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Canada-US Race Midnight Tariff Deadline Auto Deal at Risk

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Canada-US Race Midnight Tariff Deadline Auto Deal at Risk

2026-08-18 23:37 UTCBy AlphaScala Research DeskSource reporting: Forex LiveEditorial standards

Canada-US Race Midnight Tariff Deadline Auto Deal at Risk

Carney and Trump spoke again Tuesday as Canada and the US race to avoid new 50% tariffs. Auto tariff cuts to 15% are under discussion but industry says the math still doesn't work.

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Canada and the United States are racing to finalise a deal on autos and tariffs before new 50% duties hit at midnight, Reuters reports. Canadian Prime Minister Mark Carney and US President Donald Trump spoke again on Tuesday afternoon, their second call this week, as Canada works to secure a last-minute agreement. Neither side offered clarity on the state of talks following weeks of intense negotiations.

The new US tariffs would cover roughly $20 billion worth of imports and would apply regardless of whether Canadian goods qualify for preferential treatment under the US-Mexico-Canada trade agreement, an agreement that has shielded much of Canadian industry from earlier rounds of US tariffs. Carney's office confirmed only that the two leaders spoke about the ongoing negotiations, without elaborating further. The White House and the Office of the US Trade Representative did not respond to requests for comment.

Industry officials and trade experts warned the new tariffs could trigger job losses and business closures in vulnerable sectors including lumber, wine and dairy, while complicating broader USMCA talks. Candace Laing, CEO of the Canadian Chamber of Commerce, said billions of dollars in goods previously unaffected are now at risk. She added that businesses have spent more than a year holding back on hiring and investment as the uncertainty dragged on.

Existing US auto tariffs have emerged as a central sticking point. Two industry sources said the two sides have discussed reducing US Section 232 tariffs on Canadian vehicles to 15% from 25%, with the possibility of further cuts tied to the amount of US content in each vehicle. It remained unclear on Tuesday whether an agreement incorporating those auto tariff changes could be finalised before the deadline.

A Canadian auto industry official said the numbers still would not work even at a reduced rate. Under duty-free North American trade prior to the 25% tariffs, industry profit margins averaged only 6%, making a 15% tariff still too costly to absorb. The official added that roughly half the value of every Canadian-built vehicle originates in the United States, meaning tariffs aimed at hurting Canadian manufacturing would inevitably damage US producers as well.

A major unresolved question is how tariff deductions based on vehicle content should be calculated. Washington has pushed for only US-produced content to count toward deductions, while Canada is arguing that all North American content, including Canadian and Mexican-made parts, should qualify. Separately, the US Commerce Department issued new rules on Tuesday requiring automakers exporting from Canada and Mexico to certify their US content levels annually rather than twice a year. Manufacturers must still recertify vehicles' American content by September 30 to claim deductions under the new cycle beginning December 1.

Canada's minister responsible for US trade, Dominic LeBlanc, and chief trade negotiator Janice Charette have been in Washington since last week. They met Monday for nearly two hours with US Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick. Greer has repeatedly pointed to Canada's retaliatory tariffs, some provinces' refusal to stock US liquor, and Canada's dairy supply management system as ongoing US grievances. A Canadian government source said last week that all options remain on the table should the new tariffs take effect, including support for affected domestic industries and a possible suspension of bilateral trade talks. The source expressed hope that Washington remained keen to reach a deal.

A breakdown in talks and the imposition of new 50% tariffs would hit sectors including lumber, wine, dairy and autos, with knock-on risk to broader USMCA negotiations that have underpinned North American trade stability for years. The auto sector is the clearest pressure point, given industry warnings that even a reduced 15% tariff would be unsustainable against average profit margins of just 6% under prior duty-free trade. Roughly half the value of a Canadian-built vehicle originates in the US, meaning tariffs would also hurt American manufacturers. Currency and equity markets with exposure to Canadian exporters, particularly in materials, agriculture and autos, are likely to stay sensitive to headlines out of Washington through the deadline. A resolution incorporating the discussed auto tariff cut would be read as a relief signal for North American supply chains. A lapse into the new tariffs raises the risk of retaliatory measures and a longer disruption to trade flows.