President Donald Trump’s new tariff threats signal an early escalation in what’s expected to be months of posturing as the United States, Canada and Mexico prepare to review their trade pact this year.

On Saturday, Trump criticized Mark Carney for expanding economic ties with China, saying the prime minister would be “sorely mistaken” to think the U.S. will allow Canada to be a “drop off port” for Chinese goods. He threatened 100 per cent tariffs on the northern nation if it reaches a trade deal with China.

Canada’s minister in charge of U.S. trade, Dominic LeBlanc, pushed back, saying there was “no pursuit of a free trade agreement with China.”

Last week’s limited deal between Carney and Chinese President Xi Jinping was simply about resolving tariff disputes, LeBlanc said, describing the U.S.-Canada relationship as a “remarkable partnership.”

The China-Canada agreement , announced Jan. 16, lowers Chinese tariffs on Canadian food products. In return, Ottawa will drop a 100 per cent import tax so that Chinese manufacturers can export as many as 49,000 electric vehicles a year into Canada. That’s a little less than 3 per cent of the Canadian market for new cars and trucks.

Carney, speaking with reporters in Ottawa on Sunday morning, said his government is winding back tariffs to where they were in 2023 — but with the addition of the 49,000-vehicle cap.

“We’re going to use the expression ‘back to the future’ with respect to EVs, with respect to agriculture,” he said. It’s “entirely consistent” with Canada’s obligations under the

Canada-United-States-Mexico Agreement (CUSMA). While Trump’s remarks were ostensibly about Canada’s tariff truce with China — and come as Carney draws international attention for his Davos speech about standing up to great powers — the salvo also portends a heated back-and-forth ahead of the CUSMA review.

Most economists surveyed by Bloomberg still anticipate a positive outcome to those talks, but Trump’s broadside injects fresh uncertainty.

“This clearly adds downside risks to the upcoming formal trade negotiations between the U.S. and Canada,” Dominique Lapointe, a macro strategist with Manulife Investment Management, said by email.

Canada is particularly exposed because exports to the U.S. represent an outsize proportion of its economy. Trump’s sectoral tariffs on autos, steel, aluminum and lumber are badly hurting key industries, but many other goods remain tariff-free if shipped under CUSMA.

That exemption is at risk as the agreement is subject to a mandatory review this year. Analysts warn that losing it would be devastating for Canada, pushing effective tariffs on U.S.-bound exports well above the 5 per cent to 7 per cent rate currently estimated by most economists.

Earlier this month, Trump said there’s “no real advantage” for the U.S. to having the deal, which was one of his signature first-term achievements, replacing the North American Free Trade Agreement.

The pact spells out a range of negotiating paths as they approach the sixth anniversary of the agreement on July 1. Unless all three countries agree to extend CUSMA by 16 years, they must hold annual reviews before the pact expires in 2036. The framework theoretically allows talks to proceed in any format the parties choose, and includes a withdrawal clause permitting any country to exit with six months’ notice.

Many U.S. business groups — even those with grievances about CUSMA — don’t want to see the trade deal scrapped entirely. Several industries, such as auto manufacturing, have developed deeply interconnected supply chains across North America that would be upended if Trump terminates the deal.

Derek Holt, head of capital markets economics at Bank of Nova Scotia, said he isn’t persuaded by arguments that CUSMA will be torn up.

“Hubris aside, that hasn’t been the U.S. attitude to date and the vast majority of U.S. industries that testified at USTR hearings strongly supported the USMCA deal,” he said in a report to investors published Friday.

Trade uncertainty is weighing on business confidence, complicating Canada’s long-term struggle to attract capital. In a survey last week, the Bank of Canada said firms are holding back investment in expanding production, focusing instead on maintenance and replacement spending.

Economists surveyed by Bloomberg expect investment in Canada to grow 1.3 per cent in 2026, up from just 0.6 per cent last year. But that forecast hinges on a CUSMA deal lifting investment in the second half of this year.

“This is just adding to the noise, but it was always going to be very noisy, volatile and uncertain,” Randall Bartlett, deputy chief economist at Desjardins Group, said. “It was never going to be a positive environment for business investment in Canada, particularly in the first part of this year.”

“We hope the two governments can come to a better understanding quickly that can alleviate further concerns for businesses who face the immediate consequences of torqued-up uncertainty,” said Matthew Holmes, chief of public policy at the Canadian Chamber of Commerce.

Still, Trump’s reaction may also signal that Canada’s outreach to China carries some advantage, Bartlett said.

“It also gives Canada potentially a little bit of leverage in the negotiations as well. There are other major trading partners that want to work with us,” he said.

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When Carney and Xi struck their deal, Trump initially reacted positively. “That’s OK, that’s what he should be doing,” the president said of Carney on Jan. 16. “It’s a good thing for him to sign a trade deal. If you can get a deal with China you should do that.”

If Canada meaningfully diversifies away from the U.S., Bartlett said, “it’s something that is going to lead to challenges for U.S. businesses and consumers as well.”

— With assistance from Josh Wingrove and Mario Baker Ramirez.