In a world where global trade is undergoing a seismic shift, Canada finds itself at a crossroads. In a DeepDive essay for The Hub, RBC’s John Stackhouse recently analysed some of these big developments driven by U.S. President Donald Trump’s aggressive trade policies and their implications for Canada.
These changes, which could redefine the global economy by the 2030s, present both challenges and opportunities for Canada, a nation deeply intertwined with the U.S. economy. Here are the five most important takeaways from Stackhouse’s report.
1. The U.S. trade agenda is about security, not just prosperity
The Trump administration’s trade policies are increasingly focused on a broader conception of U.S. interests including national security. A narrow focus on boosting investment and growth has been superseded by a new understanding of geopolitical conflict and rivalry. This shift has led to a closer intertwining of trade and security policies, with the U.S. likely to pull back from global engagements and focus more on its own hemisphere.
For Canada, this means playing a greater role in global trade policing, particularly in areas like shipping lanes and energy security. The U.S. will expect Canada to help stabilize global commerce, even as it prioritizes its own interests. This new imperative could strain Canada’s resources but also offer an opportunity to strengthen its position as a key ally in North American security.
2. The World Trade Organization is losing relevance
The World Trade Organization (WTO), once a cornerstone of global trade, has been significantly weakened by successive U.S. administrations. Trump’s efforts to dismantle the preferential tariff regime established after the Cold War are reshaping global trade dynamics. This reorientation complicates Canada’s ambitions to diversify its exports, as the rules-based trading system that once benefited Canada is now under threat. The U.S. is pushing for a new trade order, and Canada must adapt to this uncertain landscape. The decline of the WTO means that Canada will need to negotiate more bilateral and regional trade agreements to protect its interests.
3. The U.S. dollar’s dominance is a double-edged sword
The U.S. dollar’s role as the global reserve currency has long been a source of economic strength for the U.S., but it also creates trade imbalances. The dollar’s strength makes U.S. exports less competitive and encourages fiscal deficits, as the U.S. relies on cheap borrowing. Stackhouse suggests that a new version of the 1988 Plaza Accord—which helped rebalance global currencies—could be a solution, but it would be difficult to achieve given the dollar’s dominance. Canada, along with other trade partners, may need to help share the costs of maintaining the dollar’s reserve status. This could involve tighter fiscal or monetary policies, which would require careful balancing to avoid stifling economic growth.
4. Tariffs could have severe economic consequences for Canada
While a 25 percent tariff on Canadian exports to the U.S. is unlikely, the potential impact of such a move would be severe. According to RBC Economics, such tariffs could push Canadian unemployment above 8 percent, cut GDP growth in half, and increase consumer prices by 2.5 percent. The auto industry, which relies heavily on cross-border supply chains, would be particularly vulnerable. Even without retaliatory tariffs, U.S. tariffs could drive up costs for Canadian businesses, as many U.S. imports are actually American-made goods that are processed in Canada and re-imported. This would create an inflationary effect, further complicating the Bank of Canada’s ability to manage interest rates.
5. Canada must leverage its resource wealth and diversify trade
Canada’s natural resources—particularly energy, agriculture, and critical minerals—are key to its economic security and its relationship with the U.S. Canada supplies 60 percent of U.S. oil imports, 90 percent of U.S. electricity imports, and 99 percent of U.S. natural gas imports. These resources make Canada indispensable to U.S. energy security. However, Canada must also diversify its trade beyond the U.S., particularly in Asia and Europe, to reduce its reliance on a single market. Investments in infrastructure, regulatory stability, and innovation will be crucial for long-term growth. Additionally, Canada has the opportunity to become a key supplier of critical minerals, which are essential for industries like clean energy, semiconductors, and defence. By expanding its capacity in these sectors, Canada can strengthen its position in global markets.
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Generative AI assisted in the production of this story.
