The optimism that Canada may be feeling after U.S. President Donald Trump agreed to hold off on auto tariffs against the European Union last week may not last long, as economists from the Bank of America Merrill Lynch warn that the U.S. may strike with another round of duties in the coming months.

Trump and European Commission President Jean-Claude Juncker agreed last Wednesday to suspend new tariffs while trade negotiations continued between the countries, sparking optimism around the world. Canada’s Foreign Affairs Minister Chrystia Freeland called the move positive news for the country.

But Ethan Harris, global economist at Bank of America Merrill Lynch, said the truce is not a “game changer.”

“The Trump-Juncker agreement lowers the near-term risk of an auto trade war, supporting our cautious optimism on Europe. However, the deal is largely symbolic in nature, and as we have seen with past ‘ceasefires,’ it may not last long,” Harris said in a note to clients.

“We still expect another round of tariffs in the coming months.”

Calling the agreement “a shaky ceasefire,” Harris added that like all “handshake” deals, the auto ceasefire has a number of areas of ambiguity and some serious implementation challenges.

“Most importantly there are no numbers or dates in this agreement. How much of an increase in purchases is adequate? How quickly do results need to materialize? What constitutes ‘negotiations’?” Harris said.

“Presumably the U.S. will expect more than just talk, but progress. Perhaps the biggest missing ingredient is the core issue at hand: how will they resolve the auto dispute?”


U.S. Commerce Secretary Wilbur Ross said in comments after the agreement that the U.S. investigation into national security risks from imported vehicles and parts continues unabated.

“In other words, they have agreed to a ceasefire while continuing to ‘mobilize along the border,’” Harris said.

“Trump’s approval rating is a steady 43 per cent, 82 per cent of Republicans approve of his trade policies, the stock market is up on the year and the economy is doing great. It seems too early to expect a sustained peace treaty.”

Canada is set to join Mexico, Japan, South Korea and the European Union in Geneva, Switzerland on Tuesday to come up with a strategy on how to deal with the potential fallout from auto tariffs threatened by the U.S.

The Trudeau government has said it would retaliate with countermeasures if additional tariffs are imposed, but auto industry experts warn that that could lead to more damage on this side of the border.