Mark Carney, Canada's prime minister, during the World Economic Forum (WEF) in Davos, Switzerland, on Tuesday, Jan. 20, 2026. Photographer: Krisztian Bocsi/Bloomberg
WASHINGTON: President Donald Trump’s latest tariff threats may signal an early escalation in what’s expected to be months of volatile posturing as the US, Canada and Mexico prepare to review their trade pact this year.
Last Saturday, Trump criticised Mark Carney for expanding economic ties with China, saying the prime minister would be “sorely mistaken” to think the United States will allow Canada to be a “drop off port” for Chinese goods. He threatened 100% tariffs on the northern nation if it reaches a trade deal with China.
Canada’s minister in charge of US trade, Dominic LeBlanc, pushed back, saying there was “no pursuit of a free trade agreement with China.”
Last week’s limited deal between Carney and Chinese President Xi Jinping was about resolving tariff disputes, LeBlanc said, describing the US-Canada relationship as a “remarkable partnership.”
While Trump’s remarks were ostensibly about Canada’s tariff truce with China – and come as Carney draws international attention for his Davos speech about standing up to great powers – the salvo also portends a heated back-and-forth ahead of the US-Canada-Mexico Agreement (USMCA) review.
Most economists surveyed by Bloomberg still anticipate a positive outcome to those talks, but Trump’s broadside injects fresh uncertainty.
“This clearly adds downside risks to the upcoming formal trade negotiations between the United States and Canada,” Dominique Lapointe, a macro strategist with Manulife Investment Management, said by email.
Canada is particularly exposed because exports to the United States represent an outsize proportion of its economy.
Trump’s sectoral tariffs on autos, steel, aluminium and lumber are badly hurting key industries, but many other goods remain tariff-free if shipped under USMCA.
That exemption is at risk as the agreement is subject to a mandatory review this year.
Analysts warn that losing it would be devastating for Canada, pushing effective tariffs on US-bound exports well above the 5% to 7% rate currently estimated by most economists.
Earlier this month, Trump said there’s “no real advantage” for the United States to having the deal, which was one of his signature first-term achievements, replacing the North American Free Trade Agreement.
The pact spells out a range of negotiating paths as they approach the sixth anniversary of the agreement on July 1.
Unless all three countries agree to extend USMCA by 16 years, they must hold annual reviews before the pact expires in 2036.
The framework theoretically allows talks to proceed in any format the parties choose, and includes a withdrawal clause permitting any country to exit with six months’ notice.
Many US business groups – even those with grievances about USMCA – don’t want to see the trade deal scrapped entirely.
Several industries, such as auto manufacturing, have developed deeply interconnected supply chains across North America that would be upended if Trump terminates the deal.
Derek Holt, head of capital markets economics at Bank of Nova Scotia, said he isn’t persuaded by arguments that USMCA will be torn up.
“Hubris aside, that hasn’t been the US attitude to date and the vast majority of US industries that testified at United States Trade Representative hearings strongly supported the USMCA deal,” he said in a report to investors published last Friday.
Economists surveyed by Bloomberg expect investment in Canada to grow 1.3% in 2026, up from just 0.6% last year.
But that forecast hinges on a USMCA deal lifting investment in the second half of this year. — Bloomberg
