Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / Why Canada Is Retaliating on Sept 8
Transcript
- Lucas: So the us canada trade talks collapsed over the weekend, and Canada's Prime Minister Carney says retaliatory tariffs start September 8. That is exactly two weeks from today, and it's a big deal for anyone doing business across the border. Luna: Yeah, this feels like it came out of nowhere. I thought they were close to a deal. Lucas: They were, apparently. But the sticking point is dairy, of all things. Canada's supply management system for dairy has been a thorn for years, and the US wants it dismantled. Canada says no, and the talks fell apart. Carney's response is not just a threat—he's already announced a list of US goods that will face tariffs, starting September 8. Luna: This is exactly the kind of conversation where we're glad we can keep the show ad-free. If these discussions have helped you navigate trade shifts or just made you think differently about global business, and you want to support that, the link is buy me a coffee dot com slash fexingo. No pressure, but it keeps us independent. Lucas: Exactly. It's a small gesture that lets us keep doing this without selling your attention. And we appreciate every single person who's done that. Luna: Alright, back to the tariffs. So what's actually in Canada's retaliation list? Lucas: Well, they're targeting US steel, aluminum, and agricultural products—things like ketchup, maple syrup, and even some bourbon. And they're also going after goods that are politically sensitive in key US states, like orange juice from Florida and dairy from Wisconsin. It's classic pressure tactics. Luna: So it's not just economic, it's political. They're aiming at states that could swing the election. Lucas: Right. And the timing is no accident. September 8 is just two months before the midterms. Carney's message is: if the US wants to play hardball on trade, Canada can play too, and it might cost you at the ballot box. Luna: But what's the actual economic impact? I mean, how much trade is really at stake here? Lucas: The numbers are huge. The US and Canada trade over $800 billion a year in goods and services. Canada is the US's second-largest trading partner, after China. So even a targeted tariff list can create serious ripples. For example, US dairy exports to Canada were already down after the USMCA, and new tariffs could squeeze them further. Luna: And I've seen that the US trade deficit narrowed in June to $73.3 billion, but the current account deficit is still massive at $226.8 billion. So the US is trying to close that gap, but they're doing it through tariffs. Lucas: Exactly. The administration's logic is that tariffs will reduce imports and boost domestic production. But the problem is, when you slap tariffs on an integrated supply chain like autos, you end up taxing your own manufacturers. Cars cross the border multiple times before they're finished. Luna: So this could actually hurt US auto plants more than it helps. Lucas: Potentially. The auto sector is a perfect example. A typical car might have parts sourced from both countries, assembled in one, and sold in both. Tariffs disrupt that flow, and costs go up for everyone. And that's why the industry is pushing hard for a negotiated settlement. Luna: But I'm wondering, is there anything else behind this collapse? Like, is it really just about dairy, or is there a bigger geopolitical angle? Lucas: There's definitely a bigger angle. This is part of a broader trend where the US is using tariffs not just to protect specific industries, but to renegotiate the terms of global trade. We've seen it with China, with the EU, and now with Canada. The US is trying to reshape the rules in its favor, and Canada is one of the first to push back. Luna: And we're seeing that pushback elsewhere too. Iran just criticized US extraterritorial sovereignty, and there's been tension with Europe over digital taxes. So the US is fighting on multiple fronts. Lucas: Right. And in this case, Canada has some leverage. They've diversified their export markets. They're selling more energy to Asia, and they're not as dependent on the US as they used to be. So Carney can afford to be tough. Luna: So what does this mean for a business owner who has suppliers in Canada? What should they do right now? Lucas: First, they should check if their products are on the retaliation list. If they are, they need to start planning for cost increases or finding alternative suppliers. Second, they should watch for any last-minute deal before September 8. Trade talks have a way of going down to the wire. Luna: And in the meantime, what's the mood among businesses we've heard from? Are they panicking or taking it in stride? Lucas: Mixed. Some are worried about immediate impact, others see this as a temporary blip. But the uncertainty itself is costly. Companies hate not knowing what the rules will be next month. That's often worse than the tariffs themselves. Luna: So September 8 is the date to watch. If no deal, we'll see tariffs on both sides. Lucas: And that could escalate quickly. Canada's already said they'll expand the tariff list if the US doesn't budge. The US might retaliate with more tariffs on Canadian goods. We could see a full-blown trade war between two allies, which is something we haven't seen in decades. Luna: But there's also a chance this gets resolved. Trade negotiators are known for pulling deals out of thin air at the last minute. Lucas: Absolutely. Remember the USMCA renegotiation a few years ago? It nearly collapsed multiple times, but they eventually got it done. So there's precedent for a last-minute save. But the longer this drags on, the more damage it does to the relationship and the economy. Luna: And what about the broader implications for the global trade system? Does this weaken the rules-based order? Lucas: It does. When two major economies like the US and Canada start imposing tariffs on each other, it sends a signal that the rules don't matter. That encourages other countries to do the same. We're already seeing more protectionist measures around the world. This could be a turning point. Luna: So we're not just talking about a trade dispute between neighbors. This is a test case for how global trade will work going forward. Lucas: Exactly. And that's why we're covering it so closely. The outcome of this dispute will set a precedent for future negotiations. If Canada can force the US to back down, other countries will be emboldened. If the US holds firm, we could see more aggressive trade tactics elsewhere. Luna: So what are you personally watching for between now and September 8? Lucas: I'm watching for any signs of movement on dairy, because that's the core issue. If the US signals flexibility there, a deal is possible. I'm also watching the markets—tariffs are already affecting certain sectors, like agriculture and autos. And I'll be listening to what Carney and the White House say publicly. Their tone will tell us a lot. Luna: And for our listeners who want to stay ahead, what should they do this week? Lucas: Check your supply chains. If you import from Canada, see if your goods are on the list. If they are, start modeling the cost increase. And talk to your trade partners. This might be a good time to lock in prices or diversify sources. The worst thing you can do is wait until September 8 to react. Luna: That's solid advice. And I would add: keep an eye on the trade-weighted dollar index. It's been sliding a bit, down to 118.9. That could cushion some of the impact for US exporters, but it also makes imports more expensive, which complicates things. Lucas: Good point. The weaker dollar is a double-edged sword. It helps US exporters compete, but it also raises the cost of imported goods, which feeds inflation. And with the Federal Reserve already battling inflation, that's another headache. Luna: So this trade dispute isn't just a trade story. It's an inflation story, a political story, and a global power story. Lucas: It is. And that's why we're devoting the whole episode to it. Because whatever happens on September 8, the ripples will be felt for months. And we'll be here to help you make sense of it. Luna: Alright, we'll keep tracking this. Thanks for joining us, and we'll talk to you next time.