’t go far enough to protect certain industries, and others welcome the move with open arms. There’s also criticism you’ve already seen from opposition parties who accuse the prime minister of giving up leverage. Others are going to view this for what it likely is: a strategic concession, a government looking to signal to American counterparts that Canada is serious about making a deal by creating space for renewed negotiation. The prime minister had emphasized that, in part because of CUSMA-protected trade, Canadian goods face an average tariff of 5.6 percent from the US, which is the lowest among trading partners, including Europe, the UK, and Japan. That’s a competitive edge you would presume he’s looking to protect.

Fair. But we’ve decided to remove the tariffs without the US agreeing to eliminate any of its punitive measures. Isn’t there a danger that the decision will invite more aggression? Do you really believe that Trump will embrace this as a kind of diplomatic reset?

Canada’s trade landscape is shaped by broader geopolitical dynamics, and it’s no secret that the American president has a long list of grievances that ranges from cross-border movement of fentanyl to the digital services tax to Canada’s inability to meet NATO funding targets. Canada has had to adjust and make strategic concessions to keep negotiations alive at various points since Trump took office. It was worth noting that the repeal of our digital services tax actually coincided with the withdrawal of the revenge tax element of the One Big Beautiful Bill. So these developments are reflective of the delicate balancing act that Canada is navigating: make concessions where necessary but always with an eye toward preserving our economic interests long term.

Does Canada have actual leverage over the Trump government, in your opinion? Do you think that that there are pressure points that the US feels?

I think that there are. When you talk about the amount of goods that move between Canada and the US, it’s not trivial for them; we’re a huge trading partner. Canada can actually point to a lot of places that are important to the Republican Party, with the midterms coming up, that are going to be affected by reduced trade with Canada. The tariffs are hurting their economies. Obviously, there is leverage there. You don’t want to play chicken with the Americans—not when the other person is driving a Mack truck. But it’s not true that Canada is completely insignificant in these conversations.

So what you’re really describing is a Canadian government constantly reading the room, as it were, constantly adjusting. Every move has to be weighed on its own.

The reality is we’re dealing with an impulsive president. From the start, we’ve said this requires a three-part approach: keep negotiating, be ready to retaliate when we have to, and provide support for affected industries. So there’s an element of calculation. We have to respond to these situations. We have to look at them individually, make an assessment, and then have the best possible reaction to all of them.

And where do the retaliatory tariffs that we still see on US steel and aluminum fit into this strategy?

In that case, our retaliatory measures are about protecting sectors under siege and the communities synonymous with those industries—Hamilton’s steel, Kitchener’s auto parts, Windsor’s assembly lines. They’ve been hit with 25 percent US tariffs since March and then slammed again with 50 percent tariffs since June. By retaliating, we hit back at commodities that are very important to US supply chains. Saguenay is responsible for roughly a third of Canada’s aluminum. Eighty-five percent of that metal flows south, feeding American manufacturing. We keep those tariffs in play to signal to our American counterparts that we can hold our ground until the right deal is struck.

I get that. Canada wants to protect domestic industries and maintain leverage. Then what, from your perspective, has dropping the other tariffs gained us?

A positive attitude toward continued talk and lines of communication staying open. As I said, down the road, coming fast, is the 2026 review of CUSMA. This is the largest trade agreement in the world. Canada enjoys the best access to the American market of any country globally, and with the sheer volume of trade we have with them, it has to remain a top priority, not just for government but for Canadian businesses that depend on that cross-border trade in those integrated supply chains.

What is Canada’s endgame?

To get back to stable, predictable trade so that businesses on both sides of the border are able to plan long term and invest. We want to grow our economies and our trading relationships together. Retaliatory tariffs are part of the highs and lows of how we arrive there.