OTTAWA—Canadian Foreign Minister Chrystia Freeland arrives in Washington Tuesday to start high-stakes talks on completing a revamped North American Free Trade Agreement, with the threat of being left out from a new U.S.-Mexico pact in the backdrop.
Ms. Freeland cut short a weeklong trip to Germany, Ukraine and France to return to Washington and the Nafta negotiating table, with discussions set to start in the afternoon. Canada was left out of the talks for weeks while the U.S. and Mexico addressed their differences.
The Trump administration said it would give Canada until Friday to iron out crucial differences, including a revision that makes it harder for Nafta members to challenge U.S. trade penalties and increased access to Canada’s dairy market. Otherwise, both the U.S. and Mexico have signaled they are prepared to move on with their own trade pact and leave Canada out.
“We’ve made a lot of progress with Canada,” Treasury Secretary Steven Mnuchin said in an interview with CNBC Tuesday morning. “Hopefully they’ll come on board but if not, we’ll move on with Mexico.”
Canadian officials have said they are encouraged by the progress the U.S. and Mexico have made, including on automobiles, and believe an agreement is possible. However, they also warned they wouldn’t sign onto anything unless it addressed Canadian interests.
Other trade watchers contend Canada is in a tough spot and will be forced to make concessions. On Monday, President Trump threatened tariffs on Canadian-made vehicles and auto parts unless Canadian negotiators compromise.
“There is definitely a negative tenor and tone to the discussions with the Canada and the U.S.,” said Daniel Ujczo, an Ohio-based trade lawyer with Dickinson Wright, who specializes in U.S.-Canada border issues. “You add that to an increasingly large list of topics to cover in four and five days, and that’s a recipe for a very challenging situation.”
He added there is a risk talks could collapse.
Tensions between the U.S. and Canada have turned negative, exacerbated by the Trump administration’s decision to place tariffs on Canadian steel and aluminum on national-security grounds. Canada retaliated with tariffs of its own, and prompted Mr. Trump to launch personal attacks against the Canadian leader on Twitter.
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Trade with the U.S. is the lifeblood of the Canadian economy. Roughly 75% of the country’s exports head to the U.S., and Canada is America’s second-largest trading partner, following China.
Differences between the U.S. and Canada on Nafta have simmered for roughly a year, with U.S. officials blaming Canada for a concerted effort to stall negotiations.
Commerce Secretary Wilbur Ross said on Fox News Tuesday morning that Canada needs this trade deal more than the U.S. does. “Overall the key thing is the Canadian economy really can’t survive very well without a deal with the U.S. They are too dependent on us and particularly too dependent on the automotive sector,” he said.
Canadians have largely supported the Liberal government’s approach to the Nafta talks. Polling in July from Toronto-based Pollara indicate 56% of Canadians approve of the Liberal government’s job on Nafta, versus 45% support last year; and another 55% suggested they would accept a revised Nafta on the condition there are moderate or minor concessions to the U.S.
“Canadians are quite clear they don’t want major concessions that concede so much that it has negative impact overall,” said Craig Worden, president of Pollara Strategic Insights.
Write to Paul Vieira at paul.vieira@wsj.com