Trump Ends Talks With Canada, Warns of Tariffs By Next Week After U.S. and China Hammer Out Rare Earth Pact

President Donald Trump said Thursday the U.S. had signed a trade agreement with China. (BRENDAN SMIALOWSKI/AFP via Getty Images)

Trade uncertainty took another twist Friday afternoon. Hours after trying to de-escalate U.S.-China tensions, President Donald Trump said the U.S. was terminating trade talks with Canada.

In a social media post, Trump said the U.S. was terminating all discussions with Canada and denounced a digital service tax Canada announced on technology companies, calling it a “direct and blatant attack” on the U.S. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period.

That escalation in the trade war came on the heels of efforts to solidify a fragile truce with China, with U.S. and Chinese officials confirming that they had worked out details of a trade framework reached a couple of weeks ago in London to repair a fragile truce reached in Geneva to ratchet back punitive tariffs and an escalation between the world’s two largest economies.

However, the latest comments from the two geopolitical rivals reinforced the view that investors should lower their expectations—and that the trade uncertainty that has hovered over corporate earnings and kept markets jittery may not abate in the near term.

While the Trump administration had promised 90 deals in 90 days after its April tariff blitz, only one pact—with the United Kingdom—has been signed so far. Negotiations have hit their share of bumps, with the most volatility-inducing coming on the back of escalation with China.

Trump administration officials have recently softened the focus on the self-imposed July 9 deadline for deals. On Friday, Treasury Secretary Scott Bessent told Fox Business he hoped to have trade wrapped up by Labor Day and described the latest pact with China as de-escalatory.

In an interview with Bloomberg Television, Commerce Secretary Howard Lutnick said, “We’re going to do top 10 deals, put them in the right category, and then these other countries will fit behind.” The U.S. is “close to the finish line” with India and has given the European Union an offer, he added.

Investors are skeptical. Even Lutnick noted that India’s Prime Minister Narendra Modi and parliament still needed to approve a deal, that Trump will want to add his finishing touches and close any deals himself, and that the EU will likely be at the end of deals announced.

Some of that skepticism comes from the complications in U.S. dealings with China. Geopolitical analysts stress that this latest agreement isn’t a deal, but rather a codification of the details that were discussed between officials at a meeting in London in May to reset the U.S.-China relationship after both sides claimed the other had violated an earlier truce set in Geneva—which was also not a trade deal.

Indeed, the agreement made no mention of tariffs or fentanyl flows, which were the trigger for the first set of tariffs Trump imposed on China in February. That reinforces the growing view that export restrictions, not tariffs, will be the focal point of tensions between the two countries. The latest escalation has stemmed from China’s restriction of exports to the U.S. of rare earth mineral shipments critical for automobile, defense, and industrial companies. For China, a critical issue has been an expanding and tightening web of export controls by the U.S. to restrict China’s access to critical technology.

“It just reiterates the issue is about how each side has control over major supply chain chokepoints,” Stephen Myrow, managing partner of Beacon Policy Advisors told Barron’s. “Each side is creating confidence-building measures to turn on but we also know at any point someone can anger the other side and turn off the flow. It isn’t like we can wash our hands and say things are now good with China.”

In a statement, China’s Ministry of Commerce confirmed further details of the trade framework. “China will, in accordance with the law, review and approve eligible export applications for controlled items,” it said. “In turn, the U.S. will lift a series of restrictive measures it had imposed on China.”

In a separate briefing, Ministry of Foreign Affairs spokesman Guo Jiakun added that China hopes the U.S. will work with Beijing to make good use of the consultation mechanism agreed upon. “Hopefully, through communication and dialogue, there will be more consensus and cooperation and less misperception and we will enable the steady, sound and sustainable development of the China-U. S. relations,” Guo said.

A spokesperson for the Commerce Department didn’t immediately respond to Barron’s request for comment.

Paul Triolo, a partner at geopolitical consultancy Albright Stonebridge Group, told Barron’s this new accord is still a tentative one, with U.S. officials waiting to see if China expedites licensing of rare earth elements and magnets before releasing its own restrictions it rolled out in early May as the Geneva truce teetered. Among the items it restricted were exports of ethane, aircraft parts, and other things like high-purity quartz and semiconductor design tools, Triolo said. Earlier this week, Ford said it was still waiting to get magnet shipments from China.

For investors, the interaction between the U.S. and China—and shifting talk about trade negotiations—suggests that while there may be some guardrails to prevent an all-out trade war and a spiraling of tensions to levels seen after President Donald Trump’s April 2 tariff announcement, uncertainty and tariffs are likely to stick around.

Most strategists expect 10% tariffs for most countries, an extended pause on the April 2 tariffs, plus a new set of sector-oriented tariffs—specifically in semiconductors, pharmaceuticals, and other areas—that are likely complicating negotiations and could further threaten a truce with China.

Also possible: One or two countries get hit with higher tariffs to ensure the U.S. has leverage in continued negotiations.

“That early promise of lots of deals and resolutions, increasingly people aren’t expecting that to occur,” says Neil Bradley, chief policy officer for the Chamber of Commerce, which is telling its member companies that near-term tariffs are likely to be higher.

While building up inventories and shifting free shipping policies has helped some companies navigate the increased costs without raising prices, Bradley sees that juggle becoming harder. Even a 10% tariff, he notes, represents a fourfold increase from where it was at the beginning of the year, and the uncertainty has resulted in a sea change from the bullishness companies had about hiring, profits, and investments at the start of the year.

Write to Reshma Kapadia at reshma.kapadia@barrons.com and Elsa Ohlen at elsa.ohlen@barrons.com