US Commerce Secretary Howard Lutnick on Thursday criticized Canada’s tariff deal with China, warning that it could complicate renegotiations of the USMCA trade agreement later this year.
Late last week, during a visit to China, Canadian Prime Minister Mark Carney announced that Canada will allow up to 49,000 Chinese electric vehicles to be imported annually at a tariff rate of 6.1%.
The quota will rise to 70,000 units by the fifth year, with more than half required to be priced below C$35,000 ($25,300) by 2030.
In return, China will lower tariffs on Canadian canola to about 15% and exempt several Canadian food products from previously imposed anti-discrimination tariffs, effective March 1.
Speaking with Bloomberg Surveillance on Thursday, Lutnick aimed at Carney, saying, “What’s he going to do? China’s delighted to sell to him.”
“But do you think China’s going to open their economy to accept exports from Canada?” he added rhetorically. “This is the silliest thing I’ve ever seen.”
According to the Secretary, Canada faces a duty of 50% (combining the 35% and an extra 15% on top) on imports to the US, which is “the second best deal in the world” just after Mexico.
“Give me a break,” Lutnick said. “They have the second-best deal in the world and all I’ve got to do is listen to this guy whine and complain?”
USMCA Renegotiation
The United States–Mexico–Canada Agreement (USMCA) is a free trade agreement among the three North American countries inked in 2018, then signed by US President Donald Trump during his first term and former Canada PM Justin Trudeau.
They are now approaching a renegotiation of the agreement under a completely different environment, following a rise in trade tensions last year.
The US is, however, dismissing the importance of the deal, as last week President Donald Trump called it “irrelevant.”
“There’s no real advantage to it, it’s irrelevant,” the President said, adding, however, that “Canada would love it. Canada wants it. They need it.”
Lutnick now states that the Canada-China deal is going to impact these discussions.
“If they continue this path […] I’m going to go fly to China, I’m going to open up my markets to China, I’m going to take Chinese electric cars and do all sorts of this stuff,” he said.
“Then when USMCA gets renegotiated… do you think the President of the United States is going to say, you should keep having the second best deal in the world? I mean, you guys are such great friends,” Lutnick added.
The US Commerce Secretary said that the neighboring country’s latest moves could allow them to “change the whole deal.”
Referring to Canada, Lutnick criticized Carney’s speech in Switzerland.
“You don’t want to be this favored neighbor, because you’ve taken it so for granted that you’re willing to come to Davos and say there’s two hegemonic powers in the world, and we’re going to decide which one we’re going to work with,” he stated.
The Secretary sees as inconceivable that Canada would choose China over the US.
“Really? You’re going to either work with the United States of America, where 75% of your economy is totally tied to it, or China? Why would you say that?,” he stated.
Going back to Carney, Lutnick said the deal he announced is just “political.”
“You know, I think if we take it correctly, we should look at it as just political noise coming out of a prime minister, and maybe this is working for his election, right?,” he suggested.
Lutnick in Davos
Just after Lutnick said “Canada is just thinking in this arrogant king of thought,” one of the co-hosts of Bloomberg Surveillance, Lisa Abramowicz, questioned if it was possible to “get the same results without using words like calling leaders weak or their economies decaying.”
“Is it necessary to provoke the visceral feeling that we feel among a lot of leaders here and in conversations with international investors? I mean, is there any other way? Is that style more harmful than it is helpful?,” the reporter added.
Abramowicz was likely referring to a speech delivered by Lutnick on late Wednesday evening, during a sit-down, invitation-only dinner hosted by WEF’s co-host Larry Fink.
According to Reuters, the Secretary’s speech, critical of Europe, prompted European Central Bank President Christine Lagarde to leave the event. The dinner was called off before dessert was served.
However, Lutnick thinks this style “creates listening.”
“People pay attention to it and listen to you. If you just sort of blend in, no one hears anything in Davos, right?,” he said, adding that “everybody says the same blah, blah, blah, blah, blah. And if you need to break out and you need to say it.”
US Reaction
Reacting to the China-Canada deal just hours after it was announced, US Trade Representative Jamieson Greer said he found it “problematic.”
“There’s a reason why we don’t sell a lot of Chinese cars in the United States. It’s because we have tariffs to protect American auto workers and Americans from those vehicles,” he said.
The US Transportation Secretary Sean Duffy added that Canada will “look back at this decision and surely regret it to bring Chinese cars into their market.”
When questioned about the deal, US President Donald Trump had a different reaction.
“Well, that’s okay, that’s what you should be doing,” the President said.
According to Trump, “it’s a good thing for him [Carney] to sign a trade deal. If you can get a deal with China, you should do that, right?”
