Canada walked away from a U.S. trade deal. What happens now?

Canada and the United States appeared close to a trade agreement last week.

On Aug.

18, U.S.

President Donald Trump delayed his new tariffs on Canada by three days and briefly declared on Truth Social that the two countries “have a deal.” By Aug.

22, however, Prime Minister Mark Carney had recalled Canada’s negotiators, saying Washington had “asked too much and offered too little .” U.S. trade representative Jamieson Greer disputed Ottawa’s account that the U.S. had introduced last-minute demands, and said Canada had backed away from earlier commitments .

No negotiating text has been made public, so outsiders cannot judge.

But the economic question at the heart of this is simple: was the deal on offer worth more to Canada than its best alternative without a deal? That is the logic behind the negotiation concept known as BATNA — the “best alternative to a negotiated agreement.” Ottawa’s decision to walk away was defensible if the proposed agreement would have left Canada worse off than its alternatives.

But walking away is costly, particularly for an economy so dependent on the U.S. market.

What was on the table? The prospective deal would have cut the U.S. tariffs on Canadian cars and light-duty trucks from 25 to 15 per cent, and on steel and aluminum from 50 to 25 per cent, subject to a steel quota.

Canada was prepared to remove its remaining counter-tariffs on steel, aluminum and autos, encourage provinces to restore U.S. alcohol sales, and adjust dairy import administration without changing supply management, quotas or tariffs.

The apparent breaking points were medium- and heavy-duty trucks and Canadian-content rules.

Carney said the lack of comparable tariff relief for trucks would make production at Ford’s Oakville and GM’s Oshawa plants increasingly uneconomic.

Ottawa also said the U.S. would have constrained future trade agreements with other countries and affected French-language and cultural policies; Washington says Canada abandoned agreed terms .

Canada is still highly exposed Canada entered these negotiations from a position of considerable economic dependence.