US and Canada race midnight deadline to avert Trump's 50% tariffs

Washington and Ottawa are racing a 12:01 am Wednesday deadline to avert 50 percent tariffs on $20 billion of Canadian goods.

The US and Canada are racing a 12:01 am Wednesday deadline to avert 50 percent tariffs on $20 billion of Canadian imports, the first use of a Depression-era trade weapon. President Donald Trump invoked Section 338 of the Tariff Act of 1930 to impose duties on wine, furniture, dairy, cement, clothing, fishing rods and hockey equipment — roughly 5.2 percent of the $383 billion the US imported from Canada in 2025.

"The negotiations are very intense and delicate. This is not the time to talk about negotiations in public," Canadian Prime Minister Mark Carney told reporters Monday. Carney and Trump spoke by phone Monday afternoon, while Canada's trade minister Dominic LeBlanc has met US Trade Representative Jamieson Greer six times in four weeks, including a virtual session Sunday and an in-person meeting Monday.

The stakes extend beyond the affected goods. Nearly 72 percent of Canada's goods exports went to the US last year, and the tariffs threaten to derail renegotiation of the US-Mexico-Canada Agreement while raising costs for American consumers ahead of November's midterm elections. "I don't think either side really wants these tariffs to come into effect," said Ryan Majerus, a partner at King & Spalding and a former US trade official. "There's a pretty strong push on both sides to find an off ramp here."

A century-old weapon dusted off

Section 338 has never been used to impose tariffs. US trade officials have traditionally relied on Section 301 of the Trade Act of 1974, the provision Trump used last month to impose 10 to 12.5 percent import taxes on 59 countries and the European Union over alleged forced-labor practices. The turn to Section 338 follows the Supreme Court's February ruling that Trump exceeded his authority under the International Emergency Economic Powers Act, striking down his across-the-board tariffs and paving the way for refunds to importers.

The 1930 provision allows the president to impose tariffs of up to 50 percent on imports from countries that have discriminated against US businesses, without requiring an investigation or setting a time limit. Trump has accused Canada of discriminating against US exports of autos, alcohol and cheese, and singled out Canada and China as the only countries that retaliated against his earlier levies. "If a country retaliates against us, we're obviously not going to tolerate that," Greer told reporters Friday at the Iowa State Fair.

The legal foundation is shaky, according to Jennifer Hillman, a trade law professor at Georgetown University. She estimates the disputed trade amounts to roughly $5 billion to $6 billion, while the tariffs cover nearly $20 billion in imports. "They're putting tariffs on everything from hockey sticks to consumer goods to furniture to electrical equipment," Hillman said. "They're not offsetting the discrimination in the way that this act requires." A challenge would likely begin at the US Court of International Trade before potentially reaching the Supreme Court.

What each side wants

Washington is pressing Ottawa to buy more US military equipment, including F-35 fighters, participate in Trump's "Golden Dome" missile defense system and grant greater access to critical minerals, reducing America's reliance on China. Canada wants relief from US tariffs on steel, aluminum and softwood lumber, which Washington argues receives unfair government subsidies. Auto tariffs on Canadian-made vehicles have emerged as a key sticking point, according to two automotive industry sources.

The tariff standoff is unfolding alongside renegotiation of the USMCA, which Trump refused to extend for another 16 years last month, subjecting the pact to annual reviews. "From Carney's perspective, you need USMCA to be renegotiated," said Christopher Gundermann, a fellow in the economics program at the Center for Strategic and International Studies. "You can't renegotiate it with a massive trade war going on."

Canadian businesses warn the duties would be devastating for sectors already under strain. "A 50 percent tariff is simply not something that manufacturers can absorb, nor can we reasonably expect our US customers to absorb it," said Alain Ouzilleau, owner of Cabico Ltd, a custom kitchen cabinet brand. Dan Kelly, president of the Canadian Federation of Independent Business, said the tariffs "will cause massive dislocation for small businesses that rely on US clients and American buyers that rely on Canadian suppliers."

Carney faces political constraints at home. A petition seeking the expulsion of US ambassador Pete Hoekstra has gathered nearly 218,000 signatures since July 21, and Canada's government "cannot look like it is simply caving to the Trump administration's demands," said Daniel Béland, a political science professor at McGill University. Ontario Premier Doug Ford has said he would bring US alcohol back to store shelves if Canada secures a fair deal.

If the tariffs take effect, Canada could retaliate again, escalating a dispute that has already strained a relationship built on 330,000 daily border crossings and $2 billion in daily two-way trade. The last time Washington escalated tariffs on Canadian goods, affected sectors saw job losses within months, and economists warn the wood products and wine industries — already hit by wildfires in western Canada — face the steepest near-term damage.

This article is for informational purposes only and does not constitute investment advice.