Canadian Prime Minister says he has spoken with Trump and will "accelerate negotiations," Canadian provinces refuse to lift the U.S. alcohol ban

The trade friction between Canada and the United States continues to escalate. Several Canadian provinces are resisting a new round of tariffs imposed by the US and insist on maintaining the sales ban on American alcoholic beverages. Meanwhile, the new tariffs introduced by the Trump administration have further dampened expectations for improvements in Canada’s investment environment.

Ontario Premier Doug Ford stated on Tuesday that unless the United States removes industry tariffs on automobiles and steel, he will not lift the province’s ban on US wine and spirits. He sharply criticized Trump as “nothing but a bully” and emphasized that Canada “should negotiate from a position of strength, not weakness.”

Canadian Prime Minister Mark Carney also emphasized that lifting the ban should be ‘determined by each province independently’ and, in his view, should only be advanced as part of an overall agreement. On the same day, Carney stated that he had spoken with Trump by phone and ‘both sides agreed to accelerate negotiations in the coming weeks.’

According to CCTV News, the White House issued a notice on July 20 local time, announcing it will impose an additional 50% ad valorem tariff on selected Canadian products. The new tariffs will take effect officially at 00:01 AM ET on August 19 and will be levied on top of existing duties, taxes, and other fees.

This move has triggered new doubts in the market about whether Canada can achieve a stable investment environment recovery. The timing is especially tricky for the Bank of Canada, as it recently signaled signs of a rebound in business capital spending. Economists note that persistently weak core inflation combined with additional tariffs may open the door for Canada to cut interest rates again.

Since Trump initiated the trade war last year, Ontario, Quebec and several other provinces have successively removed American wine and spirits from government-run stores, causing US alcohol exporters to lose millions of dollars in sales. Though alcoholic beverages account for a small fraction of the total trade between the two nations, the move’s high visibility continues to irritate the White House.

US Treasury Secretary Besant criticized Canada in an interview on Tuesday, charging that there is “serious discrimination regarding dairy and US alcohol,” and described the new tariffs as “reciprocal countermeasures in response to Canadian practices that harm US businesses.”

However, provincial premiers generally remained unmoved. British Columbia Premier David Eby made it clear in Charlottetown: “US alcoholic beverages will absolutely not return to the shelves.” Provincial premiers are currently gathered in Charlottetown for meetings.

Saskatchewan Premier Scott Moe took a relatively moderate stance, saying that if the federal government requests, each province would have to assess independently, but emphasized that “it’s the federal government at the negotiation table.” Currently, Saskatchewan and Alberta still allow the sale of US alcoholic beverages in government stores.

International trade lawyer Mark Warner believes the provincial bans on alcohol “lack legal basis” and characterizes them as a “rather blunt tool.”

He noted that lifting the ban would have limited economic impact and might even help push negotiations forward. “If Canadians aren’t inclined to buy US bourbon and California wine anyway, then there’s no need for the ban—putting them back on shelves doesn’t mean anyone will buy.”

The new tariffs target Canadian packaging, textiles, horticultural products, and more. The US side attributes this to Canada’s “unfair treatment” towards US alcoholic beverages, automobiles, and dairy products.

More noteworthy is that the US explicitly stated that the new list of tariffed goods would not be protected by the USMCA—it marks a clear shift from previous Trump administration practices of granting exemptions for compliant goods. Earlier this month, the United States refused to renew its USMCA agreement with Canada and Mexico.

For the Canadian economy, which has struggled through trade uncertainty for years, the timing of the new tariffs is particularly unfavorable.

Jeremy Kronick, CEO of the C.D. Howe Institute, said in an interview that such a “volatile and unpredictable” trade environment makes it hard for Canadian businesses to plan. “Even if an agreement is reached tomorrow, we can't be sure it's truly reliable—or is it just a short-term stopgap?”

Bank of Canada Governor Tiff Macklem last week conveyed optimism, stating that businesses are adapting to ongoing trade turbulence, and Deputy Governor Carolyn Rogers said the Carney government’s push for major projects, including a West Coast pipeline, could help improve business confidence. However, the new tariff threat is now testing these newly emerging optimistic expectations.

At the macro level, the Bank of Canada last week kept its benchmark interest rate unchanged at 2.25% for the sixth consecutive time, one focal point now being to assess inflation risks brought by the Iran situation and rising energy prices.

But with the new shadow of tariffs looming, BMO economist Robert Kavcic believes that weak core inflation combined with additional tariffs means any rate hike moves must be “weighed with extreme caution.”

In a report sent to investors, he wrote: “Further deterioration of US-Canada trade relations could very well open the door for rate cuts again.”

From a longer-term perspective, Canada’s capital spending and productivity challenges have been longstanding. Non-residential business investment has largely stagnated over the past three years and remains 9.5% below 2014 levels.

Desjardins Group Deputy Chief Economist Randall Bartlett warned that if new tariffs are imposed, the economic damage will be “considerable.” “The direct channel is reduced exports, while the ongoing uncertainty over trade undermines business investment, also dragging on economic growth and potentially putting downward pressure on core inflation.”

Although the Canadian economy is expected to emerge from a half-year stagnation in the second quarter thanks to a rebound in oil production, whether the recovery can be sustained depends heavily on the direction of trade negotiations with the United States.