Canada’s newly elected prime minister is, as to be expected given the turbulent last few months, making his first international trip to America, stopping off in Washington today to meet with President Donald Trump. On Mark Carney’s agenda? “[T]rade pressures and the broader future economic and security relationship between the two sovereign nations.”
As Trump remains hellbent on implementing his wrong-headed policies on tariffs, Carney and other Canadian policymakers would do well to exercise caution as they negotiate with our American neighbours. The president has imposed or threatened to impose tariffs on a wide array of Canadian products, using as a pretext an ever-changing list of perceived harms allegedly suffered by the U.S.
This list includes the fentanyl crisis, border security, digital services taxes, supply management policies, defence spending, softwood lumber, banking, transboundary water management and a host of other irritants. International film production, including Canada’s burgeoning industry, has now even caught the president’s ire.
Equally pressing is the looming “review” of CUSMA, Canada’s free trade agreement with the U.S. and Mexico. After having praised CUSMA only five years ago as being a great deal for the U.S., Trump now asserts that this agreement is terrible for the U.S. and must be renegotiated immediately. Undoubtedly, the dairy and poultry industries will be in his crosshairs.
As the Canadian government continues to respond, it will need to avoid falling into the trap of negotiating “one-offs” with Trump. As his recent actions have confirmed, Trump will repeatedly use tariffs as an economic billy club to extort concessions from Canada without having to make concessions of his own. The long-term outcome for Canada should such behaviour persist will be a seriously diminished place within the North American economy and a new master-vassal relationship with the U.S. There is very little prospect of Trump abandoning his approach to bilateral relations if our government acquiesces to his demands every time tariffs are threatened.
A strategic approach
Carney’s response to such a toxic bilateral environment will require three things. First, we must accept that the president’s modus operandi is to use spurious pretexts and grossly exaggerated pronouncements to intimidate his erstwhile friends and allies in order to secure negotiating outcomes favourable to him. For Trump, bilateral relations are a zero-sum game—he wins and we lose. This should inform our understanding of his motivations and the development of our own negotiating strategies.
Second, our federal and provincial governments must be strategic and targeted in responding to new tariffs from Trump. With an economy more than 10 times the size of Canada’s, we cannot win an asymmetrical trade war with the US. In the lead-up to the U.S. mid-term elections, our best hope is to inflict enough economic and political pain on the most vulnerable industries and regions of their country that the president reconsiders his economic attacks on Canada. Carney must avoid the urge to engage in tit for tat retaliation to ensure he doesn’t exacerbate the damage to Canadian businesses and consumers.
Third, and most importantly, Carney must steadfastly resist the urge to respond to Trump’s tariffs by trying to negotiate away bilateral irritants on a case-by-case basis. The pending CUSMA review is a case in point. Renegotiating now within the very narrow confines of CUSMA leaves Canada with little negotiating capital and will almost certainly result in a one-sided outcome in favour of the Americans.
Rather than acquiescing to American demands on CUSMA, our government needs to guide the talks toward a broader discussion of our engagement across the waterfront of outstanding issues between our two countries. A more expansive negotiation, say a grander bargain, could leverage such things as regulatory reform, critical minerals, energy, defence spending and continental security as bargaining chips to secure an optimal outcome for Canada. And while we’re at it, let’s throw in the languishing discussions on a new softwood lumber agreement. In the process, we may end up undertaking structural reforms that our country should have implemented years ago.
In short, rather than risk an endless parade of demands from Trump, which can never be fully satisfied, the prime minister should seek to consolidate our position in order to counteract the asymmetrical negotiating environment we presently face.
Over the last decade or so, our country has lacked a cogent economic growth strategy and has largely exhausted its fiscal capacity to respond to exogenous shocks from around the world. The president’s ahistorical tariff policies have added to these woes. It is incumbent upon our decision-makers to recognize the grave risks facing our country and neutralize the most dangerous impacts of these policies.
