Canada Vote Tests Trump’s Trade Theory

By Greg Ip

President Trump thinks trade wars are easy to win for one simple reason: Other countries depend more on the U.S. than vice versa and will therefore give the U.S. almost anything to preserve market access.

Canada’s voters may have just poked a hole in that theory. They returned Liberals to power under a new prime minister, Mark Carney, who promises, far from bending to Trump, to carve out a more independent path altogether from the U.S.

It’s a potentially costly and arduous path, but one Canadians appear willing to accept as the price of sovereignty.

Trade wars, like military wars, seldom go as planned because the other side gets a say. Trump may be right that the U.S. holds all the cards— if economic costs and benefits were all that mattered. But other countries may prioritize national sovereignty, security or politics, and the result can be economic fragmentation that leaves everyone— the U.S. and trading partners—worse off.

Certainly, Canada has more to lose than almost any place from Trump’s tariffs. No country has bet so completely on integration with the U.S., from a bilateral free trade pact in the 1980s to the North American Free Trade Agreement and the U.S.-Mexico-Canada Agreement.

The U.S. has benefited from this arrangement, also. While it runs a trade deficit in goods with Canada, it exports more to Canada than any other single country and runs a large surplus in services. Canada is a huge market for American companies and brands. It is a close security partner through numerous treaties and bilateral arrangements.

Canada was thus shocked when Trump hit it, and Mexico, with a 25% tariff. (Trump later exempted USMCA-compliant goods.) Canadians have since concluded Trump has an ulterior motive: annexation. “Canada should become our Cherished 51st State. Much lower taxes, and far better military protection for the people of Canada—AND NO TARIFFS!” he wrote on social media in early February.

Suddenly, the trade war had become existential. “President Trump is trying to break us so that America can own us,” Carney said during the campaign.

That countries will tolerate economic hardship for the sake of their sovereignty is self-evident. Ukraine has expended untold blood and treasure to remain free of Russia.

American sovereignty is central to Trump’s own worldview; he has warned of economic “disturbance” as he pursues “liberation” through tariffs. Yet he doesn’t seem to appreciate why it would matter just as much to any other country.

His view of what makes a nation state is relatively narrow, revolving primarily around military power and money. Because Canadians pay higher taxes and spend less on defense than Americans, Trump claims Canadians would plainly be better off as Americans.

Truth be told, as recently as January, Canada’s election might have been about taxes and other pocketbook issues. Had it stayed that way, Monday’s election would have turned out differently.

Like incumbents across the West, then-Prime Minister Justin Trudeau had seen his popularity plummet because of inflation, scarce and costly housing, and high, un-controlled immigration. Pierre Poilievre, leader of the Conservatives, counted on riding discontent to power.

Then Trudeau resigned and Trump started his trade war, and Canadians’ priorities changed.

Poilievre was as committed as Carney to fighting Trump’s tariffs. But in their platforms and campaigns the men clearly had different approaches. Poilievre continued to emphasize tax cuts, pledging more than double Carney’s amount. It was a platform for a different era.

By contrast, Carney returned repeatedly to the threat of Trump and tariffs. His platform promised to expand internal trade and non-U.S. markets with a “Trade Diversification Corridors Fund” to invest in ports, railways, airports, and highways.

Carney’s hard part comes now. He has pledged to begin negotiations with Trump on a new economic and security deal. He lacks a parliamentary majority. If Trump chooses to pursue annexation by further punishing Canada, that could foster internal divisions.

Canada’s position will also be affected by U.S. negotiations with other countries.

Thus far Canada stands almost alone in having retaliated for Trump’s tariffs. The more concessions Trump wrings from them, the harder a line he is likely to take with Canada.

The main exception is China, which retaliated fiercely with tariffs of its own and non-tariff measures.

Yet as with Canada, China’s response to Trump’s tariffs reflects more than strictly economic considerations. It is preparing for a more decisive economic decoupling by strengthening ties with other countries, preparing its people for pain with Mao Zedong slogans from the 1950s and accelerating efforts to wean itself off western technology.

From the U.S. point of view, China and Canada are opposites: one is a gigantic, authoritarian, geopolitical adversary with little commitment to free markets and a massive trade surplus, the other a small, democratic ally with open markets and almost balanced trade. But in their own ways, both are approaching Trump with the assumption that far more than money is at stake.