The Trade Zone

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.