OTTAWA, Canada — A year ago, after a meeting with Canada’s provincial leaders, Prime Minister Mark Carney made a pledge that he has since repeated many times.

“Canada will not accept a bad deal,” he said about trade negotiations with President Donald Trump’s administration.

That promise is being put to the test as never before. Canadian trade officials have spent days camped out in Washington as they try to reach a pact to avert a punishing array of new tariffs threatened by the White House.

Trump and his officials have demanded Carney act on a lengthy list of trade irritants or the U.S. will move forward on Aug. 19 with 50% duties on about $20 billion worth of Canadian products, including milk, plywood, hockey sticks and beer.

The two sides are in intensive talks over a preliminary deal to stave off the new taxes, according to people familiar with the matter, speaking on condition they not be identified as the negotiations continue.

The framework of a potential deal would see the U.S. back away from the 50% tariffs and reduce certain Section 232 tariffs on Canada. The 232 levies are the ones Trump has put on foreign-made steel, aluminum, autos and lumber — all industries with integrated supply chains between the U.S. and Canada.

In exchange, Canada would remove some of its retaliatory measures and make other concessions, such as returning U.S. booze to store shelves and widening access to its dairy market, the people said.

One item under discussion would be lowering the U.S. auto tariff, which is currently set for Canada and Mexico at 25% of the value of the non-U.S. content, the people said. Trump’s previous deals with auto-exporting nations Japan and South Korea have cut the auto tariff to 15%.

Roughly half of the value of a typical Canadian-made vehicle is from U.S. components. So a 15% headline rate may mean an effective 7.5% tariff, depending on the model. To get such a deal, Canada would have to roll back its retaliatory tariffs on U.S.-manufactured cars and trucks.

The U.S. and Canada are also discussing changing steel tariffs to exclude certain derivative products and potentially also lower the headline tariff rate, the people said.

Canada has accepted that it can’t get all U.S. tariffs removed. But it wants the Section 232 tariffs set at 10% or lower, and the U.S. is resisting that, one of the people said.

The situation remains fluid, and may produce an initial deal that wouldn’t settle all trade irritants but would open the door to further discussion, the people said. But any pact would need Trump’s blessing. The president had not yet been briefed on the talks as of Tuesday, a White House official said. U.S. Trade Representative Jamieson Greer is leading U.S. efforts, with the involvement of others including Commerce Secretary Howard Lutnick.

A U.S. official, speaking on condition of anonymity, said the Trump administration is willing to discuss trade but is committed to the president’s policy of using tariffs and other measures to reshore manufacturing and reduce the trade deficit. The official declined to detail the ongoing talks.

‘What’s the Alternative?’

It’s far from clear whether Trump is willing to give significant ground on the Section 232 levies — or whether, in the longer run, his administration will even consider renewing the U.S.-Mexico-Canada Agreement. That puts Carney in a bind: How far can he go in granting concessions if U.S. tariffs are staying in place permanently?

“This is going to come down to the U.S. tariffs on steel, aluminum, and automobiles,” said Brian Clow, who played a major role for Canada in U.S. trade negotiations under Carney’s predecessor, Justin Trudeau.

“The 232s have to get close to zero, especially for automobile trade where the margins are so low,” he said. “If the U.S. isn’t willing to significantly lower the 232 tariffs, the provinces won’t put alcohol back on shelves. If alcohol isn’t back on shelves, the U.S. won’t finalize a deal.”

Carney, 61, and his team have optimistically seen next week’s deadline as an opportunity to finally get the comprehensive tariff-reduction deal with Trump they’ve been seeking for more than a year. But the prime minister has limited room to maneuver.

The liquor bans, imposed by provincial governments after Trump’s initial round of tariffs in early 2025, have done major harm to U.S. exporters of wine, whiskey and other products. Canadian imports of American alcoholic beverages plunged 81% in a year, according to the White House.

Carney can try to persuade provincial leaders on booze, but he can’t order them to. And each province has its own grievances with the U.S.

For Ontario, Canada’s manufacturing heartland, a deal would have to include tariff relief on steel and autos to win over Premier Doug Ford.

“We want a fair deal for Ontario. We want a fair deal for Canadians. And we negotiate through strength, not weakness,” Ford told reporters Thursday. Asked if a lowered levy on autos would be considered a fair deal, Ford replied that “every single tariff, we have to match tariff for tariff.”

In British Columbia, with its massive forestry industry, Premier David Eby’s priority is getting duties lowered on softwood lumber — though it appears lumber won’t be part of an initial deal, some of the people said.

Eby’s office declined to comment. Recently, he said “there is not a chance in hell” U.S. alcohol will go back on shelves in BC. “The idea of the president, that he can bully us into whatever he wishes, is incorrect.”

And in Quebec, Premier Christine Fréchette will be looking for reduced tariffs on aluminum without giving away major concessions on dairy. A spokesperson for Fréchette said: “In the context of the ongoing trade war, the Premier continues to defend Quebec’s economic interests.”

In other words, resolving the booze bans will necessitate a pact that’s palatable to policymakers across Canada of different political stripes. That’s yet another complication for Carney.

“It underscores the difficulty of governing our country as a federation,” said Goldy Hyder, chief executive officer of the Business Council of Canada, which has been pushing Carney to get to a deal with Trump. “I think the prime minister has to carve out a place for doing what’s right for the country above all else.”

A spokesperson for Dominic LeBlanc, Canada’s minister in charge of U.S. trade, declined to comment.

Many business executives don’t want Carney to grant concessions too easily. A KPMG survey of hundreds of business leaders found about 70% said the Canadian government should take a tough stance in negotiations, using any leverage it has available with the country’s most important trading relationship on the line.

“If we are not tough, what’s the alternative? We’re going to concede and give everything that they’ve asked for without getting anything in return?” asked Joy Nott, a partner in KPMG’s trade and customs practice in Canada. “That would be seen as more negative.”

In recent days, Canadian officials have warned Greer that they can’t accept a deal that forces concessions without getting any movement on Section 232 tariffs, according to people briefed on the negotiations. Such a move would be impossible given the Canadian public mood, they said.

Polls show that, too. A recent Abacus Data poll found 69% of residents in Ontario and 72% in British Columbia want to keep the U.S. alcohol restrictions in place.

Another recent survey from the Angus Reid Institute found that 62% of Canadians want Carney to hit the U.S. with retaliatory tariffs if Trump carries out his latest tariff threat. Only 19% want to take that option off the table and 7% want to offer up concessions.

If Trump goes ahead with it, Carney “will have to do something,” said Eric Miller, founder of Rideau Potomac Strategy Group, a trade and economic consultancy. “The public is just angry. The public is kind of done.”

—With assistance from Derek Decloet, Thomas Seal and Melissa Shin.

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