By Promit Mukherjee and Maria Cheng
OTTAWA, Aug 18 (Reuters) - Prime Minister Mark Carney spoke with U.S. President Donald Trump on Tuesday afternoon, Carney's office said, as Canada tries to hash out a last-minute deal to avert new 50% tariffs from taking effect at midnight.
It was the second time this week the two leaders have spoken and there was little clarity from the U.S. or Canada on the status of talks after weeks of intense negotiations.
Existing U.S. auto tariffs had been a sticking point,
two industry sources familiar with the talks said.
The new U.S. tariffs would cover about $20 billion worth of imports and apply regardless of whether Canadian goods qualify for preferential treatment under the U.S.-Mexico-Canada trade agreement, which has shielded much of Canadian industry from earlier U.S. tariffs.
“Prime Minister Carney and President Trump spoke again this afternoon about the ongoing negotiations," Carney's office said, without elaborating.
Spokespersons for the White House and the Office of the U.S. Trade Representative did not respond to requests for comment.
BILLIONS OF DOLLARS AT STAKE: BUSINESS GROUP
Trade experts and industry officials say the new tariffs could lead to job losses and business closures in vulnerable sectors, including lumber, wine and dairy. They also warn the dispute could complicate broader USMCA negotiations.
"There are billions in goods per year that were not impacted before, but now are at risk of being impacted significantly," said Candace Laing, CEO of the Canadian Chamber of Commerce.
"Business have been doing a high-wire act for well over a year, holding off on hiring, investment and growing in Canada," she said.
Canada's minister responsible for U.S. trade, Dominic LeBlanc, and chief trade negotiator Janice Charette have been in Washington since last week for talks.
LeBlanc's office did not comment on whether the minister would hold another meeting on Tuesday or on the state of the talks.
On Monday, the Canadian officials met for nearly two hours with U.S. Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick.
Greer has repeatedly cited Canada's tariffs that followed initial U.S. tariffs, some provinces' refusal to stock U.S. liquor and Canada's dairy supply management system among U.S. grievances.
Two sources said one of the main sticking points was U.S. tariffs on Canadian vehicles.
The sides have discussed cutting U.S. Section 232 tariffs on Canadian vehicles to 15% from 25%, with further reductions based on the amount of U.S. content in each vehicle, the sources said.
But it remained unclear on Tuesday whether a deal incorporating auto tariffs could be reached before the deadline, industry sources said.
COUNTING TARIFF DEDUCTIONS
A major point of contention has been how tariff deductions based on content should be calculated, with Washington demanding that only U.S.-produced content be counted. Canada is pushing for all North American content, including Canadian and Mexican parts, to be counted, the sources said.
A Canadian auto industry official said under duty-free North American trade prior to 25% U.S. tariffs, automotive profit margins averaged only 6%, so a 15% tariff was still too high.
"The industry, both in Canada and ironically in the U.S., can't afford that tariff," the official said, adding that about half of the value of every Canadian-built vehicle originates in the U.S.
"That makes it impossible to hurt Canada without hurting Detroit," the official added, referring to the U.S. auto manufacturing city.
Earlier on Tuesday, the U.S. Commerce Department released new rules for automakers exporting from Canada and Mexico to certify their current levels of U.S. content for tariff deductions, reducing the complicated exercise to once per year from twice. But the Federal Register notice said automakers must recertify vehicles' American content by September 30 for them to claim deductions in the new annual cycle starting December 1.
A Canadian government source said last week that all options remained on the table if the new tariffs take effect, including government support for affected domestic industries and a possible suspension of bilateral trade talks, but the source expressed hope that the U.S. was keen to reach a deal.
(Reporting by Promit Mukherjee and Maria Cheng in Ottawa, additional reporting by David Lawder and David Shepardson in Washington; Editing by Rod Nickel)
