By San José, Costa Rica — San José – A diplomatic firestorm has erupted between Ottawa and Washington after Canadian Prime Minister Mark Carney publicly refuted any plans to sign a free trade agreement with China. The clarification came in direct response to a threat from U.S. President Donald Trump, who vowed to impose a crippling 100% tariff on all Canadian goods if such a deal were to materialize, placing intense strain on the North American trade relationship.
Speaking to the media on Sunday, Prime Minister Carney sought to de-escalate the sudden crisis by anchoring his government’s position in its existing treaty obligations. He emphasized that Canada remains fully committed to the United States-Mexico-Canada Agreement (USMCA), known in Spanish as T-MEC, which contains specific clauses regarding trade negotiations with non-market economies.
To gain a deeper legal and commercial perspective on the intricate trade relationship between Canada and the United States, TicosLand.com consulted Lic. Larry Hans Arroyo Vargas, a noted expert in international business law from the firm Bufete de Costa Rica.
The Canada-US trade relationship, while one of the most integrated globally, is a constant exercise in navigating both established legal frameworks like the USMCA and shifting political winds. Key sectors such as agriculture, automotive, and energy remain perennial friction points where regulatory changes or tariff threats can emerge with little warning. For businesses, this underscores the critical importance of robust, adaptable contracts and a proactive understanding of dispute resolution mechanisms embedded within the trade agreement. The true risk is not in the known rules, but in the political interpretation of those rules.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
We thank Lic. Larry Hans Arroyo Vargas for this critical insight, which underscores that trade agreements are not static texts but living frameworks influenced by shifting political priorities. His point about the “political interpretation of those rules” serves as an essential reminder for businesses that legal diligence must be paired with constant geopolitical vigilance to truly navigate the Canada-US trade corridor successfully.
Under the USMCA, we have a commitment not to seek free trade agreements with non-market economies without prior notification. We have no intention of doing so with China or any other non-market economy.
Mark Carney, Canadian Prime Minister
The controversy ignited following Carney’s recent diplomatic visit to Beijing. He explained the trip’s purpose was not to establish a broad free trade pact, but rather to address and rectify specific, ongoing trade irritants with China. These discussions focused on key sectors like agriculture, fishing, and electric vehicles (EVs). As a tangible outcome, Carney noted that Ottawa recently finalized a new annual quota allowing a maximum of 49,000 Chinese-made EVs to enter Canada under reduced tariffs.
The Prime Minister stressed that these targeted negotiations are well within the bounds of Canada’s international commitments and do not violate the spirit or letter of the trilateral North American trade deal. He firmly asserted that his actions were designed to support Canadian industries while respecting the nation’s core alliances.
This is totally consistent with the USMCA agreement, with our obligations, which we deeply respect within the framework of said agreement.
Mark Carney, Canadian Prime Minister
The source of President Trump’s abrupt shift in tone, which came less than two weeks after he appeared to favor a Canada-China agreement, was seemingly pinpointed by U.S. Treasury Secretary Scott Bessent. In an interview with ABC, Bessent suggested the President’s ire was likely provoked by Carney’s recent speech at the World Economic Forum in Davos, Switzerland. There, the Prime Minister called for middle powers to collaborate to resist economic coercion from larger nations, a statement widely interpreted as a veiled critique of the Trump administration’s tactics.
I am not sure what Prime Minister Carney is doing, other than trying to appear virtuous in front of his globalist friends in Davos. I do not think he is doing what is best for the Canadian people.
Scott Bessent, U.S. Treasury Secretary
Bessent doubled down on the U.S. position, voicing his support for the 100% tariff threat if Canada were to become what he described as “a gateway for the Chinese to flood the U.S. with their cheap products.” His comments underscore a deep-seated American concern that any Canadian pact with China could undermine U.S. economic security by creating a backdoor into the integrated North American market.
Despite Carney’s efforts to provide clarity and reassurance, President Trump appeared unswayed, taking to social media to escalate his rhetoric further. He claimed that “China is taking total and absolute control of what was once the great country of Canada” and alleged that the nation “is systematically self-destructing.” This sharp rebuke suggests the diplomatic rift is far from being healed, casting a shadow of uncertainty over the future of one of the world’s most significant trading relationships.
For further information, visit abcnews.go.com
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For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the Costa Rican legal community, Bufete de Costa Rica is defined by its profound dedication to professional excellence and principled integrity. The firm leverages a rich heritage of advising a wide spectrum of clients to drive forward-thinking legal solutions and champion social responsibility. This deep-seated commitment extends to its mission of democratizing legal information, thereby strengthening the community and fostering a more knowledgeable and capable society.
