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Trade war may push Canada closer to its threatening ally
When Canadian defense expert Philippe Lagassé met with American counterparts in Washington this week, he quickly sensed they had not registered that the mood had shifted in Canada.
“There’s still a lot of emphasis on partnership,” he said. “We should be working together. We should be doing some things together.”
But Lagassé, an associate professor at Ottawa’s Carleton University, had to tell them that things had changed. “That’s hard right now because, politically, that’s just become a lot more difficult.”
Canadians were so angered by Donald Trump’s tariffs and annexation threats that they yanked American bourbon from liquor stores and turned up their noses at American produce. The typically staid hockey fans of Ottawa even booed the US national anthem.
Canadians, who are used to thinking of the Americans as friendly neighbors, are suddenly seeing them as a threat to their sovereignty. A poll this week shows 80% of Canadians support using oil as a weapon in the trade dispute, which would be a dramatic escalation. On Monday, Trump called off the planned 25% tariffs after Justin Trudeau agreed to take measures on the border, but the pause is for just 30 days.
Rattled Canadians are suddenly more committed to enhancing their sovereignty by reducing internal trade barriers, diversifying international trade so the country is less dependent on the United States, and beefing up the military.
Long a NATO laggard
It will need a lot of beef. For decades, Canada has sheltered under the coattails of Uncle Sam.
With oceans on both sides, an impassable ice cap to the north and friendly Americans to the south, there was little public support for military spending and lots of support for spending money on social programs. Even tough-talking Conservative Stephen Harper did little to boost defense spending. Canada is a NATO laggard, spending only 1.37% of GDP on defense — the average across NATO members is 2.71% of GDP — something Barack Obama, Joe Biden, and Trump have all complained about. Last year, leaked documents showed that Trudeau told NATO that Canada had no plan to get to 2%, the level all NATO countries have agreed on.
When political circumstances changed, Trudeau laid out a plan to get to 2%, but years of neglect will take time to turn around. Due to recruiting problems, there are only 63,000 people in the Canadian Armed Forces — well below the 71,500 it is supposed to have. Even at full strength, it is tiny compared with the 2 million troops south of the border. To make matters worse, three-quarters of Canadian soldiers are either overweight or obese.
Canada has summoned the will, finally, to spend on defense. Trudeau has promised to reach 2% by 2032. His likely successor, Mark Carney, said Wednesday he would aim for 2030. The defense minister has said we could get there within two years, although quickly rearming would pose logistical challenges.
But it is not clear if Canada's big push will be in partnership with its newly hostile neighbors. After all, if the United States decides to put tariffs on all Canadian exports, driving the country into a deep recession, would Canada want to proceed with the CA$70-billion purchase of 88 F-35A US fighter jets? Or would Ottawa cancel the order and buy fighters from Sweden, which has never threatened annexation? And if Canada’s economy is in free fall, could it afford to buy either?
Pentagon control
And should Canada buy kit from a hostile power? Canada’s military technology is integrated with America’s, so any operations without US approval would be complicated. The F-35 can’t function without its autonomic logistics information system, which is controlled by the Pentagon, which could limit its effectiveness in a showdown with America.
There may be pressure, therefore, to work more closely with other countries — to buy equipment from the Europeans, for example — although the natural inclination of the defense community in Ottawa is to stick with the Americans, whom they see as their friendly big brothers.
“I think there’s going to be a pretty heavy emphasis on the fact that you take Trump at his word, so you buy more American equipment, and you invest more in the US,” says Lagassé. “You try to integrate yourself more deeply into those supply chains, and that’s how you protect yourself. The other side is going to argue, well, now this is too vulnerable. We should try to become less dependent, take a step back.”
Not a lot of choices
But Canadians are limited in their options, says Graeme Thompson, an analyst with Eurasia Group, because at the forefront of military innovation with AI and advanced computing, there are only two real options: China and the US.
“There’s the Chinese ecosystem and there’s the American ecosystem, and basically Canada doesn’t have a choice there. It’s not going to be able to develop its own autonomous tech ecosystem or supply chains. It has to be plugged into the US side of things. There’s a great line, I don’t know who said it, but ‘the US is our best friend, whether we like it or not.’”
Canadians may want their government to do more to assert national sovereignty, but Lagassé doubts that sentiment is strong enough to disrupt the close military cooperation between Canada and the United States.
“The public may want us to do something differently, but … is the public willing to sustain the cost? Is the public’s attention going to be sufficiently focused so that political leaders see gain in pursuing that? Or does it just kind of evaporate once the tariff threat is no longer present?”
Once tempers cool, Canadian politicians will continue to use procurement deals as a way of currying favor with the Americans rather than a way of asserting independence. After all, they are Canada’s best friends, whether they like it or not.
Mexico's President Claudia Sheinbaum holds a press conference in Mexico City, Mexico February 3, 2025.
Trump strikes last-minute tariff deal with Mexico and Canada – but not China
With hours to spare, President Donald Trump hit pause on a North American trade war, reaching agreements with both Mexico and Canada to delay the imposition of 25% tariffs that had businesses and markets sweating.
The deals, brokered after multiple calls with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum, postpone the application of tariffs by 30 days while both countries work to secure their borders with the United States. Mexico agreed to deploy 10,000 troops to curb drug smuggling and illegal immigration, while Canada appointed a fentanyl czar and committed to a Canada-US Joint Strike Force targeting drug trafficking and organized crime.
There was no movement, however, with Beijing. Ten percent tariffs on Chinese imports took effect at 12.01 a.m. on Tuesday, prompting China to hit back with additional tariffs (both countries already had some tariffs in place) on liquefied natural gas, coal, farm machinery, and various other US products. Beijing also imposed new export restrictions and launched an antitrust investigation into Google. Earlier, Beijing said it would challenge the tariffs before the World Trade Organization.
Trump has also warned that tariffs on the EU are coming, prompting UK Prime Minister Keir Starmer to insist that Britain won’t pick sides between the US and the EU, despite his push for closer relations with the continent.
While Mexican and Canadian businesses and consumers breathe a sigh of relief, Trump’s hardball negotiation tactics may negatively impact relations with both countries, particularly Canada, in the longer term. Canadian leaders have said they will actively pursue trade deals with other partners, there has been speculation about Canada joining the EU, and there remains uncertainty about whether the United States remains a trusted ally after Trump forcefully repeated his hope that Canada would become the 51st state – just an hour before his final conversation with Trudeau.
Canada's Prime Minister Justin Trudeau is joined by Finance Minister Dominic LeBlanc, Minister of Foreign Affairs Melanie Joly, and Minister of Public Safety David McGuinty, as he responds to President Donald Trump's orders to impose 25% tariffs on Canadian imports, in Ottawa, Ontario, on Feb. 1, 2025.
Trump ignites trade war. Will there be a legal response?
On Saturday, US President Donald Trump signed an executive order applying 25% tariffs on all Canadian and Mexican imports, excluding Canadian energy, which will be tariffed at 10%. The order, which takes effect on Tuesday, also imposes a 10% tariff on all Chinese imports. Trump threatened to escalate tariffs further if any of the countries retaliated, which Mexico and Canada have already done.
Canada will apply 25% tariffs on $155 billion of American goods, from orange juice to appliances to car parts, phased in over three weeks. Ottawa will also consider nontariff measures relating to energy and procurement, and provincial liquor monopolies areremoving American alcohol from their shelves. Mexican President Claudia Sheinbaum also retaliated with “tariff and non-tariff measures in defense of Mexico's interests,” without specifying the rate.
China has responded with plans to implement “countermeasures” and called Trump’s tariffs a “serious violation” of international trade rules, which it will contest before the World Trade Organization.
On what basis did Trump issue the order? Trump expanded the scope of the national emergency he declared on Jan. 20 at the southern border of the United States, due to “the sustained influx of illicit opioids and other drugs” that is “endangering lives and putting a severe strain on our healthcare system, public services, and communities.” It now covers both Canada and China, which he accuses of not doing enough to combat fentanyl production, money laundering, drug gangs, and transnational crime.
Could legal challenges derail Trump’s tariffs? To declare this emergency, Trump invoked the US International Emergency Economic Powers Act, or IEEPA, the National Emergencies Act, or NEA, as well as sections 604 of the Trade Act of 1974 and section 301 of Title 3, United States Code.
But the IEEPA hasnever been used to justify tariffs. It allows for the imposition of sanctions, suchas those imposed by the Biden administration against Russia, which can be invoked immediately. Trump chose the IEEPA because it allowed him to bypass the lengthy investigations and consultations required by other trade laws he invoked during his first term.
It also allows him to claim the tariffs are legal under World Trade Organization rules, as the General Agreement on Tariffs and Trade’s Article XXI designates a national security exception. President Richard Nixon similarly invoked the Trading with the Enemy Act to impose 10% tariffs after the US quit the gold standard in 1971 to stave off a balance-of-payments crisis.
This may not bode well for a challenge by China before the WTO. But if American courts rule against Trump on his use of the IEEPA, his emergency declaration could be considered invalid, opening the door to penalties under global trade rules.
Finally, there’s the USMCA. A Congressional analysis found that tariffs would violate the tripartite treaty, but with Trump already threatening to withdraw from the agreement, it would appear he does not care. Trump said on Truth Social on Sunday that Americans will feel “SOME PAIN” but that “IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”
We’ll be watching to see who might challenge the US president in court – and whether they succeed. Meanwhile, the markets were taking a hit as of early Monday with stock futures lower and the dollar and oil rising.
Former Bank of Canada and Bank of England Governor Mark Carney announcing his bid to replace Prime Minister Justin Trudeau as leader of the ruling Liberal Party, in Edmonton, Alberta, Canada, on Jan. 16, 2025.
Carney, Trump, and Trudeau shape Canadian political shift
Is federal public opinion changing in Canada? Several recent polls show a resurgence for the Liberal Party, paralleled by a decline in Conservative support. For the past year, the Conservatives have led with double-digit margins, most recently as high as 25% just a month ago. But this advantage has steadily diminished, with the latest EKOS survey showing the gap narrowing to a mere three points as of late January.
In addition to EKOS, Leger’s January 2025 survey shows the Conservative lead shrinking to 18 points, with the Liberals gaining four percentage points since the last measurement. Similarly, Abacus Data reports a decrease in the Conservative lead, now standing at 21 points, reflecting a three-point drop for the Conservatives and a two-point rise for the Liberals. An aggregation of public opinion surveys still shows the Conservatives forming a majority government, however, but with slightly fewer seats than last month.
What’s behind the shift? Both Trudeau and Trump. Polls started moving after unpopular Prime Minister Justin Trudeau resigned in early January, and after President Donald Trump took office and threatened to impose 25% tariffs on Canadians and make Canada the 51st state. Additionally, the entry of former Bank of Canada and Bank of England Governor Mark Carney into the Liberal leadership race has upped the party’s appeal: Polls show he is the best positioned of the candidates to expand the party’s voter pool, as Canadians look for a “Captain Canada” to stand up for their country and cure its economic malaise.
Canada's New Democratic Party leader Jagmeet Singh takes part in a press conference before Question Period in the House of Commons on Parliament Hill in Ottawa, Ontario, on Dec. 16, 2024.
A (brief) spring election freeze? Not so fast
Will they or won’t they? It’s been a lot, watching and waiting to see if Canada will face an early election this spring. When Justin Trudeau announced in January that he’d resign in March, launching a leadership race to replace him as Liberal Party leader and prime minister, a spring election seemed certain. Now, maybe not.
The country isn’t due for a vote until October of this year, but the Conservative Party, way up in the polls, is begging for one. And, until recently, it looked like they’d have the backing of the New Democratic Party.
NDP leader Jagmeet Singh has been saying his party would defeat the government and force an election “at the earliest opportunity,” no matter who is leading it. But then Singh said the New Democrats could work with the Liberals to pass legislation to help individuals and businesses hurt by Donald Trump’s impending tariffs.
“I will be voting against the government at the earliest opportunity,” he said Tuesday, before contradicting himself. “If the Liberals are serious, though, about a plan to support workers, call the opposition leaders together. Discuss that plan with us.”
It was confusing.
On Thursday, he clarified himself, saying he thinks Trudeau should recall the legislature immediately to pass a support package for Canadians who’ll suffer from Trump tariffs. Then, in March, the NDP will vote down the government alongside the Conservatives and send the country into an election.
He may not get the chance. Mark Carney hinted that should he win, he might call the election early himself. But if Trump does indeed press ahead with tariffs on Feb. 1, Trudeau may see it fitting to bring back the legislature, however briefly, to pass an aid package in the dying days of his government.The Trump circus comes to Canada
Donald Trump hadn’t even settled into office before his presidency dominated politics — not only in the United States but also in Canada. His threat of across-the-board tariffs of 25% and musings about conquering the country with which the US shares the world’s longest undefended border startled politicians north of the 49th parallel — as well as journalists, industry leaders, and just about everyone else paying attention.
Trump’s tariffs are still set to kick in on Saturday, Feb. 1, and last week, aboard Air Force One, the president revisited his idea of Canada becoming part of the republic, calling it “a country that should be a state.” Trump claimed that if Canada were to join the US, it would have better health care, lower taxes, and “no military problems.”
The scale at which Trump’s agenda and musings have reshaped politics in Canada is, as the president himself might put it, huge. The president has turned the Canadian political landscape into a circus, affecting everything from the Liberal leadership race and the campaigns for the soon-expected federal election to the just-launched Ontario election and the trajectory of public policy.
“Given that managing relations with the US and keeping the border open to the free flow of goods are Canada’s primary national interests,” says Graeme Thompson, a senior analyst with Eurasia Group’s global macro-geopolitics practice, “there’s little doubt that the specter of Trump is going to haunt Canadian politics — both federal and provincial — for the foreseeable future.”
“Upcoming elections in Ontario as well as federally will, in all likelihood, be framed in terms of Canada’s policy response to the Trump administration,” he adds, “including potential tariffs (which, if they don’t arrive on February 1, are almost inevitable at some point later this year or next).”
Indeed, the Trump circus is already underway.
Everyone is running against Trump
The governing Liberal Party is holding a leadership race to replace outgoing Prime Minister Justin Trudeau, and the winner will become prime minister in March. That race is already, first and foremost, about Trump. The former deputy prime minister and finance minister Chrystia Freeland is running — and promising a summit of nations targeted by Trump, including Canada, the European Union, Mexico, Denmark, and Panama if she wins. The goal of the summit would be to “coordinate a joint response to challenges to our sovereignty and our economies,” she says. Freeland also promises dollar-for-dollar tariffs to match Trump’s duties, casting herself as the tough-on-Trump candidate.
Freeland’s chief rival, former Bank of Canada and Bank of England governor Mark Carney, is setting himself in the same anti-Trump crusader mold, but with a side of seasoned crisis manager to boot. Carney, who is also running on retaliatory tariffs, says the Trump tariffs would “demand the most serious trade response in our history.” He’s promising to stand up Canada against threats from Trump — a requirement now for any politician in the country — and pitching himself as the person best suited to negotiate with the infamously mercurial Trump.
Whoever succeeds Trudeau will continue to campaign for the federal election, where they’ll take on Conservative Party leader Pierre Poilievre, the odds-on favorite to win that election. But the federal contest will almost certainly be about Trump and who’s best suited to lead the country against him. A recent poll found nearly 80% of Canadians want an immediate election so that whichever party wins will have public support for hitting back against Trump’s tariff threat, while 82% support retaliatory duties.
Conservatives caught in an awkward position
The anti-Trump fervor is leaving Conservatives who once supported Trump in an awkward position, including Ontario Premier Doug Ford, who called an early election this week in Canada’s most populous province. With the election call, Ford cited Trump’s threats and the need to “outlive and outlast” his administration. Ford recently received praise for sporting a “Canada is not for sale” hat, and his snap election — with his party campaigning under the slogan “Protect Ontario” — is focused on securing a “strong mandate” to deal with tariff fallout, which could cost the province over 450,000 jobs.
Ford, who once said his support of Trump was “unwavering,” is promising to retaliate against American tariffs, including a threat to halt stateside energy exports worth billions. He’s been leading the anti-Trump charge among Canada’s premiers, and his former praise for the president is now a distant memory, making him a bit of a political contortionist.
He’s not alone.
Poilievre, who’s been cast as pro-Trump and Trumpian himself, is talking of a “Canada first” policy and promising to “hit hard” against the US if Trump goes ahead with tariffs. Poilievre recently declared that Canada can “buy elsewhere to maximize the impact on Americans and minimize the impact on Canadians,” as he argued for the country’s need to build self-reliance. Whatever ideological camaraderie Poilievre might share with Trump, the national interest comes first in politics.
Trump dominates Canadian policymaking too
The Trump administration is already shaping Canadian policy on trade, defense, immigration and the border, climate change, energy, and more, initiating a scramble to adapt quickly. Before Trump took office, Canada was working to change its border policy, and the Trudeau government quickly moved to adopt new border security measures, including drones and helicopters in the face of Trump’s tariff threats. All this comes as Canada expects a sharp rise in the number of asylum-seekers in response to Trump’s immigration crackdown, including an end to birthright citizenship, mass deportations, and suspension of the US refugee assistance program.
There’s now talk of the vulnerability of Canada’s north-south energy corridors, which have become the only show in town. Poilievre is raising the need for Canada to be able to move more of its oil and gas east to west — perhaps using the once-proposed Energy East pipeline, which never came to fruition. That would amount to a new trade and energy strategy for the country — and represent a major shift.
As Trump moves to abandon US initiatives on climate change, such as participating in the Paris Climate Accord, ending new wind power development, exploiting oil and gas deposits in protected areas, and declaring war on energy regulations, industry standards may adjust away from more climate-friendly expectations, thereby impacting Canada’s standards as well.
How long will Canada rally around the flag?
Canada’s Trump focus — and anxiety — is also producing a rally-around-the-flag effect, with a growing sense of patriotism and rejection of all that 51st-state talk. Canadians are gearing up for tough months and years ahead, with governments in Ottawa and around the country already working on relief programs to mitigate the potential damage caused by Trump’s tariffs.
Trump’s threats have even managed to mostly unite the country’s fractious premiers and prime minister in a more or less “Team Canada” approach, though Alberta Premier Danielle Smithand Saskatchewan Premier Scott Moe are holdouts who oppose retaliatory tariffs. Still, that leaves 10 of 13 provinces and territories working together, which is a good rate for Canada.
But with roughly 80% of Canadian trade going to the US, the strong cultural and personal connections, a shared border, and deeply integrated defense policies, Canada will be hit hard by any fight with its neighbor — especially a prolonged one, which this could be.
Canada stands — like the US itself — to become exhausted by the endless focus on Trump and guessing at what his latest plans signify. In short, the Trump circus is just getting started, which means Canadian politicians must get used to walking the tightrope.
Can Liberals get a boost?
Before Trump makes a serious move on tariffs, Canadian Liberals are to choose a new leader, who will face Conservative leader Pierre Poilievre in an election soon after. At that point, Canadians will decide who should manage the country – and its difficult new relationship with its southern neighbor.
All the polls show Poilievre with a decisive lead, but issue polling is giving the Liberals faint hope that they might turn things around.
Prime Minister Justin Trudeausaid Tuesday that Canada would respond with a “very strong” dollar-for-dollar retaliatory package. A poll from Ipsos for Global News finds that 82% of Canadians agree that Canada should retaliate. Conservative leader Pierre Poilievrehas said Canada should do so, but his position is more delicate, since about half of Canadian Conservatives like Trump.
He is demanding that Trudeau recall Parliament so that MPs can debate tariffs and other elements of the response. Trudeau won’t do that because Poilievre would move a non-confidence vote, which could send Canadians to the polls in the middle of a Liberal leadership race.
The same poll that showed support for retaliatory tariffs found that three-quarters of Canadians want an immediate election, but they will have to wait. Voters in Ontario will likely get the chance to express their views sooner as Premier Doug Ford is expected to call an election there as early as next week. He hopes to capitalize on his Captain Canada image and lock down votes before the federal election scrambles electoral preferences.An Amazon warehouse in the Lachine neighborhood of Montreal, Quebec, Canada, on Jan. 22, 2025.
Hard Numbers: Amazon to close unionized Canadian facility, Pentagon sends troops to border, Quebec’s new AI infrastructure fund, Freeland abandons capital gains tax
1,700: On Wednesday, Amazon announced it will close all Quebec facilities in the next two months, cutting over 1,700 jobs and outsourcing deliveries to smaller contractors. The company claims the decision is for cost savings, not related to the recent unionization at its Laval warehouse — Quebec's only unionized Amazon workforce in Canada. The CSN union federation denounced the closure as nonsensical. Workers at the Laval facility, who were seeking a $26 per hour wage, received news of the closure through an email to their union lawyer.
1,500: The Pentagon is sending 1,500 troops to secure the southern US border. The move comes two days after Donald Trump signed a series of executive orders – including one declaring a national emergency – to increase military presence at the border.
1 billion: Quebec-based Novacap Investments has successfully closed a $1 billion digital infrastructure fund, predicting that the rapid growth in AI will keep the demand for digital infrastructure high. To put this sum in perspective: Canada only raised $1.56 billion in private equity funds in the first 11 months of last year. The fund exceeded its initial $750 million target despite challenging market conditions, and it aims to invest around $100 million each in 10 regional companies providing connectivity and data services.
19 billion: Despite previously championing the tax increase as finance minister, Chrystia Freeland plans to abandon the Canadian government's capital gains tax hike policy if she wins the Liberal Party leadership race to replace Justin Trudeau. Freeland's shift against the tax hike – the policy would have generated CA$19 billion over five years – comes in response to Donald Trump’s policies and the risk of investment flowing to the US.