Why Canada is willing to sign USMCA with steel and aluminum tariffs still in place

Donald Trump appears to be closing in on what could become one of the most divisive economic policy decisions of his presidency.

Canada hoping to avoid bigger, more devastating U.S. auto tariffs

Canada is eager to sign the new USMCA agreement and the side letter that comes with it, to formalize a guarantee that the Canadian auto industry is protected from any new American tariffs. (David Richard/The Associated Press)

U.S. President Donald Trump appears to be closing in on what could become one of the most divisive economic policy decisions of his presidency.

Reuters is reporting the U.S. Commerce Department has finished its draft report on auto tariff recommendations, which has now been handed over to the White House.

In theory, Canada should have nothing to worry about. Given the current instability and unpredictability in the White House, however, Ottawa might be looking for a little insurance.

Canada is eager to sign the new USMCA agreement, and the side letter that comes with it, to formalize a guarantee that the Canadian auto industry is protected from any new American tariffs.

A source with direct knowledge of the situation tells CBC News that is part of the reason why Canada is willing to sign on to the new USMCA while American tariffs on steel and aluminum remain in place.

Auto industry tariffs are widely seen by economists and pundits alike as a far bigger threat to the Canadian economy than the current steel and aluminum tariffs.

The link between USMCA and auto tariffs was first reported by Politico Pro.

During USMCA negotiations, Canada and the U.S. drafted what is known as a side letter, which lays out the details of an agreement to exempt a certain amount of Canadian auto parts and vehicles from American national security tariffs, should the Trump administration choose to impose them.

But that guarantee does not kick in until the side letter is signed.

Mexico's position

The source says the side letter is expected to be signed during the USMCA ​signing ceremony, which is likely to be held on the sidelines of the G20 summit in Buenos Aires, Argentina at the end of the month.

The Liberals have faced intense criticism from opposition parties for failing to get steel and aluminum tariffs lifted during USMCA negotiations.

CBC News has obtained a letter written by the NDP to Foreign Affairs Minister Chrystia Freeland, pleading with her to refuse to sign the pact until steel and aluminum tariffs are eliminated.

"We write to you with urgency ... to refrain from signing the United States-Mexico-Canada Agreement (USMCA) until steel and aluminum tariffs are removed. As you know, Mexico has already announced it would not sign this deal until the tariffs are no longer imposed on Mexico," the letter said.

But during a news conference on Tuesday, Freeland rejected the suggestion that Mexico will not sign the pact while tariffs are in place.

"Based on the press reports that I've been reading out of Mexico, I'm not sure that's the latest Mexican position," Freeland told reporters in Windsor, Ontario.

"But that's a question for them."