This week, the big news is the great rift between US and Canada on trade.
Canadian Prime Minister Mark Carney announced he was pulling out of trade talks with the US. This was after US President Donald Trump posted on Truth Social that a deal had been clinched.
According to the New York Times and other media, the sticking points were many. “In the last few hours, negotiators clashed over Canadian rules promoting French-language movies and shows online, as well as the Trump administration’s demands to dictate Canada’s steel tariffs on other countries. Canada, in turn, insisted on more generous treatment for its autos, electric vehicles and products made with metal—and ultimately backed away from its offer to cooperate on the Keystone XL pipeline that President Trump has long desired,” the New York Times said, quoting unnamed “people familiar with the negotiations.”
Canada also objected to potential US interference in Canada’s future trade agreements—especially regarding guarantees to prevent foreign products from flooding into North America. According to unnamed Canadian officials, the US “wanted to be able to review and potentially dictate the terms for Canada’s trade agreements with other countries.”
On 25 August, Canada announced retaliatory tariffs of up to 50% on certain American products. Other rates include 25% and 15% on about 700 products beginning 8 September. In the line of fire are clothing, forestry products, smartphones, dishwashers, washing machines and stoves. A major source of tension in the trade negotiations was the US’ 25% tariff on automobiles, a major export from Canada, introduced about 18 months ago. Canadians buy more cars from the US than they ship across.
Breakdown in trade talks
The war between what were two of the world’s closest trading partners will undoubtedly lead to problems on both sides of the border. Most affected will be supply chains developed over decades, as they are on the receiving end of rising trade costs.
This ultimately hits businesses of all sizes and consumers through potentially higher prices. Canada imports about $272 billion in US goods a year. The new Canadian levies cover about $20 billion per year in imports from the US, the same amount as Canadian exports affected by the tariffs. Canada has also announced $7.5 billion in support for workers and businesses.
One question of interest is why and how Canadian PM Carney made such a big move. He had domestic backing, of course, with his popularity set to soar given the fact that he has stood up to the bully in the room. He had also prepared the ground by discussing trade deals with India, China and others during the first part of this year. This came after his famous Davos 2026 Speech of middle powers needing to stand up or risk ending up “on the menu.” Despite being a middle power with obvious disadvantages, i.e., a smaller economy than the US, some 90,000 Canadian jobs at risk, etc., Carney chose to walk out knowing that pain to the Canadian economy means pain to the US economy, too—some of the US states going to mid-term polls have Canada as their top trading partner.
In this sense, perhaps Carney did take a lesson from how the Chinese dealt with Trump on tariffs. Remember how the Chinese went toe-to-toe with the US on the matter last year before Trump backed down?
Canada’s retaliation
China is a much larger economy with much more leverage than Canada. Or did Carney take a lesson from Iran on how to outsmart the US despite the outsize asymmetry?
“Under Mark Carney, Canada has set an example by retaliating dollar for dollar against Trump’s sky-high tariffs,” noted Indian analyst Brahma Chellaney in an X post. “Rather than absorbing the economic coercion, Canada matched it in both value and rate. Because of power differentials, asymmetry is inherent in international relations. The parties are rarely equal in economic or military strength. But asymmetry is not the same as surrender: A weaker country need not passively accept punitive measures, and Canada’s dollar-for-dollar retaliation shows that even a less powerful state can impose meaningful costs in response to economic coercion,” he said in his post. Something here for India to ponder over?
This week marked six months of the US war on Iran (on 28 August). It’s a milestone, especially notable as Trump had predicted repeatedly that the war in Iran would be a “little excursion” lasting a matter of weeks.
This week also saw the announcement related to “Economic D-Day", i.e. US piling more economic sanctions on Iran—this time targeting countries that trade with Iran.
Meanwhile, Pakistan’s Field Marshal Asim Munir visited Tehran once again in a bid to broker peace between the US and Iran. Ahead of his visit, he spoke to Trump, according to Reuters. The report added that the main US request was to leverage Pakistan's influence to bring Iran back to the negotiating table.
Other reports said Munir, who was expected to stay for two days in Tehran, returned after a day’s stay. He met Iranian President Masoud Pezeshkian but could not meet Supreme Leader Mojtaba Khamenei, and therefore cut short his visit, goes one explanation.
Will China support US against Iran?
Meanwhile, the planned sanctions could severely disrupt Indian exports of rice, tea and pharmaceuticals to Iran, which have been largely routed through Dubai's port in recent years, Indian exporters told Reuters. “India has been among Iran's five largest trading partners, though bilateral trade has fallen by more than 90% from its 2018/19 highs of $17 billion, with exports now limited mostly to goods exempted on humanitarian grounds,” the Reuters report said.
This follows the United Arab Emirates' suspension of all trade, exchange, and financial transactions with Iran until further notice.
As mentioned last week, the interesting question right now is how the US plans to get China on board to ensure the squeeze on Iran.
China is the primary customer of Iranian oil, importing an estimated 1.4 million barrels a day before the war, largely through an unreported network of tankers operating outside normal legal channels. The Washington Post reported that China sharply condemned the sweeping new sanctions campaign against Iran announced by the US and promised retaliation against measures that would target countries doing business with Tehran.
While some small Chinese entities linked to shipping and supply chains have been identified by Washington for punitive measures, Washington is unlikely to take drastic action that would jeopardise the expected 24 September visit to the US by Chinese President Xi Jinping. With a stranglehold on critical mineral refining and supplies, the US and Trump can’t afford to play too tough with China.
With Canada not playing to the expected script and the Iran stalemate continuing, there was some respite for Trump in the way of an agreement withVenezuelathat could give the US access to vast amounts of the Latin American country’s untapped oil reserves, at a cost. Note the timing, which comes just before the midterms, when Republicans are predicted to fare badly due to steep living costs, including gasoline prices.
The Venezuela oil deal
Trump, in a social media post announcing the agreement, said it was negotiated by secretary of state Marco Rubio, defence secretary Pete Hegseth, and Venezuela’s acting President Delcy Rodriguez. The question on my mind is—was it a negotiation at all, or plain and simple arm-twisting? Remember, Rodriguez, would have the fate and picture of her predecessor in mind, i.e. Nicholas Maduro, who was kidnapped by US forces on Trump’s instructions.
According to Trump: “The United States of America has just entered into an Agreement with the Country of Venezuela on, THE BIGGEST OIL DEAL IN WORLD HISTORY!”
In its statement, the Venezuelan government said the deal involved the development of 17 fields with a proven potential of 65 billion barrels. It said the agreement could attract $100 billion in investment to Venezuela’s oil industry and yield over $209 billion in taxes for Caracas—all to be seen, of course. On the other hand, the agreement allows US to partner with an unnamed private operator in Venezuela to create a new private company that would take over the reserves.
“This deal is a huge win for both the American and Venezuelan people,” Rubio posted. Win for the US, definitely, but what’s the cost for Venezuela? Mostly, it's proving right what people had asked about before—Venezuela is now reduced to a US colony.