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9:48 am, September 14th, 2026 - 5 comments
Categories: Donald Trump, Free Trade, International, trade, us politics -
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We are witnessing a full-scale trade war between Canada and the United States and there’s every sign it will get much, much worse.
Earlier this week Prime Minister Mark Carney delivered his address to the nation from inside a prefabricated housing factory, using the industrial setting to highlight the importance of domestic manufacturing. He warned citizens that trade retaliation would bring short-term economic pain, but insisted that submitting to the USA demands would be far worse.
Seated on the factory floor, Carney stated, “There’s always a cost to action. But it doesn’t come close to the cost of standing still. This is about who we are as Canadians.”
Canada is not used to being led by a highly centralising figure like Prime Minister Carney. It’s always had powerful regional leaders, and Canada is not like the USA a rigid, monolithic nation-state with massive federal entities, and states that rely heavily on centralised budgets like defence. Canada is a fluid, decentralised model based on a history of constant compromise and shifting cooperation between diverse groups. It has deliberately chosen the softer, European model of cohesive social democracy based on high diversity, characterised by:
And with that a framework of constitutional acceptance as a core part of Canadian character
So if Canada bends to the USA, you can guarantee that the Canadian model of social democratic cohesion would in time be the loser as Canada became essentially a proper USA client state.
Canada has also evolved economically to rely substantially on its southern neighbour the United States of America. It is unique in its vulnerability among advanced Western democracies, with roughly 75 percent of all Canadian exports heading south of the border.
Trade makes up about two-thirds of Canada’s total Gross Domestic Product (GDP). By contrast, trade makes up only about one-quarter of the total USA GDP.
Absent the shooting, Canada is more vulnerable to the USA than the Ukraine is to Russia.
Prime Minister Carney’s speech casts a much more militant tone than this inherent vulnerability, proposing that Canada was borne from crisis and conflict and has made its way in the world its own way. Well I guess he has to.
Right now both Canada and the USA are going through a series of escalations of what services are going to be included as weapons in this trade war. There is no reason to believe either of them will blink, and every reason to believe that the economic damage of this will radiate well beyond this binary star conflict.
The levers that are not yet in play are:
Petroleum. The USA imports roughly 4 million barrels of crude oil per day from Canada, accounting for about 60% of total US crude imports. With oil price per barrel rapidly going over US$100 and global supplies shortening everywhere, the USA has a real vulnerability to Canada.
Potash. Canada provides over 80% of USA potash imports, which is an essential agricultural fertiliser with few domestic or alternative substitutes. So far potash is carved out of retaliatory tariffs, because it would cause food prices to skyrocket.
Electricity. Canada supplies more than 80% of USA electricity imports, heavily supporting northeastern and midwestern states (New York, Michigan, and New England) via integrated cross-power transmission. This vulnerability isn’t as big as the petroleum and potash risks, but it is still way up there when winter demand is right around the corner.
Defence production. Their defence production sharing agreement has been around since 1959, the defence development agreement since 1963, the National Technology and industrial Base Network since 1993, and pretty deep integration all round for over 60 years. We are seeing the seismic shifts in this area with Canada’s defence aircraft purchases turning towards Saab, whole military procurement 70% towards Canadian suppliers, a lot more integration with EU security development than USA, and a rapid decrease in reliance in USA suppliers all round.
Prime Minister Carney is definitely the person for the job, but boy does Canada need him now.
We don’t know where this will end other than badly.
Canada has a lot more to lose, and with the social democratic and decentralised model of governance also at stake, the world itself too has a lot to lose.
Canada is certainly facing a nasty economic and security dilemma. But overcooking that dilemma does both Canada, and ordinary Canadians almost as much of a disservice as underplaying it.
There is little doubt that a sustained trade war can inflict serious damage on an economy which has benefited enormously from decades of easy access to the American market. Canada has allowed a very large share of its trade, supply chains and industrial structure to become oriented around the United States because, for most of modern history, that was a perfectly rational thing to do.
There is probably a useful lesson there for any smaller country tempted to over-index on a single major trading partner. Cough.
But exposure is not the same thing as helplessness.
If I were designing a country specifically to survive a forced strategic pivot away from its dominant trading partner, Canada would be fairly close to the model.
It has strong institutions capable of maintaining long-term policy. It has a highly educated population, deep capital markets, enormous natural-resource wealth, substantial agricultural production, advanced industry, two-ocean access, and existing trade and diplomatic relationships across Europe and the Indo-Pacific.
It also has a political system which, notwithstanding real regional disagreements (Alberta very much included) still contains a broad commitment to protecting Canadian sovereignty, institutions and social arrangements from external pressure.
And, rather fortunately, it currently has a Prime Minister whose background is unusually well matched to the problem. Mark Carney understands international finance, central banking and economic adjustment, and appears capable of explaining to Canadians why reducing strategic dependence may involve accepting some short-term costs.
None of that makes diversification painless.
The United States is next door, enormous, rich and already tied deeply into Canadian supply chains. Replacing that relationship wholesale would be immensely expensive and, more importantly, unnecessary.
Because this is where some of the more apocalyptic commentary gets ahead of itself.
We do not know that the present state of American politics is permanent.
It is entirely possible that Democrats regain control of at least one chamber of Congress, win the presidency in 2028, and spend the following years trying to rebuild many of the alliances and trading relationships damaged in the meantime.
Canada should not base its strategy on that outcome. But nor should it assume that American hostility is now an immutable feature of the international system.
The lesson is subtler.
Canada has discovered that the political risk attached to extreme economic dependence on the United States is no longer negligible.
That alone is enough to justify diversification.
The sensible response is therefore not divorce, but optionality.
Use the present crisis to deepen economic links with Europe, Britain, India, Japan and, where it is useful, China. Build more export infrastructure. Expand domestic defence and industrial capacity. Reduce the number of areas in which Canadian prosperity depends on an uninterrupted assumption of American goodwill.
Then, if relations with Washington normalise in a few years, excellent.
Canada still gets the enormous neighbouring market. It just gets it from a position of somewhat greater resilience.
That is a much stronger strategic outcome than either pretending nothing has changed or declaring that the United States is irretrievably broken.
The current crisis is serious enough without making it the end of the world.
One would hope that NZ learned that lesson after Britain entered the Common market in the 70s.
Apparently not lol
Carney is the sort of leader to inspire a nation – as unlike our own wet blanket as night is to day!
"War without shooting" Although I wonder who Mark Carney might think Canada will need those "millions of drones in the next two years" for…
https://www.msn.com/en-ca/news/other/carney-says-canada-will-need-millions-of-drones-promises-closer-work-with-ukraine/ar-AA2bWqDf