Trump says the U.S. has been ‘screwed’ by Canada. Brace yourselves for a full-on trade war

Now that Donald Trump has been re-elected as president of the U.S., Canada is bracing for a trade war with its biggest export customer.
Damage will be done to Canada’s $900-billion (U.S.) trade relationship with the United States.
There will be harm on both sides of the border if Trump proceeds with his avowed imposition of a 10-per-cent to 20-per-cent tariff on U.S. imports.
Trump’s tariffs on Canadian steel and aluminum in his first presidential term were just a warm-up for what he is now poised to do — impose an across-the-board surtax on all U.S. imports.
In a Fox News interview last month, Trump was asked what he will do with the United States-Mexico-Canada Agreement (USMCA), successor to the North American Free Trade Agreement (NAFTA). The USMCA comes up for “renewal consideration” in 2026.
“I will renegotiate to the benefit of our country,” Trump said, indicating that he will reopen the USMCA rather than extend it as the treaty provides.
“We’ve been screwed by Mexico and by China and by Canada and by the European Union,” Trump said.
Most foreign policy experts in Canada and the U.S. expect Trump to start sabre rattling over tariffs immediately and not wait for the USMCA’s scheduled review.
The U.S. does have a modest goods and services trade deficit with Canada, in the amount of $53.5 billion in 2022, according to the Office of the U.S. Trade Representative (USTR).
By contrast, America’s trade deficit with China, the real source of Trump’s ire, and against which he vows a 60 per cent tariff, was $367.4 billion that year.
Traditional economic theory holds that genuine free trade is beneficial to economies.
And that its opposite, protectionism — or a beggar thy neighbour policy — raises business costs and consumer prices, triggering inflation in countries that indulge in it.
No doubt, Trump was taught about that in his studies at the Wharton business school, where he majored in economics, but he has never believed it. Trump is a confirmed protectionist.
Nor does it matter to Trump that a $53.5-billion trade deficit with Canada is a negligible sum in a $29-trillion U.S. economy.
In many quarters, though, the trade numbers are not trifling.
Trade with the U.S. accounts for about 41 per cent of Ontario’s economic activity, according to the Canadian Chamber of Commerce.
And trade with Canada accounts for 14 per cent of Michigan’s economy and 10 per cent of Illinois’s GDP.
No fewer than 34 U.S. states look to Canada as their top export destination.
Canadian diplomats have spent this year lobbying U.S. governors and senators to pressure a second Trump administration to exempt Canada from the harshest of its planned protectionist measures.
But Canadian representatives had little impact in making those same exhaustive rounds in the U.S. ahead of the tough negotiations on the USMCA.
“If enacted, Trump’s tariff would have a significant negative impact, not only for Canada’s economy, but also for the U.S. economy,” says Trevor Tombe, an economics professor at the University of Calgary.
Canada would feel obligated to retaliate against the steeper U.S. tariffs, as it did during Trump’s first presidency, igniting a trade war.
In that event, Tombe calculates that a 10 per cent U.S. tariff regime would result in about $800 ($1,100 Canadian) in foregone annual income for both Canadians and Americans.
It could also cause Canadian GDP to plunge by as much as five per cent.
Trade between Canada and the U.S. is highly integrated.
In his recent report on Canada-U.S. trade relations, Tombe found that about half of all two-way merchandise trade between the two countries consists of businesses exporting to related companies in the other country.
And so, prominent among the victims of a more severe bout of Trump protectionism would be U.S. companies operating in Canada.
Canadian branch plants of U.S. firms export components and finished goods to their American parent companies, which also import goods essential to their businesses from Canadian-owned firms.
Higher tariffs on Canadian goods would raise costs for the Detroit-based automakers, U.S. aviation companies and defence contractors, U.S. manufacturers, and U.S.-owned oil, steel, aluminum and forest products companies in Canada.
In a best-case scenario, Trump would use the threat of punishing tariffs to extract concessions from America’s trading partners.
For Canada that could mean granting the U.S. greater access to our supply-managed dairy and poultry market and scrapping a digital services tax that annoys U.S. Big Tech firms.
Canada can also expect greater U.S. pressure to increase military spending in its role as a NATO partner and to boost its production of critical minerals.
There is popular Canadian support for some of those measures. But like all countries, we don’t care to be bullied.
Alas, Canada is growing accustomed to being bullied — by China, India, and soon again the U.S.
The coming years will be a test of Canada’s fortitude in standing up for itself against some of the world’s most powerful countries.