[Big read] Will Canada’s tit-for-tat bet against the US pay off?

(Edited and refined by Josephine Hong, with the assistance of AI translation.)

On 21 August, Canadian Prime Minister Mark Carney did what few world leaders would dare to do: with less than an hour left before the deadline for trade talks with the US, he walked away from the negotiations.

The US immediately made good on its threat. From midnight on 22 August, it imposed an additional 50% tariff on about US$20 billion worth of Canadian goods, including electrical equipment, plastics and plywood — on top of existing tariffs on Canadian steel, automobiles, aluminium and timber.

David versus Goliath

The US tariffs were intended to force Canada to back down and return to the negotiating table. But instead of retreating, Carney took a tough step that, apart from China, none of America’s major allies had attempted: hitting back with dollar-for-dollar retaliatory tariffs. Later that day on 22 August, Carney announced that Canada would impose matching retaliatory tariffs on US goods from 8 September, on products including steel, dairy products, agricultural equipment, pulp and paper, and electronics.

This further infuriated US President Donald Trump. On 24 August, Trump threatened on social media to double the tariff on Canadian automobiles to 50% from next year. On the eve of Canada’s retaliatory tariffs taking effect, he also demanded that Canadian aircraft manufacturer Bombardier move its production lines to the US, or face a ban on selling the aircraft in the country.

Canada remained unmoved by the threats, and the retaliatory tariffs took effect as scheduled. Trump then escalated further, successively announcing a ban on imports of certain Canadian alcoholic beverages, dairy products and motorbikes from 29 September; an additional 50% tariff on around 100 categories of Canadian goods, including animal hides, cheese and furniture, from 15 September; and ordered Canadian products be excluded from US government procurement programmes.

Standing up against Trump does not mean Carney has the upper hand. On the contrary, the Canadian economy could take a severe hit, with tens of thousands of jobs on the line. After all, the US is Canada’s largest trading partner, accounting for 70% of Canada’s total exports and 20% of its GDP.

By comparison, the US economy is 13 times the size of Canada’s and has far greater capacity to withstand such challenges. No wonder Trump and his officials have scoffed at what they see as Canada’s overreach.

On 26 August, Trump said, “They [Canada] don’t have anything that we have to have, we can get by. There are a couple of things that would make it a little inconvenient, but we can get them elsewhere.”

Addressing Canada turning away from the trade talks, Trump bluntly said that it was “time to teach Canada you can’t do this anymore”.

During an interview on 31 August, US Treasury Secretary Scott Bessent was similarly dismissive, saying, “I don’t think you can be in a tit-for-tat with someone 13 times larger than you.”

Economic leverage to exert political pressure

What appeared to be a David-versus-Goliath struggle was, in Carney’s view, an inevitable choice for Canada. Carney revealed that in the final moments of negotiations, the US had sought to impose a series of additional conditions, including maintaining high tariffs on heavy trucks from Canada, restricting Canada’s ability to sign trade agreements with other countries, and even requiring Canada to scrap or relax laws protecting the French language. Canada regarded the latter two demands as infringements on its national sovereignty.

The US’s aggressive pressure prompted Carney to frame the trade dispute in military terms: Canada was under attack, and being attacked meant being at war.

But Carney was not charging blindly onto the battlefield. He knew that for the US$32.5 trillion US economy, retaliatory tariffs worth US$20 billion were a drop in the bucket. His countermeasures were therefore carefully calculated to exert precisely targeted political pressure on the Trump administration.

The US will hold its midterm elections in November. Polls show that a majority of American voters do not support Trump’s tariffs, while his low approval ratings have heightened anxiety among Republicans. Analysts widely expect Democrats to regain control of the House of Representatives and possibly even win the Senate.

Carney has zeroed in on this critical juncture, directing his tariff “bullets” at goods from states such as Michigan, Ohio, Iowa, Maine and North Carolina, including automobiles, agricultural equipment, timber and paper products. In these strategically important border and agricultural states, Republican candidates are already facing precarious electoral prospects.

Carney also has a trump card: energy exports to the US. In a speech on 22 August, he reminded Americans: “Canada fuels American growth: supplying 99% of their natural gas imports, 85% of electricity imports and 60% of crude oil imports. I don’t think they want us to stop sending it.”

National unity behind tough stance

Carney’s composure and resolve against an increasingly assertive US have surprised many observers. As a relatively political newcomer, his career was built largely in the financial sector. He spent years working at the investment bank Goldman Sachs and was appointed governor of the Bank of Canada during the 2008 financial crisis. Five years later, he made history by becoming the first foreign governor of the Bank of England.

In March 2025, Carney succeeded former Prime Minister Justin Trudeau as leader of the Liberal Party. His charisma may not match Trudeau’s, but when Trump’s return to the White House triggered a new trade dispute, Carney successfully ignited a wave of Canadian patriotism and steered his party to victory in the April 2025 federal election, securing his premiership.

In this latest round of tariff standoff, public opinion has provided Carney with his strongest backing. A poll conducted after US-Canada negotiations collapsed found that although many Canadians were worried about the economic impact of a trade war, as many as three-quarters of respondents still supported Carney’s decision to walk away from the talks.

Carney’s tough stance has also won broad support across party lines and provinces. The main opposition Conservative Party called for national unity to defend against these “unfair attacks”. Ontario Premier Doug Ford, whose province is a major economic hub, said that Carney’s tough stance has his “full support”. British Columbia Premier David Eby went further, saying that accepting US demands to restrict Canada’s ability to trade with other countries would reduce Canada to “the economic equivalent of the 51st state” of the US — something that is “never acceptable”.

Preparing for prolonged pressure

Interestingly, even American public opinion appears to be on Carney’s side. Polls show that only 25% of Americans support Trump’s tariffs on Canada, while most do not want to regard their northern neighbour as a hostile competitor. Susan Collins, US Republican senator for Maine, said, “Canada is not China. Canada is one of our closest allies and largest trading partners. Our economies are inextricably linked, especially in the border regions.”

Although public sentiment is running high for now, a prolonged trade war will inevitably erode Canada’s economy, testing the public’s tolerance.

Stephen Olson, a senior visiting research fellow at the ISEAS–Yusof Ishak Institute in Singapore, told Lianhe Zaobao (LHZB), “Trump has unified Canadians like no one else possibly could. Canada’s rock solid public support for the countermeasures is likely to remain strong for the foreseeable future.”

Peter Jones, an associate professor at the University of Ottawa’s Graduate School of Public and International Affairs, likewise said Canadians are prepared to accept considerable pain. He said there is also a general belief that the trade war “will hurt the Americans badly enough that they will seek a way out before it gets too bad”.

On when US-Canada negotiations might resume, Jones predicted that the two sides could return to the negotiating table before the midterm elections. However, unless Trump becomes alarmed by worsening polling numbers, the chances of a substantive breakthrough before the elections are slim.

Meanwhile, Olson said that reaching a deal before the election would help boost Republican prospects in key border states. However, “this doesn’t necessarily mean that the political considerations will take priority and lead to a deal. Trump might decide to hold firm even if it damages Republican prospects in the midterms.”

Olson was a member of the US negotiating teams for the Canada-US Free Trade Agreement (CUSFTA) and the North American Free Trade Agreement (NAFTA). He cautioned Canadian leaders against assuming that Democrats gaining control of Congress would necessarily change the situation. “Once the elections are over, the administration arguably would have less incentive to accommodate the needs of border states that will feel the pain most acutely from Canada’s trade retaliation,” he said.

Former US ambassador to Singapore Frank Lavin was more optimistic. He told LHZB that regardless of the midterm election results, tensions over tariffs would generally ease after election day. “There will be less of a political payoff for stridency, so it should be marginally more realistic to settle the outstanding issues,” he said.

Regardless of how events unfold, the Canadian government is already prepared for prolonged pressure. Adam Chapnick, deputy director of education at the Canadian Forces College, told LHZB that the Canadian government is accelerating efforts to diversify its trading partners and strengthen domestic economic resilience to reduce its heavy dependence on the US market.

When announcing aid for Canadian businesses affected by the tariffs, Carney stated unequivocally that the government would support companies “for as long as it takes” — even “beyond the life of this US administration”.

Will middle powers follow Canada’s lead?

As early as 20 January, at the World Economic Forum in Davos, Switzerland, Carney warned that the international order is “in the midst of a rupture, not a transition”, as great powers have begun using economic integration as weapons and tariffs as leverage.

He stressed at the time that national sovereignty will increasingly be anchored in the ability to “withstand pressure”. He also bluntly said that middle powers such as Canada were often at a disadvantage when negotiating with major powers on their own. They therefore “must act together, because if we are not at the table, we’re on the menu”.

Seven months later, the outbreak of a US-Canada trade war has unexpectedly become a testing ground for Carney’s prediction. Nelson Wiseman, a professor emeritus of political science at the University of Toronto, told The New York Times that Canada is providing the biggest test yet of whether Carney’s strategy can work and whether resistance by one middle power could change the calculations of others.

Carney’s tough stance has already attracted attention. On 23 August, former Swedish Prime Minister Carl Bildt wrote on X: “With [Canada, China and Brazil] showing that you can stand up to the US in trade and related talks, I guess there will be a discreet discussion in EU and [Japan] on whether they did the right thing.”

Both the EU and Japan had previously signed trade deals with Washington, only to face fresh tariff threats later on.

ISEAS–Yusof Ishak Institute’s Olson said that if Canada’s toughline stance proved effective, other countries would very likely follow suit. But he cautioned, “The ability to successfully retaliate is linked to actually possessing a bit of leverage, and not every country in the world has meaningful leverage. China certainly does; we will find out if Canada does.”

Meanwhile, University of Ottawa’s Jones said that although countries faced different circumstances, “the US is generally becoming seen as a less reliable partner on many fronts, including economy and security. This will have ripple effects around the world.”

Former ambassador Lavin remains sceptical that the “Canada model” will be widely replicated. He pointed out that for Canada, confronting Trump has broad domestic resonance in Canada, so retaliation has political appeal. However, “I do not think Trump’s measures took on the same sort of political saliency in other countries. Additionally, I suspect most countries view this as being driven by Trump personally and believe they are better off just waiting for the end of his presidency.”

US-Canada rift may be difficult to heal 

The US and Canada have long been close neighbours, but frictions between the two countries have mounted since Trump’s first term as president. At the time, the Trump administration imposed tariffs on Canadian steel and aluminium on national security grounds. Trump also criticised NAFTA as unfair to the US and applied maximum pressure through tariff threats, eventually forcing Canada and Mexico back to the negotiating table, where they reached the US-Mexico-Canada Agreement (USMCA).

As Trump prepared to return to the White House in late 2024, he drew sharp criticism across Canada after mockingly referring to Trudeau as a “governor” and Canada the “51st state” of the US. 

After the latest trade war with Canada erupted, Trump further escalated tensions on 27 August by signing an executive order renaming Lake Ontario, which straddles the US state of New York and the Canadian province of Ontario, as “Lake America”.

Trump’s various actions have damaged the close cooperation and deep friendship that once characterised US-Canada relations. Scholars and observers interviewed generally believe that even if relations improve after Trump eventually leaves office, they are unlikely to return to the closeness of the past.

Jones said that after suffering such a profound shock, Canada will not likely allow itself to become so dependent on one market ever again. “We will continue to diversify trade and further develop our own internal market, and seek a more independent set of defence and security relationships,” he said.

Olson’s prediction is more pessimistic. He believes the wounds inflicted on US-Canada relations will be difficult to heal over the next one or two generations, and that the relationship may never return to the state it was in before Trump took office.

This article was first published in Lianhe Zaobao as “加拿大硬刚​美关税大棒 为反贸易霸凌另寻活路”.

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