A summit about managed competition

The summit between President Donald Trump and President Xi Jinping in Beijing produced no breakthrough agreements, but that may have been beside the point. After a year in which tariffs between the two countries exceeded 100% and trade flows sharply contracted, the immediate objective on both sides appears to have been stabilization versus resolution. 

The atmospherics mattered. Trump described the talks as producing “fantastic trade deals,” while Beijing emphasized “common understandings” and continuity. But beneath the optics, the summit revealed where the real negotiations and constraints now sit.  

A few themes stood out: 

The trade relationship is structurally smaller than it was 

• U.S. imports of Chinese goods and the bilateral trade deficit are now at roughly 20-year lows. Washington’s efforts to reduce exposure to China through tariffs, supply chain diversification, and industrial policy have had a measurable effect. The relationship is no longer defined by integration.

• There was no material progress on tariffs or the Section 301 trade investigations targeting China over state-subsidized production overcapacity in sectors like steel, and electric vehicles.

China’s priority is predictability 

• The Chinese spent the years between Trump’s first and second terms doing their homework, preparing counteractive policies for more U.S. trade confrontation. Export controls on rare earths and critical minerals, industrial policy tools, and tighter supply chain leverage have proven key weapons in China’s arsenal.  

• But the summit reinforced that Beijing’s near-term priority is a more predictable operating environment with Washington—one that reduces the risk of escalation and preserves access to key export markets, technology inputs, and capital flows.  

No major progress on chips and export controls 

• Global semiconductor stocks slid with no major chip deals announced and continued stagnation over the sale of Nvidia’s H200 chips to China.  

• This remains the clearest dividing line in the trading relationship. Washington still sees leading-edge chips and export controls as a way to mitigate China’s access to advanced semiconductors that could be used for military applications or AI innovations. Beijing, in turn, hasn’t formally approved shipments of the chips and has looked inward, urging Chinese firms to switch to domestic hardware.

Agricultural purchases are a U.S. political priority 

• The clearest deliverables, as is often the case in trade negotiations with China, may ultimately come in agriculture. U.S. Trade Representative Jamieson Greer said Washington expects China to commit to “double-digit billions” in annual purchases of U.S. agricultural products over the next three years, including soybeans, poultry, and pork.  

• The White House needs to be seen as supporting U.S. farmers, especially as the impacts of the Iran war on fertilizer prices and other agricultural inputs rise ahead of the mid-terms and as planting season gets underway.

Both sides appear to want guardrails 

• Discussions around a possible “board of trade,” investment mechanisms, and even preliminary AI guardrails show neither Washington nor Beijing currently wants uncontrolled escalation.  

• The strategic rivalry continues, but both sides appear increasingly focused on managing it rather than intensifying it in the near term. 

—Thomas Ashcroft, Global Issues Policy Lead 

Food or fuel? 

Skyrocketing oil and gas prices and supply constraints are pushing countries to boost biofuel production and use. The shift aims to curtail reliance on Middle East oil and gas supplies. But the surge in policy-driven biofuel demand coincides with the rising food affordability crisis reviving a recurring debate: should farmland be used to produce food or fuel?  

The biofuel boom:

• The U.S.’s Environmental Protection Agency set record Renewable Volume Obligations (RVOs) for 2026–2027 with notable increases for biomass-based diesel, produced primarily from soybean and canola oil in North America. In addition, the U.S. House passed legislation this week to allow nationwide year‑round sales of gasoline containing 15% ​ethanol (labelled as E15), which is largely produced from corn in the U.S. 

• The European Commission proposed the AccelerateEU strategy in April, which includes measures to boost EU sustainable biofuel production and use. This proposal is a rapid response to the bloc spending an additional €24 billion on fossil fuel imports within the first 50 days of the Iran conflict.  

• Indonesia revived its plans to introduce a higher biofuel blend in 2026 following rising fossil fuel import costs. The blending rate mandate ​for biodiesel made from palm oil is planned to move to 50% from 40% this year.   

• Brazil is actively accelerating its biofuel blending mandates to enhance energy sovereignty. President Luiz Inácio Lula da Silva announced in April that the ethanol blend mandate will be raised to 32% (E32) in gasoline this spring. For biodiesel, testing is underway to understand the viability for moving the blending rate from 15% to 20%.  

• India reached its E20 ethanol blending goal in April. Disruptions to the country’s oil and gas prices and supply are prompting discussions on ramping up to E85 or E100 as production capacity expands.    

• Vietnam expedited its national mandate for 10% ethanol blends in gasoline to begin in April due to energy shocks in price and supply. Ethanol is produced mostly from cassava, sugarcane, and increasingly corn in the Southeast Asian nation.   

• …and Canada? In response to the previous shock to Canada’s biofuel supply chains from U.S. trade tensions, the federal government announced a $370 million Biofuel Production Incentive and committed to amending the Clean Fuel Regulation to prioritize domestic low-carbon fuel production. These measures, while not in response to Iran war, are intended to increase the resilience of the domestic biofuel sector.  

Bottomline: The global biofuel market is poised to enter another expansion cycle as countries raise blending mandates to meet energy security and transition to lower greenhouse gas emitting energy sources. However, early signs of rising corn, sugarcane, and vegetable prices may further pressure food prices this year.  

—Lisa Ashton, Agriculture Policy Lead 

Road Test 

About 200 auto sector executives packed into a hotel ballroom this week for the Toronto Region Board of Trade’s Ontario Auto Forum. Magna CEO Swamy Kotagiri laid out three distinct options for dealing with the industry’s headwinds: protect jobs, chase affordability, or build resilience through anchoring the industry in capabilities that can’t easily be replicated. The latter, he said, should be the priority.  

RBC Thought Leadership’s Managing Director Jordan Brennan also took to the stage, presenting findings from his latest report Steering Through Uncertainty, which charts four distinct paths for the embattled auto industry.  

Read the full report, including the five strategic considerations that cut across all four scenarios, here.  

The week that was  

USTR pushes for “Fortress North America” steel protections under USMCA 

• Deputy U.S. Trade Representative Jeffrey Goettman said an updated USMCA should include “unified tariff borders” for sectors like steel, aluminum, and autos to prevent products made with non-North American inputs from entering through Canada or Mexico. U.S. steel executives backed tighter “melt-and-pour” origin rules. 

EU sanctions on Chinese chip supplier raise fears of automotive disruption 

• Industry executives warned EU sanctions of Chinese chipmaker Yangzhou Yangjie Electronic Technology, for allegedly supplying military technology to Russia, could trigger renewed chip shortages across the auto sector. Some firms are already seeking exemptions as manufacturers remain vulnerable following last year’s rare earth and semiconductor disruptions.   

EDC expands focus on diversification, defence, and strategic sectors 

• Export Development Canada announced it facilitated $135 billion in trade-related activity in 2025, supported nearly 24,000 businesses, launched new programs, while expanding its European and Indo-Pacific presence. 

Bank of Canada research highlights declining maritime connectivity 

• Canadian ports became less central to global shipping networks between 2016 and 2023, with declining direct connectivity and lower shipping capacity relative to major Asian hubs. The risk, writes the BoC, is “greater exposure to supply chain disruptions that could increase the cost of doing business.”  

The Hormuz shock is stretching jet fuel supply to its limits

The Strait of Hormuz has now been effectively closed for 69 days, and with global jet fuel prices now over US$180 per barrel—roughly double a year ago—the costs are showing up on earnings calls. Delta Air Line’s fuel bill is expected to rise by US$2.5 billion this quarter alone and the company has signalled higher fares and fees to help offset the costs. The disruption has already driven Spirit Airlines into bankruptcy, with the potential for more as prices remain elevated.

By the numbers: more than half of globally traded jet fuel is impacted

• 23% of seaborne jet fuel flows directly through Hormuz, primarily to European markets.

• 40-50% of global jet fuel exports originate from Asia, and those exports are down two-thirds from pre-crisis levels—starved of Middle Eastern feedstock.

• China, a major Asian fuel exporter, reduced exports of jet fuel, diesel, and gasoline exports by as much as 33% in March to safeguard domestic market from disruptions.

• With Europe getting 75% of its jet fuel net imports from the Middle East, the IEA warned in mid-April that parts of the region could run out by the end of May if countries don’t find alternatives

The bigger picture: energy security runs through the refinery as well

As Hormuz illustrates, energy security is not just about who controls the crude and (as is the case with critical minerals) final products matter. Along with China, South Korea and Thailand, which are also major fuel exporters, also capped shipments on most refined fuel exports as countries struggle with Middle East supplies or protect their domestic aviation sectors.

India’s response is instructive. Rather than scrambling for alternative imports, it moved to reduce structural exposure—amending its aviation fuel regulations to allow blending with domestic agricultural feedstock. Energy security and clean fuels became the same policy.

In Canada, an often-cited vulnerability has come to the fore

Canada’s physical exposure to Hormuz is limited, but Ontario and Quebec remain structurally reliant on imported refined petroleum products, of which jet fuel is the largest. That import dependency sits with the U.S., which is more than willing to use energy trade as leverage. The Hormuz crisis revisits a harder question for Canada: what is the right shape of tomorrow’s energy integration with the U.S.?

Sustainable Aviation Fuel (SAF): Where clean and secure meet?

Canada is different from Asia in one important respect: we sit on a lot of feedstock. Oil, of course, but also canola, tallow, and municipal waste, which flow into operating renewable diesel infrastructure, most notably in Strathcona, Alta., through Imperial Oil and Come by Chance refinery in Newfoundland and Labrador, Nfld., (Braya). Yet, Canada produces zero SAF.

SAF accounted for less than 1% of jet fuel consumed globally in 2025. That number is expected to climb to 4% by the end of the decade, according to BloombergNEF. And while energy security has not been part of that growth story, it could be the catalyst, as India proved, that brings new participants to the table. For Canada, that would not just be a domestic resilience argument—but a growing export opportunity for the energy and agricultural sector.​​​​​​​​​​​​​​​​

–Shaz Merwat, Energy Policy Lead

Look what’s trending

The surge in oil prices and another spike in gold exports pushed Canada’s trade balance back into surplus in March.

According to Assistant Chief Economist Nathan Janzen: “Significant trade uncertainty remains with negotiations on CUSMA renewal likely to intensify in coming months, but we continue to expect, as a base-case, that a more stable U.S. tariff backdrop in 2026 (albeit still at significantly higher tariff rates for some products) will leave trade as less of a headwind to growth than it was in 2025.”

Read more in ‘Canadian trade balance back in surplus as energy prices surge’ here.

The week that was

U.S. trade court rejects Trump’s latest global tariff push

• The U.S. Court of International Trade ruled against President Trump’s latest 10% global tariffs, finding the administration improperly used Section 122 of the Trade Act of 1974 to justify broad-based duties tied to trade deficits.

• The decision is another legal setback for the administration’s tariff strategy following earlier rulings against the use of the International Emergency Economic Powers Act (IEEPA). The White House is expected to appeal and find other ways to implement tariffs.

Trump extends EU deadline while new regulatory disputes emerge

• President Trump extended the deadline for the EU to implement elements of last summer’s trade arrangement until July 4, while warning tariffs could further increase if Brussels does not follow through on commitments.

• Separately, major U.S. business groups are pushing Washington to intervene against the EU’s updated Product Liability Directive, arguing new rules around digital products and consumer claims could expose firms to significant litigation risk.

Chinese outbound M&A accelerates

• Chinese overseas mergers and acquisitions reached a five-year high in Q1, totaling US$9.6 billion and marking the fifth consecutive quarter of growth, according to Rhodium Group data.

• The increase comes as Beijing simultaneously tightens controls over inbound foreign acquisitions in strategic sectors, including retroactively blocking Meta’s acquisition of Chinese AI app Manus.

Auto sector pushes for continuity under CUSMA

• Major North American auto industry associations urged the Trump administration to extend CUSMA, warning against splitting the pact into separate bilateral arrangements.

• Industry groups representing GM, Toyota, Tesla, Volkswagen, Hyundai and others argued that separate agreements would increase regulatory complexity and disrupt integrated North American supply chains during a period of rapid technological transition.

Mexico ramps up commercial engagement with Canada ahead of USMCA review

• This week, Mexico launched one of its largest trade missions to Canada in recent memory, bringing more than 240 companies to Toronto and Montreal for over 1,800 business meetings.

• The outreach comes as Ottawa and Mexico City position themselves ahead of the upcoming CUSMA review, though both countries continue to take visibly different approaches to engagement with the Trump administration.

–Thomas Ashcroft, Global Issues Policy Lead

Food prices were expected to stabilize globally in 2026, but disruptions have materially changed that outlook. Instead of easing, risks are now skewed toward renewed food inflation.

The biggest geopolitical driver right now is the Middle East conflict, specifically disruptions to a critical artery—the Strait of Hormuz—for global energy and fertilizer trade. The World Bank now expects energy prices to jump roughly 24% in 2026. This rise in energy prices matters for food prices as energy feeds directly into transportation, processing, and refrigeration. This is a classic second-round inflation effect: food inflation lagging energy inflation by several months.

Disruptions to fertilizer supply chains is the hidden risk to food prices from conflict (and the most underpriced one). Fertilizer prices are projected to rise 31% as roughly a third of global fertilizer trade flows through Hormuz, according to the World Bank. Urea, a key fertilizer vital for boosting crop yields, is up 86% in March 2026, compared to the same time last year, with a 53% jump since February alone on Middle East troubles.

Generally, the fertilizer price shock creates a delayed but powerful effect: Farmers reduce fertilizer usage, leading to crop yields decline, a surge in food prices rise is triggered—with a lag (2026–2027).

We’re already seeing early signals of this effect with farmers expected to plant fewer acres of crops and tightening grain balances into the 2026-2027 season, according to the International Grains Council.

Layering in climate risk, this year’s food production outlook has flipped from benign to another accelerant to rising global hunger. This growing season, farmers are expected to face what projections are calling a “super” El Niño-related disruption, causing droughts across Asia and Australia, while potentially dumping the excess moisture in North and South America. These hard-to-predict weather dynamics could hinder production across the world’s biggest breadbaskets growing rice, wheat, and soybeans.

Globally, an estimated 363 million people are at risk of acute hunger in 2026—a rising number with growing conflicts and climate change effects, especially heat waves and droughts, that challenge food production and access in developing and unstable countries.

In Canada, a nation of abundance, people experiencing food insecurity are most impacted by food affordability. And global disruptions are expected to rise prices even further in 2026. The most recent estimates from Canada’s Food Price report project a 4% to 6% jump in food prices for Canadians between 2025 and 2026-that’s nearly an extra $1,000 dollars on groceries per year for an average family of four.

What to watch for: Reactive policy from food inflation could further disrupt global trade flows. Geopolitics can reset trade flows when global risks intensify through export restrictions to protect domestic food stocks and monetary tightening by central banks can suppress demand but raise global volatility in supply chains.

Bottomline: Food access and price risks have moved from moderate to accelerated. Food inflation expectations are being revised, higher, and quicker: The United Nation’s Food and Agriculture Organization’s Food Price Index is up 2.4% between February and March 2026, with notable pressures in oils, sugar, and grain prices.

—Lisa Ashton

Foreign investors’ Canadian playbook amid the trade war

Ottawa is preparing a summit later this year to attract $1 trillion in new investments over five years. The February securities data offers an early read on the foreign investors’ Canadian playbook.

Global investors are staying in Canada, but repositioning around the trade war. In February, foreign investors put $6.2 billion into Canadian securities, adding to the $106 billion accumulated over the past four months. At the same time, Canadian investors deployed $25.4 billion into foreign securities—the largest outflow since March 2024. While monthly securities data is volatile by nature, the net result was a $19.2 billion outflow from the Canadian economy. The headline, however, understates what is happening. The February data is less a single story than three simultaneous ones—foreign investors distinguishing between Canadian credit and growth, domestic capital chasing U.S. returns, and a market navigating the trade tumult.

Within equities, the rotation is structural, not random. Foreign capital is rotating hard within Canadian equities—out of energy and manufacturing, into banks. Foreign investors sold $9.2 billion of Canadian equity securities in February, even as the benchmark TSX rose 7.6%. At the sector level, credit intermediation and related services absorbed $12.1 billion in February alone, the largest single-sector inflow in the dataset. Energy and mining shed $9.4 billion  the same month, its weakest reading in the past five months. Manufacturing has posted outflows in four of the past five months. This pattern isn’t random: foreign allocators are concentrating in assets insulated from trade disruption (e.g. banks) while cutting the ones that aren’t (energy and manufacturing).

The bond market offers some comfort. Foreign investors added $22.6 billion in Canadian bonds in February, including $11.1 billion in corporate bonds, mostly foreign currency bonds issued by Canadian financial corporations—and $8.4 billion in federal government bonds. At the same time, they sold $9.2 billion in Canadian equities. It demonstrates foreign investor’s confidence in Canada’s credit, and more caution towards equities.

—Sydney Wisener

The week that was

USTR provided more CUSMA comments

• U.S. Trade Representative Jamieson Greer told an audience in Washington that “America First” will continue to guide policy, and that the Canada-U.S.-Mexcio trade deal put its two partners in the most enviable trading position with the U.S.

• Greer did signal a willingness to work with Canada on energy and critical minerals development but warned against using those as leverage in trade negotiations. Almost on cue, U.S. President Donald Trump signed an order authorizing a proposed Canada-Wyoming oil pipeline.

Top EU trade official leaving position over disagreements on U.S.-EU deal

• Sabine Weyand will step down as Director-General for Trade after raising concerns that the agreement the EU struck with President Donald Trump does not meet global trade rules.

• The President of the European Commission Ursula Von Der Leyen has repeatedly defended the deal—where the EU agreed to pay 15% tariffs on most products while reducing tariffs on most American goods to zero—as the first step towards a broader free trade agreement.

OECD reports sustained increase in critical mineral export restrictions

• Analysis shows export restrictions on critical minerals have increased fivefold since 2009, with more countries applying controls across defence, technology, and energy inputs.

• China continues to dominate supply, producing roughly 70% of rare earths and over 90% of some key materials, with recent export disruptions highlighting ongoing supply chain vulnerabilities.

China warns of retaliation over EU “Made in Europe” proposal

• China’s commerce ministry warned the EU it may take countermeasures if the bloc’s proposed Industrial Accelerator Act restricts access for Chinese firms to subsidies and procurement.

• The EU initiative is squarely aimed at reducing dependencies on China, and seeks to raise manufacturing’s share of GDP to 20% (from 14.3%) by 2035.

—Thomas Ashcroft

Taking things to the next level

The future of Canada-EU economic ties lies in industrial policy

• As Canada diversifies its trading relationships beyond the U.S., the European Union has emerged as a priority partner.

• Increased diplomatic engagement has some even floating the idea of Canada joining the bloc.

• While that’s unlikely for several reasons, what is relevant and actionable is the growing alignment between Canada and Europe on industrial policy, particularly in sectors where governments are directing capital, shaping supply chains, and setting the terms of competition.

From market access to industrial access

For the past decade, the Canada-EU relationship has been defined by the Comprehensive Economic and Trade Agreement (CETA) signed in 2016. Trade has grown materially in that time, but the agreement has not been frictionless in practice:

• Ratification remains incomplete and the agreement is yet to come into full effect, with several EU member states still yet to approve its investment chapter.

• Regulatory barriers persist, particularly in agriculture, where Canadian exporters face constraints tied to EU sanitary rules, pesticide thresholds, and product standards.

• However, its provisional application has seen bilateral merchandise trade increase by over 77% from 2016 to $134 billion in 2025.

• Now, across clean energy, advanced manufacturing, and defence, both Canada and the EU are directing public financing and procurement towards building domestic capacity and securing supply chains. That shift is changing how bilateral market access will be determined.

How access is being redefined

• The European Green Deal is directing capital into batteries, hydrogen, and industrial decarbonization, to concentrate production within the EU.

• The proposed “Made in Europe” Industrial Accelerator Act would tie access to subsidies and public procurement in strategic sectors to EU-based production or partner-country based reciprocity.

• This week, Industry Minister Mélanie Joly said Canada will pursue negotiations with Brussels to gain access to the “Made in Europe” program with a reciprocal approach that aligned on industrial policy.

Defence is leading Canada-EU industrial collaboration

• Canada’s participation in the EU’s Security Action for Europe (SAFE) program provides the clearest example yet of how this shift is taking shape.

• SAFE will provide up to $244 billion in loans to EU member states to support defence projects and in December, Canada became the only non-member state to gain preferential access to the program.

In practice, that means:

• Canadian firms can bid into EU-funded defence contracts on the same footing as European suppliers, competing directly for contracts rather than relying on subcontracting or local intermediaries.

• Up to 80% of Canadian content is permitted in contracts, versus the 35% for other third countries, materially increasing the ability for Canadian manufacturing, engineering, and supply chains to anchor work domestically while still qualifying for EU procurement contracts.

• Canada will provide an upfront €10 million contribution, and a 15% participation fee will apply to the value of Canadian content in contracts where European content makes up less than 65% of the value.

What to watch

• Whether Canada secures entry into “Made in Europe”: the government has opened the door, but EU openness to participation will require significant negotiation. The key question is whether Canada can convert political alignment into formal access across multiple sectors, not just defence, to participate in subsidy-backed projects.

• How SAFE translates from access to contracts: preferential terms are in place, but the signal to watch will be contract awards. Whether Canadian firms can secure meaningful roles in SAFE-funded projects and scale their exports across the continent, will define the scale and longevity of this partnership.

• The evolution of CETA: key sticking points remain for exporters, the agreement is only provisionally applied, regulatory alignment will be difficult to achieve, and negotiations are underway to reach an agreement on digital trade.

Taken together, these will determine whether Canada moves from being a preferred partner to a structural participant in Europe’s buildout and capitalize in trade on the hundreds of billions the EU is deploying through its industrial policies.

–Thomas Ashcroft, Global Policy Issues Lead

Look what’s trending

• Provincial bans on U.S. liquor could be resolved “quickly” said Mark Carney. That is, the Prime Minister said, if the U.S. takes steps on the tariffs imposed on Canadian steel, aluminum and autos—as well as Canadian forest products: “Those are more than irritants,” said Carney. “Those are violations of our trade deal.” The comments came a day after U.S. Trade Representative Jamieson Greer threatened “enforcement action” in response to Canadian provinces, including Ontario, B.C. and Quebec, keeping U.S liquor off store shelves.

• Ottawa said it won’t back down on dairy supply management in trade talks. Dominic LeBlanc,the Minister responsible for Canada-U.S. Trade, also said Canada won’t give in to U.S. demands on French-language labelling rules when CUSMA negotiations begin later this year. Both of those issues, as well as Canada’s Online Streaming Act and its Buy Canadian policies, have been criticized by the Trump Administration. On whether tariffs of some kind will remain in place even if a deal is struck, LeBlanc said “we should be realistic–they have not taken anybody to zero.”

• Trump administration to begin refunding US$166 billion of tariffs—plus interest. Two months after the Supreme Court struck down the “Liberation Day” tariffs, the U.S. government began accepting requests for refunds this week. The government had to build a new processing system for the 330,000 importers who paid International Emergency Economic Powers Act (IEEPA) duties.

Earlier this week, U.S. Trade Representative Jamieson Greer clarified what had been building for months: the U.S. will seek to keep the core of CUSMA intact but negotiate new and bifurcated terms with Canada and Mexico.  

Under the CUSMA status quo, different terms do currently exist for Canada and Mexico with the U.S. But Greer’s comments represent a material shift, one that widens the scope of issues under examination in the Canada-U.S. economic relationship and will fundamentally change how it is governed.

A deal with many strings attached

• By negotiating bilateral grievances under parallel agreements with Canada and Mexico, Washington is predicating market access for the two countries on outcomes across multiple files, rather than a single, fixed set of rules.

• For instance, rather than locking in a 16-year extension, Greer indicated that the U.S. is likely to trigger a process of annual reviews that can run for up to a decade–keeping the agreement in force, but under continuous pressure of renegotiation.

• Practically, that means trade policy becomes more iterative. Outcomes on tariffs, procurement, digital rules, dispute resolution, or enforcement will not be settled once but revisited as negotiations evolve.

• Politically, Greer is foreshadowing that it’s impossible to neatly resolve this all by the July 1^st deadline, where instead he can now announce that the core protocols of CUSMA remain in place while thornier issues continue to be hashed out in expanded side agreements.

• Additionally, with the current unpredictability in energy markets, Greer may have been looking to assure investors that the integrated North American energy market will continue with some semblance of a process in place.

• Steve Verheul, Canada’s former chief trade negotiator, noted that the war on Iran has strained America’s supply chains across energy, aluminium, fertilizers—commodities that Canada could help supply, giving Ottawa some leverage.

The central question is about a baseline market access tariff

• The most important issue is whether the U.S. introduces a broad market access tariff and, if so, what’s the number.

• Many on the Canadian side argue anything above 5% would be unacceptable. But the U.S. may look to push for as high as 10%, albeit this would likely come with significant carveouts and exemptions.

• A baseline market access tariff would have broader implications for the Canadian economy than the more concentrated effects the sector-specific Section 232 tariffs have had, as demonstrated in RBC Economics latest report: One year of tariff shocks in Canada.

Beyond trade: a more strategic negotiation

• Prior to Greer’s comments, the USTR also released its annual National Trade Estimate Report on March 31^st, listing what it deems as “significant foreign trade barriers” for partners, including Canada. 

• Most of the irritants listed aren’t surprising, they are becoming increasingly central to negotiations.

• Because of Trump’s trade war, some of these gripes have evolved and expanded, including provincial liquor stores no longer stocking U.S. alcohol.

• Others cut into how Canada structures parts of its economy: increased “Buy Canadian” procurement provisions, dairy supply management, digital and streaming regulations, and newfound sovereign data ambitions.

• Adding to that is the U.S.’s strategic ambition with respect to critical minerals. Canada’s level of participation in those ambitions will be a key issue, as we discussed in February.

The timeline ahead and how it impacts strategy

• June 1^st: Greer must report to Congress on the administration’s intent–whether to extend CUSMA as is or pursue changes.

• July 1^st: Canada, Mexico, and the U.S. will meet formally for the six-year review built into the agreement, at which point the U.S. likely pushes to shift towards a 10-year framework of annual reviews.

• The U.S. is positioning for a sustained model of negotiation under the rolling review, where it can continue to exert leverage on unresolved issues.

• One of Ottawa’s objectives, in addition to ultimately maintaining favourable, broad access to the U.S. market, is to push decisions on priority files as close to the mid-term elections as possible, without jeopardizing the entire agreement.

–Thomas Ashcroft, Global Policy Issues Lead

Tariff Toll

It’s been a year since Donald Trump stood in the Rose Garden at the White House and announced his government’s “Liberation Day” tariffs. This week, our colleagues at RBC Economics took a close look at the impact of those tariffs. Here are a couple of the key takeaways (click on the links for plenty more analysis):

Canada: One year of tariff shocks in Canada: What we learned

• Despite heightened trade tension, Canada was still the largest source of imports for 22 American states last year, unchanged from 2024.

• Canada’s limited retaliatory measures minimized the trade war’s impact on consumer prices in Canada.

• Since the U.S. tariffs on Canadian goods are targeted, the impact has been uneven across the country.

The U.S.: One year later: How U.S. tariffs and trade policy have reshaped the landscape

• Tariffs have not reduced trade imbalances, particularly with China.

• Tariffs revenue has little impact on reducing the deficit—for one thing, they don’t come close to making up for the Big Beautiful Bill tax cuts.

• There is no evidence that tariff policy has led to a reshoring of manufacturing jobs.

An emerging crisis

As the Middle East crisis drags on, many oil-importing emerging economies face a “triple squeeze”: rising energy import costs, currency depreciation, and higher rates to reprice debt.

Iran’s virtual blockade of the Strait of Hormuz has sent oil, diesel and gas prices soaring, raising costs for food, fertilizer and transport globally. But it’s developing economies that are bearing the brunt. For several African economies, energy and transport make up 15-25% of the CPI basket, a stronger U.S. dollar (up 0.85% against a basket of currencies since the Iran war began) has raised local currency debt service costs. Countries from Argentina to Vietnam have embarked on energy conserving measures and/or initiated emergency consumer support measures to offer some relief. Energy-driven inflation is pressuring central banks to maintain high interest rates even as domestic economies slow and foreign exchange reserves are drained. Investor confidence has already taken a hit with the MSCI Emerging Market Index wiping out its 13% year-to-date gains, while emerging market bond sales hit their lowest level for March since 2009.

Emerging markets’ debt vulnerabilities were already at historic highs. Developing countries paid US$741 billion more in debt service than received in financing (2022–2024). Borrowing costs have risen materially, with post-2020 issuance coming at rates around 10%, roughly double pre-pandemic levels. With 29% of Low-Income Countries (LIC) bonds maturing by 2026, default risk is rising for some sovereigns. The World Bank says it’s “ready to respond at scale” to assist emerging markets that have reached out.

Here are some of the countries that are under strain:

• Egypt: Net energy importer with large fuel subsidies (28% of government spending), high USD debt, and near-term Eurobond rollovers US$4 billion); FX pressure (currency −8%) and current account deficit (−3% GDP) compounded by reliance on GCC remittances (73% originate from Gulf economies) and declining Suez/tourism revenues.

• Pakistan: Petroleum prices are up 25%, as upcoming rollover (US$1 billion) is due 2026; recent debt crisis history, and heavy reliance on GCC remittances (62% of remittances originate from Gulf economies) strain reserves and heighten balance-of-payments risk.

• Bangladesh: Structurally dependent on LNG (50% of electricity) with no short-term substitutes; supply disruptions and rising transport costs are pushing inflation (~9%+) and increasing FX reserve pressure.

• Zambia: Extremely high debt service burden (10% of GDP) and fertilizer import dependence (2.5% of GDP); FX depreciation (−5%) compounds external financing stress.

• Sri Lanka: Post-2022 default economy remains fragile; fuel rationing and continued import dependence constrain recovery despite partial stabilization of LNG supply via the U.S.

• Côte d’Ivoire, Mongolia, Dominican Republic: Combination of FX-denominated debt exposure, current account deficits, and 2026 maturities; several also carry subsidy burdens (e.g., Mongolia) that amplify fiscal pressure as energy prices rise

• South Africa: High share of local debt held by non-residents (16% of GDP); FX pressure (currency –5.2%); vulnerable to capital outflows, bond market volatility, and tightening financial conditions.

• Turkey: Extremely high domestic yields (>35%), persistent currency depreciation, and significant reserve depletion (US$23 billion) from FX intervention; limited policy flexibility.

• India: crude import dependence is at 89%, roughly half via the Strait; rupee at record lows, fertilizer plants capped at 70% capacity; exposure amplified by reliance on remittances.

• Philippines: Imports 90% of its oil from the Middle East; current account deficit (−3.4% GDP). Maritime shipping disruptions are compressing margins in its most critical export sector (as semiconductors and electronics account for roughly 60% of total exports), while energy price pass-through is driving inflation above target.

How it impacts Canada

Several of the markets critical to Canada’s diversification strategy are exposed to the war in Iran: Bangladesh and Pakistan are key destinations for Canadian pulses. In Zambia, where copper accounts for roughly 70% of export earnings, Canadian firms are leading major production expansions. Reports of hours-long queues at fuel stations in India signal the shock is already hitting at the household level—and it comes as the Canada-India Comprehensive Economic Partnership Agreement (CEPA) negotiations target $70 billion in two-way trade by 2030. Meanwhile, Canadian entities’ exposure to emerging market assets across South America, Africa and Asia, could also present another challenge.

— Sydney Wisener

The week that was

World Trade Organization (WTO) reform talks derailed

• The WTO’s 14^th Ministerial Conference, held in Cameroon last week, failed to usher in a new era of global trade reform after the U.S. and Brazil sharply diverged over how long to extend the E-Commerce Moratorium, an agreement that prohibits levies being placed on electronic transmissions and digital services.

• The disagreement was the primary reason why a draft plan for reform of the WTO was not adopted, a major setback for the organization as it looked for ways to fight back against its marginalization and remain relevant in this new era of trade disruption.

• U.S. Trade Representative Jamieson Greer slammed the WTO upon his return to the U.S., saying it would only play a “limited role” in future global trade policy discussions.

Helium emerges as another Hormuz headache

• As well as disrupting global energy, aluminum, shipping, and fertilizer markets, the quasi-closure of the strait threatens the global supply of helium, a key component in the production of semiconductors.

• Since helium is primarily a by-product of LNG production, LNG supply chokes threaten to also disrupt the flow of the gas, of which a third of global supply passes through Hormuz. Helium prices have roughly doubled since the war began according to Fitch Ratings, which could have knock-on effects for technology-heavy economies, such as South Korea, Japan, and even the United States tech sector.

• Tungsten and sulfur are also key components of the global semiconductor supply chain and have experienced sharp price increases. Prior to the war beginning on February 28^th, China had restricted its tungsten exports and called for tighter limits on sulfuric acid exports.  

The U.S. announces new tariffs on pharmaceuticals

• Donald Trump announced new levies on branded drugs from pharmaceutical companies, including 100% tariffs on patented medications and their active ingredients.

• This follows through on the threats Trump made last fall as part of his administrations drive to pressure pharmaceutical manufacturers to build or onshore production facilities to the U.S.

• Reduced rates of 15% will be offered to jurisdictions that have secured trade deals with Washington, including Switzerland, Japan, the EU and South Korea. A U.S. official said the UK will essentially have zero tariffs on its imports as major British companies have struck deals with the administration.

— Thomas Ashcroft