Trade War

 In my last posting, on Friday, August 21 (my birthday, as it happened), I discussed the long history of American efforts to annex Canada. Those attempts served to unify Canada and create a sense of nationhood. They culminated in Donald Trump’s recent threats to incorporate Canada as the 51st state.

Little did I know when I sent you that essay how much the situation would escalate in just a couple of days. The US attacked Canada once again, not with armed forces this time, but in a trade war. In case we are in any doubt it is a trade war, that is exactly the term used by Prime Minister Mark Carney in an aggressive speech on Saturday, August 22. Trade wars can be devastating to a country’s production, its jobs and its people’s incomes.

How did we get here? Last month, Trump announced a new tariff of 50% against a broad set of imports from Canada to the US, to go into effect on August 19. The tariffs violate the CUSMA trade pact between Canada, the US and Mexico. The US Supreme Court has ruled that the President does not have the unilateral authority to impose such tariffs. None of that deters him in the slightest. His stated reasons for these tariffs kept shifting, from smuggled fentanyl, to a (non-existent) trade deficit, to a Canadian advertisement that quoted Ronald Reagan, to shared bridge tolls, to smoke from Canadian forest fires and other specious assertions.

The announcement of new tariffs was alarming but not unexpected, since Trump has both threatened and imposed tariffs against many countries during his second term. In most cases, such actions have led to negotiations that have modified if not eliminated the new tariffs. There was every reason to think this was one more example. Accordingly, the announcement was the signal for Canada and the US to sit down for negotiations in Washington, to try to avert the tariffs. The talks seemed to be making progress, and both sides announced last week that they expected an agreement. The Americans extended their deadline by a few days.

The negotiations collapsed, however, on Friday. The Americans added many new demands at the last minute. They included a new list of imports to be subject to the tariff, and the requirement that Canada buy military systems from the US. The US was to have the right of first refusal in the purchase of critical minerals, and guarantees in the purchase of oil and natural gas. The Americans insisted that Canada’s ability to conclude trade deals with third countries be restricted. The requirement that the labelling of US exports to Canada to be in French as well as English (French is one of Canada’s two national languages) was to be weakened. The Canadians saw these last-minute demands as both evidence of bad-faith bargaining and an attack on the country’s sovereignty. If they acceded to these demands they would be on track, they feared, to becoming the 51st state in fact.

In the face of the new demands, Carney terminated the negotiations on Friday night, and ordered his team to return to Ottawa. He followed this with a major speech on Saturday morning.

His affect was calm and measured, but he did not mince words. He said the problem in negotiating with the US is that they sign their agreements “in pencil.”  “America is trying to break us so they can own us,” he said. “This will never happen.” He continued, “The new US tariffs are designed to hurt and divide us.”

He stood up to Trump. “Canada will match Washington’s new tariffs dollar for dollar…measures which will come into effect the day after Labour Day.”

He announced a number of measures to strengthen the Canadian economy, to reduce its trade with the US and to expand trade to other countries.

Trump responded, inanely and incorrectly, by posting “Canada wants the benefits of being a US state without being one.” On Monday he threatened to double the tariffs on autos, auto parts and steel.

As far as I can tell, the American public is not paying much attention. The Canadian public is, and early indications are that it supports the Prime Minister.  This is one more example in which aggression by the US promotes Canadian unity. The only criticisms of Carney that I can find online in the Canadian press are that he should have been even stronger and pulled the plug earlier.

Canada, behind its Prime Minister, is taking the lead internationally in combatting the excesses of President Trump’s America. Having been challenged to a trade war, it has accepted the challenge. The dangers of an escalating trade war are immense, but the harm experienced by Canada if it rolled over and played nice might be irreversible. Other countries in similar situations have been fairly soft and “diplomatic” in their responses, apparently hoping to avoid further retaliation. Not Canada.

Nobel-laureate trade economist Paul Krugman predicted today that, like Trump’s war of choice in Iran, this is a war of choice he can’t win. I hope he is right.

Trade wars do damage just like military wars. Perhaps this one can be resolved before that happens—but not at the expense of Canadian sovereignty.

John Isbister

August 24, 2026

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