In this week’s edition: Trump’s 35% tariff threat, Canada seeks partners across the Pacific, and the Canadian chocolatier that’s benefitting from the U.S. boycott.

In this week’s edition: Prime Minister Mark Carney has marked his own red circle in the calendar: July 21; and what the latest trade data tells us about Canada’s export diversification strategy

Oh Canada, we’ve got ourselves a deal

• At long last, and just in time for Canada Day, the federal government is taking steps to tear down interprovincial trade barriers.

• Bill C-5, the Free Trade and Labour Mobility in Canada Act, has become law. And while removing federal barriers to interprovincial trade is a positive step, history suggests obstacles will remain.

• ‘Special interests’ groups will mobilize behind the scenes to secure carve-outs from the legislation, which may undermine its effectiveness.

• More challenging still is the commercial reality on the ground. As Canada’s experience in free trade shows, the mere lowering of tariff walls does not automatically boost trade flows. Canada liberalized trade with Europe and Asia, for example, but Canadian exports to these regions have not meaningfully increased.

• So can we expect to see more Okanagan Riesling on shelves east of the Rockies? It’s probably too early to pop the cork and celebrate that victory.

• Statistics Canada data shows that Canadians trade less with each other than they do with the rest of the world, in percentage terms. In the ’80’s, roughly half of Canada’s total trade was interprovincial. Following a series of FTAs, that proportion has dipped closer to a third.

• Internal barriers may help explain why trade between provinces has lagged trade with the wider world. RBC Economics concluded earlier this year that estimates may differ about the economic gains associated with reducing internal trade barriers, but what seems certain is that free trade among the provinces is a pro-growth policy—particularly for the smaller provinces.

In this week’s edition: A critical minerals action plan, why trade diversification may not be a silver bullet and how tariffs are making food insecurity even worse

Noteworthy

By John Stackhouse

Mark Carney got out of the G7 alive. The Kananaskis summit could have been a trade wreck, but Donald Trump clearly had other things on his mind. That doesn’t mean Canada, or any of the other summiteers, can claim victory. Here’s why, and some of what we’re hearing: 

• There was never going to be a Canada-U.S. agreement at the G7, for one simple reason: DJT was not going to announce something so important to his domestic agenda on foreign soil (unless, of course, he planted the Stars and Stripes with it.)

• The ensuing suggestion of a 30-day window for a deal is aspirational. Anyone who has dealt with Trump knows he doesn’t stick to deadlines, and he uses time as a negotiating tool. That means don’t settle if you don’t have to. And now, the Carney team’s biggest concern is playing out, as POTUS gets distracted by events. A Middle East war, for instance.

• Some on the Canadian side don’t mind that, thinking that a “rag the puck” strategy allows Canada to get to a fuller USMCA conversation in the fall.

• But still other Canadians fear the worsening impact of countervailing tariffs. “Elbows up” sounds fine, until you elbow someone on your own team. Plain + simple: Canada is suffering more from the tariff war than the U.S. right now.

• And the longer the uncertainty goes on, the more challenging it will be for Canada to attract investment.

• Longer term, Canada remains in the crosshairs of Trump’s sectoral studies, which will only make it harder for our exports in his Core 5 categories: autos, steel/aluminum, lumber, pharmaceuticals and semiconductors.

• As someone put it to Trade Zone: “When your negotiating partner is willing to be far more ruthless, you’re not in a good negotiating position.”

The week that was

• The U.S. and Canada are looking to secure a deal within 30 days. If they can’t, Carney said, Canada will impose counter-tariffs.

• Canada is cracking down on the dumping of cheap foreign steel to support domestic steel producers getting hammered by Trump’s 50% tariffs.

• The volume of commercial trucks crossing into the U.S. from Canada is down more than 10% in each of the past two months compared to 2024. Meanwhile, trucks from Mexico to the U.S. were only down 2.8% in May (and 6.4% lower in April).

• The U.K.’s Business Secretary said that efforts to get relief for steel exports to the U.S. will be wrapped into broader tariff negotiations, indicating that there is still a ways to go on the recently announced trade deal between the U.S. and U.K.

• The U.S. Fed held rates steady and said it will watch the impact of tariffs closely this summer.

• Housing starts in the U.S. hit a five-year low in May as tariffs hit imported construction materials.

• Despite tariffs effectively shutting the U.S. out as a destination for its goods, China increased its overall trade surplus to US$500 billion so far this year—that’s up 40% YoY.

Minerals on the G7’s mind

G7 leaders unveiled a Critical Minerals Action Plan this week to counter non-market distortions, increase supply chain transparency, and reduce strategic dependency on Beijing. While light on specifics, some key items aligned with our report, The New Great Game:

• Limit price distortions: G7 members committed to coordinated responses to supply disruptions and pledged improved market transparency and traceability. No explicit mention of a “China premium” or minimum price floor, as we noted, but positive developments, nonetheless.

• Unlock financing: Encourage development banks, export credit agencies, and private capital to accelerate upstream investment in G7 countries and emerging market allies.

• Supply-chain traceability, standard-setting and sustainability: A G7 roadmap due by year-end to create benchmarks to ensure responsible mining, environmental safeguards and labour standards.

Canada remains positioned as a central actor in mineral resources, with the potential to serve the growing needs of European and U.S. defence and new energy mineral needs—a natural advantage in trade talks with the U.S. and partners. Further efforts to strengthen the remainder of the value chain—building out refining capacity, for example—will complement Canada’s resource advantage.

Why trade diversification may not be a silver bullet

Diversifying trade partners, in the wake of the current trade war with the U.S., has become a hot topic. But while lowering tariff barriers is sound economics, this alone may not lead to higher export volumes.

The Harper conservatives pursued bilateral trade agreements with a range of countries and economic blocs, including Europe (CETA), Asia-Pacific (CPTPP), and a host of Latin American countries. And yet, just 4% of Canadian exports are EU-bound and 6% are shipped to CPTPP countries—ratios that remain unmoved over two decades.

Meanwhile, nearly 80% of Canadian exports are sent to the U.S. Canada’s reliance on a few key industries—energy, automotive and metals—further entrenches this dependence. Canada needs an integrated trade strategy that diversifies trading partners while boosting export competitiveness. And it makes the Carney-Trump 30-day deal deadline all the more important.

A trade war on food security

One in four Canadians are experiencing food insecurity—a level never seen before in this country. It’s an issue of affordability, and one that tariffs and the ongoing trade uncertainty, threatens to make worse.

• Job loss and insecurity is forcing many to make difficult choices: Between January and May, Canada’s manufacturing sector lost 54,000 jobs and the country’s unemployment rate rose to 7%, the highest it’s been since 2016, excluding the pandemic.

• Rising cost of living threatens to further deepen the food insecurity crisis. But it’s more than about jobs—over 60% of food-insecure households rely on wages or self-employment income to support themselves.

  

• Supply chain disruptions impact food consistency and costs: In the U.S., tariffs are estimated to increase food prices by 2.6% in the short run, disproportionately impacting fruit and vegetables, that are expected to rise 5.4%.

In our latest report–Feeding the Crisis: The Tariff Toll on Food Insecurity–we lay out three potential solutions, all linked to Canada’s growth ambitions.

The Final Word

“If the current tariffs and counter-tariffs remain in place, past experience suggests pass through of about 75% of the costs of tariffs over roughly a year and a half.”
–Bank of Canada Governor Tiff Macklem during a speech this week in St. John’s, Newfoundland.

In this week’s edition: Trade signals at the G7, why it’s so hard for steel and aluminum manufacturers to diversify from the U.S., and how long it typically takes to get a major trade deal done.

The week that was

• Reports surfaced (here and here) that Canada and the U.S. have a working trade document, including details of a potential deal. No timeline yet.

• With Mexico’s Claudia Sheinbaum and India’s Narendra Modi in Kananaskis for the G7,  could more trade talk with Canada be on the agenda?

• According to the World Bank, we’re about to experience the slowest decade of growth since the ’60s–the result of uncertainty caused by tariffs.

• While Trump celebrates a “done deal” with China after two days of negotiations, word from China is more muted—Beijing’s official news agency called it an “agreement in principle.” China is said to only be lifting restrictions on rare earth minerals exports for six months leaving open the possibility of future escalation.

• In the next week or two, Trump plans to send letters outlining unilateral tariffs to many countries.

• Tariffs have yet to generate the inflation jump in the U.S. that many expected. Just wait, say economists.

• Dominican Republic has become a hot spot for U.S. companies seeking alternative manufacturing hubs. The country’s 92 free zones and proximity to the U.S. are two key factors.

Trade signals at the G7

While there may not be a major breakthrough with the U.S. on tariffs and trade at the G7, there are certainly a couple things to keep an eye on:

Critical Minerals: The U.S. trade war with China exposed major dependencies on critical and rare earth mineral supply chains, which Beijing dominates. To feed its lofty energy and tech ambitions, the Trump administration needs a reliable supply. Collectively, the G7 possesses massive untapped resource potential, and the capital needed to fund projects.

USMCA: Claudia Sheinbaum’s attendance will mark the first time since Trump’s inauguration that all three North American leaders are participating in the same multilateral meeting. This unlocks the potential for a sideline meeting to chart a course for the 2026 USMCA review and discuss ongoing efforts to combat the issue of fentanyl that remains the core justification for the U.S.’s IEEPA tariffs on Canada and Mexico.

Noteworthy

By Jordan Brennan

I was in Ottawa this week at Canada 2020, where the general sentiment among attendees was cautious optimism. The focus was on reigniting growth through nation-building projects. And while opportunities abound—in energy, mining, housing, infrastructure, AI—a rebooted operating model is needed. A few themes stood out:

• Internationally, Canada is seen as a high-risk jurisdiction thanks to regulatory delays (i.e. impact assessments that can stretch over a decade) and political instability (think rising separatist sentiment in Alberta). It was noted that international investors routinely add a 20% risk premium to capital allocation decisions involving Canada. Then there’s the broad political discretion cabinet holds over major projects. To unlock capital at home and abroad, we’ll need more regulatory and political certainty. Could a national trade corridor strategy help reduce Canada’s perceived risk profile?

• Building export infrastructure assumes we’ll develop the resources to fill it—but many projects remain stalled or cancelled. So how do we responsibly move resources from Canadian soil to global markets? Here, treaty rights and the duty to consult First Nations come into focus—not as a hurdle, but as a competitive advantage. Successful companies build full economic partnerships with First Nations early in the process—on everything from impact assessments, employment and procurement agreements and equity stakes. If we want more projects approved—and faster—this kind of partnership is essential.

• Same goes with Arctic security. With the retreat of sea ice, the Northwest Passage is being contested by foreign powers in part because it dramatically shortens the shipping time between North America, Europe and Asia. As one panelist put it, there’s no better way to assert Canadian sovereignty in the north than by developing the region. That means infrastructure—digital and physical—as well as the jobs and skills tied to mineral development.

• Another challenge is timing. While resource prices are set on volatile global spot markets, projects like LNG terminals or major mineral developments have multi-decade lifecycles. Development must be aligned with future demand patterns, yes, but we must also be hyper-focused on cost competitiveness. Forecasting global energy and mineral needs in 2050 is daunting, but essential if we’re to attract the patient capital needed for big projects.

Three questions…

With the U.S. doubling tariff rates on steel and aluminum, Jake Silverthorn on RBC’s Capital Markets Diversified Industrials team, helps us understand the current landscape.

Q: Why are Canadian steel and aluminum producers more impacted from U.S. tariffs than vice versa?
A: There is a structural difference between U.S. and Canadian markets. Canadian producers mostly operate in spot markets while U.S. producers use contract-based transactions, which makes it difficult for Canadian companies to effectively pass through tariff costs. Additionally, the tariffs have created a demand and pricing imbalance between the U.S. and Canadian markets.

Q: Why is it hard for Canadian producers to diversify away from the U.S. market?
A: Given high shipping costs, the U.S. represented the most profitable destination. Canadian producers have strategically placed their operations near U.S. ports to make shipping easier.

Q: What can Canadian producers do to maintain their U.S. market share?
A: To remain competitive with the domestic U.S. producers and maintain existing operations, Canadian producers are expected to absorb part of the tariff costs, impacting margins and cash flow.

Bottom line

917

The number of days a typical trade deal takes to complete from start to finish (The USMCA took 896 days). In April, Trump promised 90 deals in 90 days. With just a couple weeks remaining on that self-imposed deadline, the U.S. has signed 1 deal (U.K.) and has scored a tariff truce with China.

In this week’s edition: Canada-U.S. in two phases, Trump’s three recurring trade narratives, and how businesses are handling the uncertainty

Noteworthy

Ottawa played host this week to some high-profile guests, from a gaggle of U.S. senators to King Charles—plus the first session of Parliament in 161 days.

• Five U.S. senators, including one Republican, met with senior government officials to reinforce the Canada-U.S. relationship. A two-phase deal is being considered.

  • Phase 1: The climbdown of Section 232 (steel, aluminum and auto tariffs on national security grounds) in exchange for an increase in Canada’s defence spending commitment, which explains the ‘Golden Dome’ missile system talk. There’s some optimism that this can be done before or during the G7 Summit—though time is running out as that begins in two weeks.

  • Phase 2: The broader renegotiation of CUSMA. Expect that to start as early as this summer and conclude just before the review deadline of July 1, 2026.

• The economic and security agreement got a shout out in the King’s Speech from the Throne, as did Carney’s trade diversification priorities. The legislative agenda, and the work that will happen during the summer session of the House, will likely be more domestically focused, including fast-tracking projects in the national interest and resolving federal barriers to internal trade. Expect Canada-U.S. negotiations to happen in the background—as was the case with Minister Dominic LeBlanc’s meeting with Secretary Howard Lutnick and USTR’s Jamieson Greer last week.

The week that was

• A day after the U.S. Court of International Trade ruled that Trump overstepped by using the International Emergency Economic Powers Act (IEEPA) to impose tariffs, a federal appeals court reinstated them, at least temporarily.

• The sluggish labour market in China may get a whole lot worse: Nine million manufacturing jobs in China could be lost due to the trade war.

• Clear Seas estimates that by 2040, if all planned projects pan out, there will be a 60% increase in ship traffic on Canada’s Pacific Coast. The main driver: LNG projects.

• Japan’s biggest businesses are getting hammered, prompting the government to step up with a US$6.3 billion package to protect its economy.

• Trade-related crime is spiking in the U.S. And it’s proving tough for the government to stop.

• India is playing hardball with the U.S. on key commodities (rice, wheat, maize) and dairy.

• A UN agency predicts that trade-war-induced instability will lead to seven million fewer jobs in 2025 than first predicted. And U.S. consumer demand is connected to another 84 million jobs. Canada and Mexico, with 17.1% of roles tied to the U.S., are the most exposed.

The view from Washington

Washington’s word of the week is TACO—Wall Street shorthand for “Trump Always Chickens Out.” A phrase that underscores growing skepticism regarding the White House’s resolve to maintain tariffs in the face of market pressures and retaliatory actions from trading partners. The reality is more complicated. To justify trade policies, the administration relies on a rotating carousel of narratives:

• A negotiating tactic to achieve other foreign-policy objectives. The White House applies this reasoning when implementing fentanyl-related tariffs on Canada and Mexico and frequently uses it as a crutch to justify cancelled or postponed tariffs: mission accomplished, claim victory and move on. Tariffs are short-lived in this line of thinking, and often resolved or scaled back by minor concessions from the target nation.

• An industrial policy lever. They’re meant to encourage firms to reshore supply chains and production lines, which aligns with Trump’s promise to restore U.S. manufacturing to its former glory through sector-specific tariffs on autos, steel, and aluminum. Under this reasoning, tariffs are all about pointing to new production plants and other significant investments.

• A tool for government revenue generation. Although the hype around Trump’s External Revenue Service has died down (for now), this narrative dominated the first weeks of the administration’s trade policy strategy. When this is the goal, foreign countries have few carrots to offer that would change the President’s mind.

The challenge is discerning which justification Trump is leaning towards on any given day. When asked about TACO this week, the President embraced the negotiation narrative. The narrative may change next week as the administration’s battle in court over IEEPA tariffs continues.

Three questions…

With Andrew Skinner, RBC’s VP of Trade Finance.

Q: How are businesses diversifying—both in terms of sourcing and selling?
A: Two key observations: In April, we had a record number of customers and prospective new users of our RBC Global Connect tool, which provides resources such as best countries to buy and sell and other trade intelligence. Secondly, some clients have found better margin opportunities in Europe for products historically shipped to the U.S. And importers are ensuring resiliency of supply by finding new suppliers.

Q: How have things changed in the past couple of months for companies that have maintained their business with U.S. customers?
A: Compliance with CUSMA rose to 50% in March from 33% in February. From client discussions, we expect this will be much higher now based on the noted estimate that 94% Canadian exports to U.S. are likely to comply. Clients have maximized U.S. inventory storage and distribution channels to meet short-term demand and minimize tariff impacts. They are also regularly reviewing timing of shipments and location of delivery to navigate U.S. tariffs. Some clients have been able to pass on higher tariff costs where alternative supply is unavailable, and demand persists. Others are pausing transactions to ensure certainty of pricing and demand, especially if they can’t cover tariff costs.

Q: What advice do you have for companies navigating the uncertainty?
A: We are encouraging clients to review their key buyer and seller trade cycle—order to payment, contract terms and documentation available—and identify opportunities to renegotiate terms. The aim is to maintain long-term relationships and avoid Back-to-School, Black Friday, and Christmas peak sales cycles disruptions. There are a range of solutions available to minimize payment risk, improve cash flow and enable cost/ return efficiencies as new markets, suppliers and buyers are being considered.

In this week’s edition: Carney picks his main trade and security team; trade signals from Trump’s Middle East tour; and what to expect during U.S.-China negotiations

Noteworthy

By John Stackhouse

I was in Ottawa this week for something called the B7—a gathering of business leaders from the constituent countries of the G7, whose governments will be meeting in Alberta in a few weeks. 

The most divisive issue: trade.

• The mood was largely bearish. Despite the May bull run on markets, there’s a sense the democratic—i.e. free-trading—world is growing more divided. “Trade follows geopolitics” was how one speaker put it.

• Europe is turning more inward, with a focus on its own economic security. Get ready for more industrial policy and state investing, which won’t help trade.

• Canada is at a crossroads, needing to ease up on U.S. trade and expand trade with other markets, even as other markets get tougher to deal with. 

• A new age of “plurilateralism” is emerging, in which constant and continuous dealmaking is the norm.

• Some U.S. speakers urged Canadians to look beyond Trump’s attacks, saying the country is going through a bit of a mood adjustment. 

• But for now, at least, the U.S. is looking to show some Elbows Up, American-style. 

• Incoming ambassador Pete Hoekstra will give his first big briefing to POTUS next week and will highlight “outrageous” Canadian actions like removing American liquor brands and banning procurement from U.S. firms. 

• Expect some media donnybrooks between Hoekstra, a blunt-talking former Congressman from Michigan, and Ontario’s blunt-talking Premier Doug Ford. 

• New Industry Minister Melanie Joly may have to round out the line, as the three work to save the U.S.-Canada auto sector from further damage. 

• One suggestion: they meet at the Gordie Howe Bridge, in tribute to the OG of Elbows.

How things are shaping up on the all–important Canada-U.S. file

Carney has been clear that he’s the boss—and will run point on Canada’s relationship with the U.S. Still, his team will play a major role in a new economic and security agreement.

The Core 5: In selecting a main negotiating unit of Dominic LeBlanc, Anita Anand, David McGuinty, Francois Philippe-Champagne and Gary Anandasangaree, Carney opted for veteran ministers who collectively hold substantial clout and relationships in the Beltway. Expect this group to be supplemented by Melanie Joly, Minister of Industry, who holds considerable experience on the file, and will lead domestic negotiations with critical industries, including steel, aluminum and autos. And, in a lower-profile way, by Lisa Jorgenson, Carney’s recently appointed Senior Advisor on Canada-U.S. Jorgenson brings experience from Public Safety and Justice and will provide advice and behind-the-scenes coordination across political and bureaucratic levels.  

Committee shakeup: Trudeau’s Canada-U.S. Committee is out. And the ‘Secure and Sovereign Canada’ Committee is in. Chaired by McGuinty and Anand, the new committee has a couple noteworthy inclusions. Maninder Sidhu, Minister of International Trade, who is tasked with diversifying Canada’s trade away from the U.S., a key Carney promise. And Rebecca Chartrand, Minister of Northern and Arctic Affairs, a nod to the importance of Arctic security, one of the three legs of the economic and security pact.

Diplomatic and bureaucratic shuffle: The tenures of a few high-profile ambassadors—Kirsten Hillman in Washington, Ralph Goodale in London, and Stéphane Dion in Paris—are expected to end soon. Carney will likely prioritize a mix of experience, relationships, and political muscle, especially in filling the role in DC, as Hillman, well respected in Ottawa and Washington, leaves big shoes to fill. As for the public sector, Carney’s right hands in the Privy Council Office are Clerk John Hannaford and Deputy Clerk Chris Fox, who both hold a depth of experience on national security, energy and trade files. A broader public service shuffle could be in the offing as the PM looks for near-term results.

The week in numbers

7

Lawsuits filed against Trump and his administration challenging the ’emergency’ used to levy tariffs under the International Economic Emergency Powers Act. The U.S. Court of International Trade held a first hearing earlier this week.

150

Number of countries that Trump says want to negotiate a deal. Without the time to meet with them all, his administration will send letters to a list of leaders in the next couple of weeks simply telling them “what they’ll be paying to do business in the United States.”

1,000

Products marked as being impacted by tariffs at Loblaw. The grocery chain expects that number to climb to 6,000 in two months. Meanwhile, Walmart, which saw profits decline in Q1, announced it will be raising prices in the U.S. because of tariffs.

60 million

iPhones that Apple plans to produce from India for the U.S. market. While on his Middle East tour, Donald Trump blasted Apple’s CEO (“I had a little problem with Tim Cook”) for building iPhones in India despite committing US$500-billion in the U.S.

The view from Washington

Details of Donald Trump’s Middle East tour offer a glimpse into how ongoing and future trade talks, including with Canada, could play out:

• Spend big on U.S. Defense products: Saudi Arabia ($142 billion) and Qatar ($3 billion) signed defense sales and procurement deals that range from general upgrades to information systems to new air and missile defense capabilities. The Trump administration might push the purchase of U.S. defense products in its future trade deals, which is particularly relevant for Canada given the White House’s record of criticizing Canadian defense spending. Trump could use the U.S.-Canada deal to push Canada to get to 2% defense spending more quickly through deals with U.S. defense firms. 

• Don’t ignore Big Tech: Trump announced a $20-billion investment by a Saudi firm in AI data centers and related energy infrastructure in the U.S. And Qatar pledged $1 billion for a joint quantum technology venture between American Quantinuum and Qatari Al Rabban Capital. Data centres are particularly interesting in the U.S-Canada context because of Canada’s potential to be a strong partner (available land, renewable energy capabilities, cooler temperatures).

• Creating sector-specific funds: The U.S.-Saudi Arabia deal included the creation of investment funds for energy ($5 billion), aerospace and defense ($5 billion), and sports ($4 billion). Investments in areas of shared interest could arise in other negotiations. The U.S.-Canada deal could include shared funds for energy, border security or continental defense.

3 questions…on U.S.-China negotiations

With Jasmine Duan, Senior Investment Strategist, RBC Wealth Management, in Hong Kong

Q: How do you expect markets and Asian economies to react and perform during the 90-day negotiation window?
A: It will likely feature a mix of optimism and volatility. Markets may seek specifics on the agreement, which could lead to short-term volatilities.

Q: What signals will investors be looking for?
A: Investors will watch for what terms were finalized between the two sides and what concessions or incentives each party will offer. It would be a good sign if the negotiation focuses on trade-related issues like market access and goods purchase, not domestic topics such as fentanyl or politics.

Q: What structural changes will drive the U.S.-China relationship beyond trade and tariffs?
A: The trade talks have not addressed many structural issues such as how will the U.S. revive domestic manufacturing and reduce China’s trade surplus. We think near-term resolution remains unlikely but progress in establishing bilateral mechanisms to address issues like technological competition, climate goals, and crisis management, will be important to fostering a sustainable relationship in the long-term.