After several series of feints and dodges, of will-I-won’t-I threats and plenty of territorial trolling thrown in for good measure, President Donald Trump took a break from upending America’s relationship with Ukraine and Europe to finally make good on his promised tariffs targeting Canada and Mexico. It is a historic moment that should be understood as the end of NAFTA—if not in law then certainly in practice.
Canadian policymakers will need to plan accordingly.
The past several months have been marked by confusion, misdirection, and a lot of wasted time since Trump first threatened his trade war in late November. As tariffs finally come into effect, there’s a sense that Canada’s response is only being conceived now in real-time.
A major source of the lag has been a mistaken interpretation of the Trump administration’s motivations. The whole Team Canada campaign involving Prime Minister Trudeau, Ontario Premier Doug Ford, and various other business, civic, and political leaders took for granted that Trump’s tariff threat was best understood as a negotiating tactic. His intention wasn’t ultimately to impose tariffs but to induce concessions out of Canada on defence, security, and trade. This was just the latest chapter in The Art of the Deal.
We therefore spent several months in a conversation with ourselves about what proposals we could put on the table to the president to effectively buy him off. Everyone seemingly had ideas. A lot of them like boosting defence spending to 2 percent of GDP or reforming Canada’s asylum policy or liberalizing our supply-managed sectors were good ideas. There was just one problem: Trump didn’t really care about any of this stuff. He didn’t even bother to take our calls.
His real motivation, as we wrote days after he first threatened broad-based tariffs, was two-fold: first, to generate tariff revenues to offset tax cuts in the short term and, second, to bring an end to borderless trade on the continent over the longer term. Trump’s goal in short is to effectively abrogate the NAFTA in the name of solving for his own budget gap and boosting production in the United States.
As we outlined:
The Trump-Vance policy bet is that a 25-percent tariff access to the U.S. market will represent such a high economic cost to access the U.S. market that companies will be prepared to absorb the short-term disruption of moving product mandates, production lines, and even entire facilities from Canada and Mexico to the United States.
Our working hypothesis drew from our own reading and following of the New Right movement that Trump represented. Trump-adjacent intellectuals like Oren Cass and Stephen Miran were building a case for tariffs as a means to restructure the global trading system and rebuild America’s manufacturing capacity. We understood the ideas and impulses that were animating the economic thinkers who were influential with Trump and his team.
We also had closely followed the so-called political realignment in the U.S. and elsewhere in the Anglo-American world and the extent to which the Trump administration would be determined to deliver for its increasingly working-class base.
As we wrote:
We only need to listen to Trump, Vance, and others around them to understand that Make America Great Again isn’t just a slogan. It reflects a conception of the economy rooted in production and the interests of the working-class men who brought them back to power.
It seems clear in hindsight that our hypothesis didn’t have influence over the Trudeau government and most others commenting on the impending trade dispute. It’s also clear however that we were broadly right. Notwithstanding the various justifications put forward by Trump and his administration, the principal goal of the tariffs is now abundantly clear: pull production out of Canada and Mexico into the U.S.
We don’t say that gleefully. We much rather prefer that subsequent events had proven us wrong. But the failure of the Trudeau government and others to reckon with this alternative scenario has held us back. It has precluded the sort of debate that we ought to have had. We’re only now scrambling to confront an economic landscape in which American tariffs may be the new norm.
Assuming we’re right, the proper policy response doesn’t begin and end with retaliatory tariffs. It must prepare for a post-NAFTA world. This has various implications for Canadian competitiveness, continental supply chains, and the future of Canada-U.S. relations that exceed our word count here.
But the key point is that Canadian policymakers must reorient their understanding of the problem facing the country. We’re not stuck in a Trumpian negotiation. We’re experiencing a paradigmatic moment for North American integration. Market forces will no longer diktat the distribution of production across the continent. Politics and policy will regrettably play a greater role.
Canadian policymakers must catch up and conceive of a vision and agenda to strengthen our cost competitiveness and the case for Canada. We’re living in a new, fast-evolving environment and we don’t have much time to figure it out.
