The late-night letter from President Donald Trump to Prime Minister Mark Carney, threatening 35 percent tariffs on Canadian goods by August 1, was both predictable and perplexing.
It was predictable because this administration has long wielded tariffs as a cudgel in trade negotiations. And it was perplexing because it’s hard to make sense of the motivation behind this latest tariff threat and its intended audience, particularly in light of recent reports that a bilateral deal is close.
For Canadians, the letter’s timing feels like déjà vu. Just last week, Ottawa capitulated to U.S. demands to scrap the Digital Services Tax (DST), a move framed as a goodwill gesture to resume negotiations. Now, with Trump’s latest salvo—relitigating grievances from fentanyl exports to dairy tariffs—the question isn’t just whether Canada can avoid economic hardship, but whether it’s negotiating with a partner who views compromise as weakness and intends to use its asymmetry to secure major policy concessions.
The 35 percent figure is jarring, but context matters. As has been reported, the tariffs would apply only to goods not compliant with the USMCA, which is a small and declining share of Canadian exports into the U.S. The vast majority will continue to enter the American market free from tariffs.
Maybe then the tariff threat is mostly for show. The purpose could be political: it positions Trump as a strong man defending American interests among his supporters. He gets to talk about imposing high tariffs without causing much economic harm.
Maybe the message is for Canadian exporters. It’s notable, for instance, that Trump’s letter stipulates that the best way for them to avoid tariffs is to shift their production to the U.S. His line—“there’ll be no tariff if Canada or companies within your country decide to build or manufacture product within the U.S.”—reveals this may be as much about reindustrialization as revenue. If so, the dangling of tariffs may be an incentive for capital flight.
But maybe—and most likely—the audience is the Carney government itself. The threat of a new round of tariffs (even if they’re limited for now) is about extracting more concessions from Canada in the negotiations. Trump has already gotten Carney to give up the DST simply to resume talks. The threat of more tariffs may be about getting something bigger.
His letter zeroes in on supply management and its harms to swing-state Wisconsin farmers. Ottawa has long treated supply management as sacrosanct, even enshrining its protection in law. But as U.S. demands intensify, the Carney government could face an unenviable choice: defend a system that benefits a small fraction of farmers at the expense of broader trade stability, or abandon it and risk political blowback.
The larger concern, though, is what Trump might demand next. Behind closed doors, could U.S. negotiators be targeting Quebec’s language laws, banking regulations, or even Canada’s tariff policies towards other countries?
Brazil’s recent defiance in the face of its own tariffs offers a cautionary lesson: sovereignty has a price. President Luiz Inácio Lula da Silva’s refusal to drop Jair Bolsonaro’s inquiry, despite punitive measures, underscores that resistance can be a strategic choice. But Canada is not Brazil. Our economy is deeply integrated with the U.S., and the stakes are much higher. The Carney government’s response—delaying its July 21 proposal deadline—understandably suggests a preference for de-escalation. Yet this risks repeating the DST playbook: “If we just keep rolling over, we reinforce the perception that Canada will fold under pressure.”
Trump’s erraticism complicates matters further. His administration oscillates between disciplined actions (like the joint strike with Israel on Iran) and chaotic impulses (like the Brazil tariffs). This duality tempts foreign leaders like Carney to believe they can “manage” Trump through reason or rapport. History suggests otherwise. From John Kelly to Elon Musk, those who assumed they could temper his whims emerged bruised. David Frum’s recent warning on The Hub’s podcast bears repeating: Trump isn’t a rational actor in the conventional sense. He values toughness and spectacle. Canada’s challenge is to calibrate a response that avoids provocation without telegraphing desperation.
The coming weeks will test whether Ottawa can navigate this minefield. Three principles should guide its approach: (1) clarity over concessions—before ceding ground, demand explicit terms; (2) domestic unity—any retreat on protected sectors must be framed as part of a broader competitiveness strategy, not a unilateral surrender; and (3) avoiding at all costs the unnecessary economic damage of putting in place retaliatory tariffs no matter how politically attractive they might be.
The alternative—a perpetual cycle of threats, concessions, more tariffs and counter tariffs—is unsustainable. As we’ve argued, “Everyone who’s assumed they could control Trump’s urges has come out worse for it.” Canada’s task is to break that pattern, and show real toughness if the need arises.
Generative AI assisted in the creation of this article.
