For the past decades, the Canada-U.S. border has been one of the most stable and integrated bilateral relationships in the world. Geography, shared democratic traditions, deep cultural connections, and longstanding and important cross-border trade render it impossible to sever either side’s economic fate from the other. But the most recent spat over tariffs suggests this is one thing ready to get worse.
Canada’s response of retaliating against the new tariffs, ‘matching dollar for dollar’ Ottawa’s response to Washington, is a clear sign of the level of seriousness in the current dispute, Canadian Prime Minister Mark Carney said. This came after several days of unsuccessful settlement negotiations between the two countries on an agreement. This was due to U.S. President Donald Trump’s tariffs of 50 percent on approximately $20 billion of Canadian imports, which equated to about 5.5 percent of Canada’s exports. It’s a new step in a row of escalations in a trade dispute that has often made the normally stable economic relationship between the two neighbours unpredictable.
This conflict is not one over tariffs alone. This is part of a broader trend in U.S. trade policy of using tariffs as weapons of economic pressure and strategic negotiation. Washington has been making threats or imposing tariffs on Canadian products. In the past few years, there has been uncertainty for businesses on both sides of the border because of these threats or tariffs imposed. It was once regarded as one of the most successful economic relationships in the world, but it is now being negotiated, counterattacked, and political pressure is being applied to it. The latest talks, which are particularly representative, failed. Carney said Canada found the terms that the U.S. put forward ‘uneconomic’ and ‘unfair,’ and that would make any agreement unbeneficial. Most importantly, Ottawa was not in agreement with the United States about the limits it would impose on Canada’s capacity to forge new trade links with other nations. It was not merely a business issue for Canada; it was a matter of sovereignty.
The Government of Canada has been interested in diversifying its economic relations from the United States since the early 1980s. This is an American market; trade relations have been fostered with other regions, such as Europe and the Asia-Pacific region, among others. Understanding this from a Canadian point of view, this would be conceding limitations on Canada’s economic sovereignty if Canada were not to be able to negotiate a new trade deal.
In an economy where geopolitical fragmentation is a reality, the separation is even more important. Canada continues to be a deeply connected economy with the United States, but also has a desire to maintain the ability to diversify markets, bring in investment, and build better ties with other economies. Meanwhile, the United States is increasingly willing to use its huge market power against trade partners to achieve its desired outcomes. The war has also been made culturally and politically charged. The threats made by the U.S. negotiators about the French language and Quebec culture were unacceptable, Carney said. It’s very sensitive because the linguistic and cultural identity of Quebec is at the core of Canadian federalism. Any sense of pressure on the identity that the Americans felt would elicit political opposition that would go beyond the economic dimension.
This is a more political than customary tariff dispute, because the factors of economic pressures and a sense of interference in domestic cultural matters converge. In Canada, leaders do not find it easy to take either side on matters that are perceived as an attack on a nation’s sovereignty or identity in their own nation. The primary irony is tariff wars between very integrated economies. Tariffs can be used to prevent domestic producers from competing and/or to make trading partners change their policies, but they can also result in increased production costs, supply chain disruptions, and increased prices for consumers. If it is hard for companies to find other suppliers to replace the Canadians, then the additional tariff may simply be passed on to the U.S. consumer.
It’s the same for Canadian businesses. Raising tariffs could reduce the competitiveness of Canada’s exports to the U.S. and, consequently, orders, investment, and jobs. Highly trade-intensive industries could be under pressure to move production, expand markets, or increase prices. The auto industry is a case in point. During the manufacturing of vehicles and parts, these items are routinely moving across the Canada–US border several times. Many vehicles and components move across the Canada–US border several times during the manufacture of the vehicle. Various phases of tariff implementation can result in increased manufacturing prices and make North American manufacturers’ products less competitive in more concentrated markets.
Other sectors, such as agriculture and energy, may also be impacted. The USA is a net importer of energy, agricultural products, and raw materials from Canada. These flows may be costly to U.S. industries that depend on regular Canadian supplies and hurt Canadian producers.
But the consequences do not only affect the economy. The embarrassment that a child may feel is the worst thing. Companies invest because they believe that the international trading rules will be fairly consistent. The threat of tariffs again makes for long-term planning challenges. Companies can postpone investments, re-evaluate their supply chains, and consider alternative markets. This uncertainty can hurt economic efficiency over time, even if the specific tariff is phased out.
This may speed up the hunt for other markets for Canada. Ottawa’s attention may shift in the direction of Europe and the Indo-Pacific and emerging economies. It would be diversification — it isn’t a death knell on the Canadian-U.S. relationship, but it might provide some strategic flexibility.
The dilemma that faces Washington is the issue. America is a force to be reckoned with when it comes to economic power because of its tremendous consumer base. However, when tariffs are applied to close friends and allies over and over, they can be encouraged to diminish their dependence on the U.S. market. In the long run, the pressures of the economy alone could then be a negative influence on the very one Washington wishes to reinforce. The Canada–US relationship has weathered disputes in the past. The bilateral relationship continues to be strong, and the security interests, economic interdependence, and institutional links of the two nations will continue to bind them together. It is neither feasible nor desirable to achieve a complete economic separation.
Canada is more than ever ready to demonstrate that it is the best strategic partner and neighbour to the USA, and that it need not forgo economic independence. The United States, on the other hand, seems to be more inclined to leverage its economic strength to achieve its national goals, even with its traditional allies. It’s a challenge for both countries to keep tariffs as a negotiating tool and not a tool for bilateral relations. Today’s tariff battle could be the first of what is likely to be a broader reconfiguration of economic relations in North America. If they are successful, they may be able to redefine the partnership in an equitable, sovereign, and respectful way.
The views expressed in this article are solely those of the author
The writer is a Professor, Department of International Relations, University of Chittagong, Bangladesh. Director, Hong Kong Research Centre for Asian Studies-Bangladesh Centre (RCASBC). Email: [email protected]
