Two years ago the idea of a trade war between Canada and the United States would have seemed absurd. Canada was our closest ally, a nation whose soldiers have fought and died alongside Americans in many wars, up to and including Afghanistan. Most of us speak more or less the same language. And we’ve had free trade agreements with Canada since 1988, with the most recent version signed by none other than Donald Trump.
But days after taking office, Trump II imposed steep tariffs on Canadian goods. His supposed economic rationale was nonsensical, and I immediately argued that it was a “dominance display”. Canada is a relatively small economy that relies heavily on selling to the U.S. market. So Trump believed that he could make an example of Canada, forcing it to grovel and even possibly bullying it into becoming the 51st state.
Fortunately, it didn’t work, as a provoked Canada reacted with defiance. Among other things, most Canadian provinces have banned sales of U.S. alcohol, a serious blow to U.S. businesses. Before Trump began his bullying, Canada’s Conservatives were generally considered to be a shoo-in to win the April 2025 election. But the perception that the Conservatives were Trump-friendly led to a stunning upset that made Liberal leader Mark Carney Prime Minister:
Carney currently has 60 percent approval and 31 percent disapproval — almost exactly the opposite of Trump’s numbers.
Yet a bully refuses to learn that his actions are counterproductive and instead doubles down. So Trump persisted, most recently by imposing steep new tariffs on Canadian exports, invoking a never-before-used section of the 1930 Smoot-Hawley tariff act as legal justification. In an effort to head these new tariffs off, Canada entered negotiations with the United States, talks that for a while seemed on track to ramp down the tensions. But on Friday Canadian negotiators walked out — and the U.S.-Canada trade war is now on.
Why did the talks break down? According to U.S. officials, the Canadians made additional last-minute demands, although they offered no specifics on what these demands were. According to the Canadians, it was the Americans who suddenly changed the terms. According to the Toronto Star, Carney
was faced with a trade agreement that was suddenly transformed into an attack on Canadian sovereignty, an attempted psychological annexation that could have turned Canada into an American client state, a sort of North American Belarus.
Does anyone seriously doubt that Canada, not the Trump administration, is telling the truth?
Anyway, the trade war is now on. Who will win it?
On the face of it, the opponents — I still have to rub my eyes at the idea of Canada as an enemy — appear extremely unevenly matched. The U.S. economy is a dozen times larger than Canada’s. We buy three-quarters of their exports, while they buy only about a sixth of ours. Surely they must have much more than we do to lose from trade conflict.
Yet one clear lesson from a year and a half of Trumpian trade war is that when trade conflicts become extreme, access to crucial imports is more important than the ability to export to another country’s markets. In the case of Trump’s tariffs on China, they have been little more than an inconvenience to the Chinese economy. But China’s threat to cut off exports of rare earths is an existential threat to Western technology industries.
And the U.S. economy is far more dependent on Canadian goods than most Americans realize…..
Leave a Reply
You must be logged in to post a comment.