Washington says it is “holding fast” while Ottawa declines to escalate, leaving Canadian exporters in a frozen tariff regime with no negotiating track and a CUSMA joint review that neither capital has scheduled
OTTAWA, October 11, 2026
Canada enters the Thanksgiving long weekend with its most important trade relationship in a state neither government is calling a negotiation and neither is calling a rupture.
United States Trade Representative Jamieson Greer told CNBC on October 8 that Washington is maintaining its position in talks with Canada. He said the two countries speak “frequently, including at the highest levels,” and that if Canada is prepared to come to terms, the United States is “ready to talk.” He attributed what he characterized as Ottawa’s slower pace to the recent Quebec election, which he said has left the Canadian side with “a little bit of preoccupation.”
That is the clearest public statement of American intent in more than a week, and it contains no movement. Greer had said on October 1 that the outstanding issues between the two countries are “quite difficult to resolve.” Prime Minister Mark Carney, for his part, said on September 29 that he had no plans to apply further trade pressure on the United States with the American midterm elections approaching, while adding that he would “never rule anything out.”
The result is a stalemate that has now lasted roughly seven weeks and that shows no sign of breaking before the November midterms. For Canadian importers and exporters, the practical significance is that the tariff architecture now in place should be treated as the operating environment rather than as a temporary disruption.
How the current structure was built
The tariff regime governing Canada-United States trade in October 2026 is unusual in that it rests on a statute that had never before been used for this purpose.
On July 20, President Donald Trump announced 50 per cent tariffs on a range of Canadian goods under Section 338 of the Tariff Act of 1930. According to a Congressional Research Service report published September 14, this was the first time a president expressly cited that provision to impose duties. The three proclamations, numbered 11046, 11047 and 11048, target what the administration characterizes as Canadian discrimination against American commerce in alcoholic beverages, dairy, and motor vehicles respectively.
Section 338 is a blunt instrument. It caps the offsetting duty at 50 per cent, and it authorizes the president, where the discrimination is found to persist after tariffs are imposed, to exclude the offending country’s products from the United States market entirely. That second power has now been used. Import exclusions took effect September 29 covering certain alcoholic beverages, dairy products, molasses, and motorcycles. The Congressional Research Service put the value of American imports of the excluded products at roughly US$967 million in 2025, about 0.3 per cent of American imports from Canada.
The recourse to Section 338 followed two developments. The first was the Supreme Court’s February 2026 ruling that the International Emergency Economic Powers Act does not authorize tariffs, which removed the legal basis for a significant share of the administration’s earlier trade actions and forced a search for alternative authorities. The second was the American decision not to renew CUSMA in its current form, which removed the political constraint that had previously made broad tariffs on a treaty partner awkward to justify.
The Section 338 tariffs were briefly suspended on August 18 under Proclamation 11056, then took effect August 22 after negotiations failed. They carry no CUSMA exemption. A revised product list effective September 15 added certain dairy and wood products, furniture, and motorboats, and removed some items. The initial coverage had included alcoholic beverages, dairy, paper and wood products, sports equipment, honey, plants, household items, beauty products, bags, hides and skins, and dog leashes.
Critically for manufacturers, goods already subject to Section 232 national security tariffs on steel, aluminum and autos were exempt at the outset, but the September 15 list brought some of them within scope. The White House has stated that Section 232 duties stack on top of Section 338 duties, producing combined rates reaching 100 per cent on certain items.
Canada’s response took effect September 8: counter-tariffs covering C$27.6 billion of American imports across more than 700 tariff classifications, framed by Ottawa as a dollar-for-dollar reply. The rate structure runs at 50 per cent on steel and aluminum products, dairy, pulp and paper, plywood and laminated wood, electronics, clothing, plastics and rubber articles, cosmetics and sports equipment; 25 per cent on fish and seafood, wood and lumber, household steel and aluminum articles, laundry and dishwasher parts, carpets, knives and cutlery, and cheeses; and 15 per cent on forklifts and industrial handling equipment, harvesting and agricultural machinery parts, air conditioners, and industrial moulds.
Pre-existing Canadian counter-tariffs on American steel and aluminum were raised from 25 per cent to 50 per cent to match the American rate. Counter-tariffs on American autos continue. Finance Canada has said the new measures are not intended to stack on existing counter-tariffs, and CBSA Customs Notice 26-23 sets out the administrative rules for applying, calculating and collecting the surtax. Existing remission frameworks remain available. Ottawa paired the measures with a C$7.5 billion support package for affected workers and businesses.
On September 8 the United States also directed the General Services Administration to remove Canadian products from federal procurement schedules, closing a channel that had survived earlier rounds.
The negotiating track that does not exist
What is striking about the current moment is the absence of a formal process.
The last substantive engagement between the two governments at the trade minister level was a brief one. International Trade Minister Maninder Sidhu and Greer held what both sides described as a pull-aside conversation on the margins of the G20 Trade Ministers’ Meeting in Milwaukee on September 30. Sidhu’s office confirmed the discussion took place. Neither side characterized it as a negotiation.
Sidhu’s own account of the Milwaukee meetings, published by Global Affairs Canada on October 2, is revealing in what it emphasizes. He met with 14 counterparts, including ministers from India, France, the European Union, Saudi Arabia, Poland, Türkiye, Australia, Brazil, Mexico, China, Germany, Japan and Indonesia, as well as the United States. He participated in the Global Forum on Steel Excess Capacity ministerial meeting on the G20 margins. He took part in sessions on coercive trade actions against food, forced labour in supply chains, structural excess capacity, and the most-favoured-nation principle. He led a Wisconsin business program promoting cross-border trade and investment.
“Canada has what the world wants,” Sidhu said in the release, which noted that Canada currently holds preferential access to 1.5 billion consumers and expects to roughly double that figure “in the coming months.”
The framing is diversification, not resolution. That is consistent with the broader posture Carney has adopted since the summer, which treats the American relationship as a problem to be managed rather than a negotiation to be concluded on the current American terms.
The CUSMA joint review provides the one scheduled forum where the two sides must engage. Canada committed in December 2025 to beginning formal discussions on the agreement in January 2026, with then trade minister Dominic LeBlanc meeting American counterparts in mid-January. Carney said at the time that sectoral talks on steel, aluminum, autos and lumber would likely be folded into the broader CUSMA process rather than concluded separately. “We’re unlikely, given the time horizon coming together, to have a sectoral agreement,” he said, while adding that Canada remained open to sectoral talks if Washington wanted them.
Greer told Congress around the same period that a CUSMA review would depend on Canada meeting certain conditions, including on dairy, and argued that Canadian policy unfairly restricts American dairy market access. Carney’s answer was unambiguous: “We’ll continue to protect supply management.”
That exchange has not been resolved in the nine months since, and the dairy file now sits inside the Section 338 proclamations as well as inside the CUSMA review. Canada’s Bill C-202, passed in June 2025, bars the government from increasing the 14 American-specific dairy tariff rate quotas committed under CUSMA in any future negotiation. The legislation was designed to take the issue off the table. Its practical effect has been to make the American demand unanswerable through negotiation, which narrows the range of outcomes available to both sides.
Tone and the apology question
The rhetorical register has not helped.
Trump said on September 30 that Canada is “very bad” and is being “taught a little lesson” as the trade action escalates. He has separately indicated he expects Canada to apologize and seek a deal within weeks. Trade adviser Peter Navarro told Canadian lobbyists to “get the hell out of our country.”
Ottawa has declined the apology. Dominic LeBlanc stated plainly that Canada is not apologizing as the import bans took effect. Carney said he would “take note” of the remarks from Trump and Navarro but offered no response in kind.
The restraint is deliberate and tactical. Carney’s stated reason for not escalating is the American midterm cycle. The calculation, which he has not spelled out but which is visible in the sequencing, is that Canadian pressure applied before November would be absorbed into American domestic politics as evidence of foreign interference rather than registering as economic cost, and that the political arithmetic in Washington may shift after the vote in ways that create space for a settlement.
There are early signs that the domestic American politics of Canada tariffs are not uniform. Michigan Republican Mike Rogers broke with the administration on October 7, calling for an end to the tariff fight with Canada. A Michigan Republican colleague has faced pressure in a heated debate over the same question. In October 2025 the Senate voted 50 to 46 to pass a resolution that would have nullified tariffs on Canadian imports, with four Republicans joining Democrats, though the measure faced obstacles in the House and a threatened veto.
Border-state economies are supplying the pressure. Reporting from Massachusetts in early October examined how a prolonged trade war with Canada would damage that state’s economy. A Vermont cheesemaker described trade tensions hurting business on October 5. In New Brunswick, a bonded truck carrying mail, milk and alcohol to the isolated island community of Campobello, which is reachable year-round only through American territory, was held at the border on October 1 with more than 1,000 bottles of spirits aboard. American officials allowed liquor deliveries to resume on October 5, but the episode became a widely reported illustration of how far the import bans reach into ordinary commerce.
What the data shows
Two statistical releases in the past week have framed the economic argument on the Canadian side, and they point in different directions.
Statistics Canada reported on October 6 that the merchandise trade surplus widened to C$4.2 billion in August, far above the C$1.55 billion economists had expected and the strongest result in more than four years. July’s surplus was revised up to C$787 million. Exports rose 2.5 per cent to C$77.91 billion, recovering from a 2.6 per cent decline in July. Imports fell to C$73.71 billion, with motor vehicles and parts posting the largest decrease.
Exports to the United States rose 8.1 per cent as shippers accelerated deliveries ahead of measures taking effect. The bilateral surplus with the United States reached C$11.2 billion, a 19-month high, and the American share of Canadian exports returned to nearly 70 per cent for the first time since September 2025.
Energy exports rose 4.7 per cent to C$19.03 billion, with refined petroleum products up 17.4 per cent on diesel shipments to Peru, the United Kingdom, the United States and the Netherlands. Non-energy exports rose 1.8 per cent. Consumer goods rose 6.6 per cent, industrial machinery and equipment 10.1 per cent, and electronic and electrical equipment 11.0 per cent.
The less flattering figure in the same release is that exports to countries other than the United States fell 8.5 per cent after an 8.2 per cent rise in July, widening the deficit with the rest of the world to C$7.0 billion from C$5.3 billion. The diversification strategy did not show up in the August data.
Prince Owusu of Export Development Canada noted that diesel exports might offset some of the September tariff impact. Economists generally expect September and October figures to capture the fuller effect of the American tariffs, the Canadian counter-tariffs, and the import bans operating together.
The labour market release on October 9 was unambiguous. The economy shed 68,300 jobs in September against a consensus forecast of a 9,200 gain, following a decline of 41,700 in August. Year to date, Canada has lost a net 41,200 jobs, compared with a gain of 211,300 over the same period in 2025. Losses were split roughly evenly between full-time and part-time work.
The unemployment rate rose to 6.5 per cent from 6.4 per cent. The labour force participation rate fell two tenths of a point to 64.8 per cent, its lowest level in 29 years outside the pandemic. Employment among those aged 15 to 24 fell by 48,000. Manufacturing, the sector most exposed to American tariffs, lost 12,700 positions. Average hourly wage growth for permanent employees rose to 2.3 per cent year over year from 2.0 per cent in August.
Sal Guatieri of BMO called the report “quite disappointing” and noted that the two-month total came to roughly 110,000 jobs lost.
Markets repriced immediately. The Canadian dollar fell 0.44 per cent to 69.99 US cents. Two-year government bond yields dropped 9.5 basis points to 2.410 per cent. Money markets withdrew pricing for a Bank of Canada rate increase in October, with expectations shifting to a 25 basis point move in December. Royce Mendes of Desjardins said the labour market weakness points to a hold at the October decision, while warning that higher energy prices could feed into other inflation categories through the autumn.
The two releases together describe an economy that is still shipping goods south in volume while losing the employment base that produces them. The export strength is a timing artifact. The job losses are not.
Where the pressure is landing
The clearest illustration of where the stalemate converts into concrete harm sits in Hamilton, Ont. Cleveland-Cliffs began issuing layoff notices at Stelco on October 7, with up to 500 positions at risk across the Hamilton and Lake Erie operations. Chief executive Lourenco Goncalves has said the workers would be recalled once a Canada-United States steel trade arrangement permits galvanized production and sales to resume, and that he does not know when such a deal might come.
Industry Minister Mélanie Joly has given the company until the evening of October 13 to produce a plan honouring the employment undertakings it gave under the Investment Canada Act when it acquired Stelco in 2024. “They need to comply,” she said. “If not, we will use the full force of the law.”
Conservative Leader Pierre Poilievre used the occasion on October 9 to release a five-point steel plan whose first element is a call for Ottawa to sue Cleveland-Cliffs, and whose fifth is to “negotiate a tariff-free trade agreement with the United States.” Addressing Carney, he said: “Get back to the negotiating table to get the deal you promised.”
The Stelco file demonstrates the mechanism by which a frozen negotiation produces real losses. The company has made the return of the jobs explicitly contingent on a bilateral agreement. No such agreement is being negotiated. The jobs therefore do not return, and the political cost of the stalemate accrues to the government that is holding fire rather than to the one that imposed the tariffs.
Implications for importers and exporters
Canadian firms should now plan on the current structure persisting through at least the first quarter of 2027.
Exporters to the United States need to confirm, line by line, whether their products appear on the Section 338 list as revised September 15, on the Section 232 lists, or on the exclusion lists that took effect September 29. The three regimes have different legal bases, different coverage, and different remedies. Products on the Section 338 list receive no CUSMA preference regardless of origin. Products subject to both Section 232 and Section 338 face stacked duties that can reach 100 per cent. Products on the exclusion lists cannot enter at any duty rate.
Firms should also assume list volatility rather than list stability. The September 15 revision both added and removed items. Compliance programs built on a single snapshot of the tariff schedule will fail. Classification review should be a recurring process, not a one-time exercise.
Importers bringing American goods into Canada should verify their classification against the counter-tariff schedule and CBSA Customs Notice 26-23, and should review eligibility under the remission frameworks that remain in force. Where a surtax is being paid on inputs that cannot be sourced domestically and cannot be passed through to customers, a remission application is the appropriate response and the frameworks were designed for exactly that case.
Companies with American federal government customers should note that Canadian products were removed from General Services Administration schedules on September 8. That channel is closed for the duration.
Diversification should be approached with realism about timelines. The August data showed non-American exports falling 8.5 per cent even as the government accelerated its outreach. Sidhu’s claim that Canada will roughly double its preferential market access in the coming months refers to agreements in negotiation, not to demand that exists today. New market access takes years to convert into order books. Firms that treat diversification as a near-term substitute for American volume will be disappointed; firms that treat it as a three to five year structural shift and invest accordingly may not be.
The CUSMA joint review remains the only forum where the two governments must sit down together, and it is where the dairy, auto content and digital services questions will ultimately be resolved or formally deadlocked. Businesses in the affected sectors should be engaging their industry associations now, while positions are still being formed, rather than after a negotiating text exists.
Finally, firms should watch the American midterm results closely. Carney’s restraint is explicitly timed to that vote. If the political arithmetic in Washington shifts, the first signal will be a change in the tone coming from the United States Trade Representative’s office rather than from the White House. Greer’s language has been consistent since August. A change in it would be the first real indication that the stalemate is ending.