Canada Shows the Limits of Trump’s Hardball Trade Tactics

Edward Alden specializes in U.S. economic competitiveness, trade, and immigration policy. He was previously the Washington bureau chief for the Financial Times, and prior to that was the newspaper’s Canada bureau chief. He wrote this piece from Toronto.

The U.S. economy is ten times the size of the Canadian economy. It stands to reason, therefore, that in trade disputes between the two countries—which were frequent even before President Donald Trump unleashed his tariff war—the United States will get its way ten times as often.

That was what Robert Lighthizer, Trump’s first-term U.S. trade representative, once told his Canadian counterpart Chrystia Freeland, according to Freeland’s new book on her dealings with the United States, cheekily titled Unreliable Boyfriend. That a negotiator as smart and seasoned as Lighthizer could make such an elementary mistake—confusing economic size with bargaining leverage—goes a long way to explaining why the second Trump administration finds itself mired in a losing trade war with its economically much smaller and militarily much weaker neighbor to the north.

The standoff is counterintuitive. White House Deputy Chief of Staff Stephen Miller’s “iron laws of the world”—a foreign policy approach that argues that force and power are the only things that count—should have caused Canada to capitulate long ago. Yet along with China, it is one of only two countries in the world that have retaliated against Trump’s tariffs. And with Republicans facing tough midterm election races in northern border states that are heavily dependent on trade with Canada, it is the United States that now appears to be backing down by lifting tariffs that are causing too much economic harm. Other countries that will face at least another two years of Trump’s trade bullying, regardless of the midterm outcomes, have much to learn from Canada’s response.

Canada, for reasons known only to Trump, who calls it “one of the worst countries in the entire world,” has been the president’s  favorite tariff target. Along with Mexico, it was the first country hit with the 25 percent tariffs imposed under the International Emergency Economic Powers Act, or IEEPA, which were later overturned by the Supreme Court. Many of its largest exports—autos, gas, steel, aluminum, lumber—are facing tariffs of 25 to 50 percent under Section 232 “national security” authority, and they are likely to stand up to legal challenges and congressional review.

Since July, many Canadian goods have faced 50 percent tariffs under Section 338, a Smoot-Hawley Act relic that has never been used to impose tariffs (the courts will decide this one too). So far, Canada has matched those tariffs nearly dollar for dollar and taken other steps such as banning U.S. alcohol sales in most provinces. Next, the United States is preparing to raise the tariff on autos and auto parts to 50 percent unless a U.S.-friendly deal is reached before January 1, 2027.

The Trump strategy is simple and crude: inflict enough economic pain on Canada through lost exports to the United States that its northern neighbor will be forced to capitulate. If Miller is right, the administration should get its way. Yet, although the damage has been real, Canada has so far shown itself to be remarkably resilient. The International Monetary Fund predicts Canada’s economic growth over the next two years will be second among the Group of Seven countries, behind only the United States. Its fiscal position is the best of the group, allowing the government to support industries hurt by the U.S. tariffs. Prime Minister Mark Carney and Ontario Premier Doug Ford recently announced a C$9 billion package for the auto and metals industries.

Windsor, Ontario, a manufacturing city across from Detroit that depends heavily on auto and component sales to the United States, saw its unemployment rate spike three percentage points following the Trump tariffs in 2025. But it has since largely recovered as manufacturers have been able to adapt; the promise of new military contracts is also helpful as the Canadian government boosts military spending. The weak Canadian dollar, which has remained near historic lows despite rising oil prices that have historically strengthened the “loonie,” has helped offset the cost of the tariffs. Canada is getting the benefit of surging oil revenues from its Alberta exports without additionally harming the Ontario manufacturing heartland.

The U.S. tariffs are still costly, to be sure. The federal government is fighting with U.S.-based Cleveland-Cliffs over its plan to cut five hundred jobs from the Stelco steel facility in Hamilton, Ontario. Ottawa is similarly suing Stellantis, the carmaker, over its plan to close the Brampton, Ontario, plant building the Jeep Compass and relocate production to Illinois.

Given such complex relationships, there are sharp limits to how far any U.S. administration can push Canada around.

Despite the pain, Canadians across the country are in no mood to back down from the fight. Carney’s approval ratings are among the highest ever for a Canadian prime minister; he was featured on the cover of last week’s Economist under the headline “Not Sorry.”

As the trade war with Trump has escalated, Carney has pursued alternative partners. He has fast-tracked a new pipeline from Alberta’s oil sands to the Pacific coast to double oil exports to Asia—much to the dismay of Washington state, which fears the environmental consequences of oil spills in nearby waters. It is pursuing “associate membership” in the European Union, the particulars of which are still being ironed out. And Carney has sidestepped Canada’s traditional concerns over human rights in China, India, Turkey, and the United Arab Emirates to pursue closer trading relationships.

Each of these may take years to come to fruition and will not fill the hole of lost exports to the United States. Yet they demonstrate that Canada will not be the pushover Trump had imagined.

Trump and his officials should have learned from history. Indeed, the U.S.-Canada economic relationship has demonstrated time and again that U.S. economic muscle is not what it seems. The scholars Robert Keohane and the late Joe Nye used U.S.-Canada negotiations as their template for the 1977 classic Power and Interdependence, which argued that in complex economic relationships, the smaller power still holds many cards.

For Canada, the list includes exports that are critical to the U.S. economy such as oil, potash, and electricity, the dependence of many northern states on selling their goods to Canada—which is the largest market for U.S. exports—and the deep cross-border ties that reach into companies, labor unions, and regulatory agencies. Given such complex relationships, there are sharp limits to how far any U.S. administration can push Canada around. The 2017–18 negotiations that produced the United States-Canada-Mexico Agreement (or USMCA) demonstrated that clearly; despite playing a seemingly weak hand, Canada got almost everything it wanted from the deal.

The trade war could, of course, continue for the rest of Trump’s term and even beyond. Canada’s “elbows up” strategy may produce still further escalation. But there are signs that Trump’s tariff wall is cracking. The administration last week lifted some tariffs on Canadian goods at the request of Senator Susan Collins, who is in a tough reelection fight in Maine. Kevin Hassett, the president’s economic advisor, claimed this week that U.S. and Canadian negotiators were “very close to a deal” to reduce tariffs—even as Canada said that nothing had changed from August, when it walked away from what Carney considered unreasonable U.S. demands.

As the Economist cover noted, the rest of the world is watching closely. Most of the major economies, from Europe to Japan and South Korea, have cut deals with the United States to accept higher tariffs in exchange for some trade peace. Even China and the United States have agreed to a trade truce through January. Canada stands alone in resisting U.S. demands. But so far, it seems to be standing tall.