With the collapse of 2026 US-Canada trade negotiations in August and the implementation of counter-tariffs by Prime Minister Mark Carney in early September, Canadians are left wondering what happened and what comes next. Perspectives Journal editor Clement Nocos spoke to Daniel Drache, political economist and Professor Emeritus of Political Science at York University, for an explainer on the escalating crisis.
This interview has been edited for clarity and brevity.
Clement Nocos: Prime Minister Mark Carney promised to deliver a trade deal with the United States with much of his “elbows up” campaign rhetoric, but this has since spiralled as the US escalates its tariffs and Canada imposes retaliatory measures. What stands out about the collapse of interim trade deal negotiations meant to in August 2026 that were meant as a stop gap in place of CUSMA’s renewal?
Daniel Drache: The red lines for tariff relief and other key objectives of Carney’s negotiations were never very clear to the Canadian public. For instance, it was never spelled out that these August negotiations were for an interim deal, and not the renewal of CUSMA that US President Donald Trump vowed to terminate There was much more to come if you took the time to piece together Carney’s different statements. Nor was the draft of the final text of the interim agreement ever made public. This too is another shortcoming that alarms many Canadians.
Nocos: Carney was elected to negotiate a new deal with “elbows up.” What happened? What went wrong?
Drache: Team Canada made several fundamental errors. When Trump repeatedly attacked the Canadian auto industry, saying Americans didn’t need Canadian made cars, Carney and his team didn’t respond to this attack with the seriousness it deserved. Canadians didn’t see Ottawa adjusting its negotiating strategy and drawing a big red line. These attacks continued over the past year. Trump turned Canada into his punching bag with his taunts, vindictiveness, and insults. It was ugly to hear and humiliating to be treated like a vassal state.
For Canadians, there was some relief delivered by the Carney government through financial support to auto and steelworkers facing job threats and losses through different programs such as employment assistance and reskilling supports. This helped families cope in the short term with this disaster. Programs were also delivered to provide emergency support to industries and businesses in the sectors targeted by the Trump administration. But the bigger question remains: what future do these core industries have when they are facing ruinous tariffs for the rest of Trump’s presidency or beyond?
Looking back, we can see that the Canadian public had no idea that the parameters of the negotiations were constantly shifting, mainly against Canada’s interests. When Carney did speak in public, he sounded prophetic like the Delphi Oracle, reassuring Canadians that his team were “intensifying negotiations,” “making good progress,” and getting “close” to a deal. These were stock phrases of communications specialists – all spin and no substance.
At Carney’s Davos speech in January 2026, he said it was a new day for “middle powers” in global politics. But so far, it doesn’t look like Carney has delivered on the big idea. Even so, his stature has grown impressively.
Nocos: A lot of experts were asking: why the rush to conclude the deal that Trump could use in the run-up to the midterm election, boasting of his diplomatic success? Does the Carney government see a benefit for having Republicans maintain control of Congress?
Drache: August was a bad time to negotiate, at the end of summer when Washington was emptied out and the US Congress was not sitting. This raises the question of the need for ongoing meaningful accountability and transparency. Why negotiate this critical juncture at this disadvantageous time? Instead, in political science terms, what we saw was a classic example of elite accommodation politics: elites negotiating with other elites behind closed doors while the Canadian public, for most of the time, tried to make sense of the rumours and leaks coming from unnamed government sources.
Public opinion polls showed that Canadians weren’t intimidated by Trump’s attacks and supported a much stronger response from Carney’s team, including retaliatory tariffs. For many, taking American booze off provincial liquor shelves got Canadians involved in the trade crisis. Surprisingly, it rallied Canadians behind Carney. It was a visible, symbolic target meant to hurt American producers of bourbon and wine. It wasn’t an easy “get” for angry Canadian consumers, but it sure wasn’t enough pressure to change the outcome. At Carney’s Davos speech in January 2026, he said it was a new day for “middle powers” in global politics. But so far, it doesn’t look like Carney has delivered on the big idea. Even so, his stature has grown impressively. The world’s press sees him as “Mr. Resistance” for having stood up to Trump, unlike the European Union, Japan and South Korea all transparently caved to American projectionism. The press, meanwhile, does not know what happened in Carney’s negotiations with the Trump administration behind closed doors.
Nocos: On that note, Canadian news reporting has focused on the frenzied negotiating style of Carney’s team, camping out in Washington D.C. for weeks this summer to conclude a trade agreement before the August 19th deadline imposed billions of dollars in new tariffs and more economic pain. As you mentioned, August was a bad time to negotiate while most of Washington was shut down for the season. With hindsight, should the negotiations taken place after Labour Day when campaigning for the midterms really begins? It now seems academic to ask the following question, but did this weaken Canada’s negotiating chances before Carney broke off negotiations?
Drache: Certainly. There is a highly visible psychological dimension to these negotiations and Carney’s failure to stand up to Trump. The cliché that the US is Canada’s neighbour and best friend is baked into our political culture. It is also why this negotiation is so different for Canada than to other countries also experiencing Trump administration aggression. Trump’s belligerence and his vitriolic attacks feel like a betrayal or punch in the face for many Canadians. There has been a rupture between the countries, and now a lot of new thinking about geography and fate.
Canadian deference to zero-sum “transactionalism” to the United States has long been internalized in Canadians business, sports, education, and the upper reaches of government, submitting to American power and hierarchy. Political economists have written a lot about Canada’s colonial mentality to the British Empire, then to the American version, having its roots in hegemonic popular culture. At a basic level, it means Canadians do not prioritize national needs to build a more prosperous Canada. Among Canadian elites and powerbrokers, there is uncertainty whether it is even worth trying to protect and deepen Canadian sovereignty when 70% of exports go to one market. After all, the roots of continentalism go back to the founding of Canada and dominate contemporary life.
Canadians and Americans are culturally very similar – watch the same television shows, see the same movies, and are mass consumer societies. However, the two countries are starkly different regarding healthcare, guns, social entitlements, and the environment, and the differences are starker under Trump than at any time in recent history.
South of the border, markets reflect a growing anxiety about “Trumponomics” and the $40 trillion US debt, the genocide in Gaza, wars in Ukraine and Iran, and the AI financial bubble. Food inflation and the unprecedented rise in price of fuels has sent Trump’s polling popularity to record lows. Recent surveys show that Canadians are angry and in a fighting mood. Trump’s intention to hit Canada with 50% tariffs on $20 billion worth of goods has catalyzed Canadian public opinion when the hammer dropped against concessions.
An August poll found that 36% of Canadians surveyed favoured new counter tariffs to protect Canadian jobs and businesses, even at the risk of higher prices and escalation, compared to 18% favouring concessions. Another poll also fielded in August found 80% of Canadians were against giving US concessions to save the talks. On the whole, only 10% of Canadians believe that Trump is likely to reverse course on tariffs. Had Carney signed the interim agreement, he would have found himself on the edge of the political cliff going against the popular opinion of Canadians on what to do.
The concessions in the “final-final” agreement will also shock many Canadians because it will make Canada more vulnerable to Trump’s executive presidency. In the past, trade agreements were WTO compliant and, this is important, because there was a mechanism of enforcement based on its rules and institutional muscle. The present set of negotiations would make Canada exposed to Trump’s wild mood swings.
Nocos: What is the biggest misconception that had been revealed during the negotiation?
Drache: There is a lot of confusion about the status of these negotiations. For starters, the current round of trade talks for an interim agreement would not have the status of a treaty like NAFTA and CUSMA, which would have to be voted on by the US Congress and reviewed by both the Senate and House of Representatives.
Up until now the public never understood that the Trump-Carney talks were not the final agreement because this negotiation was only part one of an interim agreement that Trump could alter unilaterally and impulsively. As Carney rightly said, they are signed “with a pencil.”
Furthermore, the interim agreement dealt with bigger issues such as security, critical minerals, Canada-China relations, and agricultural marketing boards. Practically speaking, the agreement injects the American presidency into the heart of Canada’s public policy process.
The concessions in the “final-final” agreement will also shock many Canadians because it will make Canada more vulnerable to Trump’s executive presidency. In the past, trade agreements were WTO compliant and, this is important, because there was a mechanism of enforcement based on its rules and institutional muscle. The present set of negotiations would make Canada exposed to Trump’s wild mood swings.
Another constant worry is that, according to the information available, supposedly Trump agreed to reduce auto tariffs from 25% to 15%, while at the same time increasing the value of American content in autos from 75% to 82% to qualify for the lower tariff. Certainly, that would have been a big win for Detroit’s auto assembly operations and a threat to Canadian auto jobs!
Canada’s auto assemblers have gone on record that they can’t operate with such reduced margins. The future of Canada’s auto industry with these punitive tariffs is uncertain, to say the least. For more than two decades, Canada’s auto industry export capacity has been in gradual decline and these negotiations have left red lights flashing everywhere.
For policy geeks, Trump has used an obscure Section 338 of the Smoot–Hawley Tariff Act of 1930 to target another US $20 billion of Canadian products. Trade experts think that the US courts will likely strike down this obscure trade statute as it faces many legal challenges from Americans themselves. When the final text of the interim agreement is released, we will know whether there are any fundamental changes to the US trade law, but there is no indication that section 338 will be struck from the final Carney-Trump deal.
Section 232 tariffs also give the Department of Commerce power to impose sectoral penalties on Canada’s industrial metals, including steel, aluminum, copper, as well as forest products and autos. Rates vary by industry, ranging from 10% to 50%, depending on product category, contents origin, and other considerations.
US Secretary of Commerce Howard Lutnick is the trade czar responsible for overseeing the sprawling empire of US Trade Law and there are new investigations presently underway against Canadian industries. American trade law is designed to protect American industries, first and foremost. Nothing in this agreement will limit the US Department of Commerce from launching new investigations and crippling duties. Section 232 tariffs are the backbone of Trump’s protectionist policies. There is nothing to suggest any fundamental changes here.
Carney says he wants an agreement, “that will ease the pain on the Canadian economy and stave off new tariffs.” British Columbia’s forest industry is facing hundreds of millions of dollars in duties. Canada’s softwood industry has been targeted for more than 40 years, and so far in the negotiations the Carney government appeared to go along with the American argument that lumber is a separate issue from the agreement at hand. However, nothing in the interim agreement will prevent the US Department of Commerce from investigating it once again. Once again, we also don’t have access to the final agreement’s text, but trade experts believe that these sectoral penalties will remain in effect. This would be a stinging defeat for Carney who promised a fresh start without punitive tariffs for stabilizing Canada-US relations.
Nocos: With a current jobless rate of 6.2% and weak domestic growth, there must be huge pressure from Canadian business groups to sign any deal with Trump, though Carney has spoken out against the appeasement option. How does Carney reconcile alliances with capital amid the trade war?
Drache: It is relevant to look at how corporate Canada has positioned itself in these negotiations. None of the major groups, such as Canada’s big five banks or the Business Council of Canada, are present in the public square, appearing to defend Canadian sovereignty. Of course, they are also active behind the scenes. Canadian business is in constant communication with the Prime Minister’s Office, lobbying, threatening, and wire pulling out of sight behind the scene for any face-saving deal that defends profit margins as half the membership of the Business Council of Canada are large American-based multinationals. Through the power of their capital, they have power to influence elite and public opinion.
It is deep within the psyche of corporate Canada to find a continental solution to Canada’s trade crisis. Some players such as auto assemblers have billions of dollars at stake, and many industry associations are ready to make concessions for a deal. Trump’s tariff bombs have impact different sectors of the economy to varying degrees – instead of coordinating policy, Canadian business’ competitive culture motivates negotiation for individual carveouts for their own sector.
The next period will be critical when negotiations begin again, and there is a gradual build up of trade fatigue, the longer trade crisis lasts and the feeling that this whole drama has to come to an end. It will be a dangerous time to lower expectations.
So far, Carney has handed billions of dollars to corporate Canada at below market rates and generous repayment terms. It is worrisome that there is so little public information about the investment agreements between Canada’s Development Bank, recently created Sovereign Wealth Fund, as well as other institutions and the corporate entities responsible for these projects.
Nocos: Do you feel deceived by Carney’s January 2026 Davos speech that promised a new beginning for middle power countries?
Drache: This is a very good question, but it is also quite complicated. When Carney stated that it’s a “rupture, not a transition” and as a middle power you are “either at the table or on the menu” he sounded like a lefty international political economist. Of course, for much of his public life he saw himself as a neoliberal political economist, overseeing markets and holding the top job at Bank of Canada, 2008-2013, and then at the Bank of England, 2013-2020.
In these peak positions he was very much a Hayekian, believing in the self-regulating market, but he also thought that on the environment, values, gender questions, for example, supply and demand logic could not address these big issues of our time. He accepted as true that the state had a large role to play as a counterweight to markets. I think that’s what makes him a more complex actor because he saw the critical importance of politics as an autonomous sphere from supply and demand logic.
Looking back, Carney threw us a curveball when he spoke to the global elites at Davos; it was a signature performance delivering a text he wrote himself with the clear message that multilateralism was finished as the anchor of the global order. Collaboration, cooperation, and investment on a huge scale was the best alternative to neoliberal austerity, Carney seemed to suggest.
Partly in jest, I would add he may have taken a page or two from China’s “One Belt, One Road” initiative. Certainly, he was aware that China had been investing billions of dollars in building infrastructure projects on a vast scale in Africa, Asia, and Latin America. Through the OBOR initiative, China has financed the construction of roads, transcontinental railroads, harbours, hydroelectric projects, vast solar power farms, giant wind power projects, as well as oil and gas pipelines around the world. We are living in an era of scaling up that is required for transformative economic projects, big picture stuff after a brutal era of neoliberal policies that have resulted in savage cuts to regulatory institutions and transfers from high to low incomes.
Carney’s mega plans to invest billions in infrastructure is in step with the latest expert belief to row and steer the economy by bringing back the empowered state with economic and institutional levers. We will see what happens to his “nation-building” mega projects list, and whether there is sufficient accountability and transparency in the use of public funds by private business.
So far, Carney has handed billions of dollars to corporate Canada at below market rates and generous repayment terms. It is worrisome that there is so little public information about the investment agreements between Canada’s Development Bank, recently created Sovereign Wealth Fund, as well as other institutions and the corporate entities responsible for these projects.
Nocos: Canadians are facing a lot of instability over the next 18 months. How have trade negotiations made finding a national consensus much more difficult?
Drache: Carney had a mandate for tough action and approval ratings in the 60% range. Canada’s economy was in reasonably good shape compared to the US economic performance troubled by the steady rise in inflation, unprecedented national debt of over $40 trillion and a king-sized AI bubble. Trump is a very unpopular president at around 30% approval ratings. Like labour negotiations, the aim is to go back to the bargaining table and negotiate a new deal, at least in theory. However, compromise is not a part of Trump’s playbook. There will be new negotiations in Washington D.C. at some point, and they will be very ugly and difficult. The November US Midterm Elections might work in Canada’s favour to bring Trump back to the negotiating table, but it is not very clear.
Canada needs another Elijah Harper moment. As a sitting member of the Manitoba Legislature in 1990, holding his eagle feather, Harper opposed giving assent to the Meech Lake Accord, and the later Charlottetown Agreement, because they did not adequately protect First Nations rights.
Nocos: Provincial premiers have an outsized role in influencing Carney’s stance through these negotiations. While most are supportive of retaliation against the US, others like Alberta Premier Danielle Smith prefer concessions towards a deal. Do you think that the deep differences between Alberta’s premier and sympathetic provinces and the other provinces who oppose a bad deal are unresolvable?
Drache: Carney has worked hard to get all of Canada’s premiers to support his strategy for the trade crisis, and at least in public, has succeeded. He emphasized repeatedly that he negotiated in “good faith,” ready to strike a deal if need be. This is the right language for Canada’s conservative premiers, but it is very fragile. Alberta is the centre of Canada’s oil and gas export industry, and is governed by a hard-right conservative government. In October 2026, Smith will hold a referendum question on Alberta’s separation from Canada.
Trump has deliberately excluded Alberta’s oil and gas from his tariff war. Smith has adamantly opposed any service tax on Alberta’s $125 billion oil and gas exports to the US, and has publicly opposed Carney’s “confrontational” strategy. Saskatchewan Premier Scott Moe, with the province holding the vast potash resources that supplies American farmers with fertilizer for growing crops, has also sympathized with Smith. Over 80% of US fertilizer comes from Saskatchewan, and a common front with Alberta has formed, effectively limiting Carney’s leverage in his tariff war with Trump. With an election this fall, Quebec could also face a third referendum for independence, further complicating the trade negotiation calculus.
Carney still has strong allies among premiers, particularly with Ontario Premier Doug Ford – a conservative populist. Ontario is home to Canada’s major car assembly plants and thousands of jobs depend on Canada’s auto exports to the US. Despite Ford’s initial enthusiasm in 2024 for Trump’s re-election, he recently blasted the US president telling him “to kiss my ass” as trade talks collapsed.
Higher tariffs could last till the end of Trump’s presidency. Canada might get some last-minute relief from the pending midterm US elections in November if Democrats take back the House and Senate.
Nocos: Are you a pessimist or an optimist? What is your view of the larger picture of Canada?
Drache: Very pessimistic. Canada needs another Elijah Harper moment. As a sitting member of the Manitoba Legislature in 1990, holding his eagle feather, Harper opposed giving assent to the Meech Lake Accord, and the later Charlottetown Agreement, because they did not adequately protect First Nations rights. The latter was defeated by the popular referendum when 54% of Canadian voters rejected the deal.
There is a parallel with the present crisis. Walking out of the negotiations may have saved Carney’s political popularity. Surely, this is one of the most intense, high stakes brinkmanship in recent Canadian history. Manitoba Premier Wab Kinew said it best: “you can’t get a good deal from a bad person.” Canadians should not forget his words, and be ready for a long, tough fight.
