The Canada-U.S. Relationship: Opportunity in Chaos, Where to go From Here

Rhetoric south of the border is forcing our relationship with the United States to change; it is time we acknowledge this reality and take stock of our options going forward.

In my previous article (published December 11, 2024), I outlined what I believe is the perilous situation the Canadian economy finds itself in. In the article, I argue that our decisions over the last 80 years to integrate economically with the United States have put us in a compromised position, and as the last couple of weeks have shown (as evident by the rhetoric and proposed policies of the incoming President-elect), we are incredibly vulnerable.

While many are panicking and rightfully calling out President-elect Trump’s inexcusable and inflammatory language, situations like this allow us to take stock of what we have and what we wish to accomplish. While many are lost in the chaos of the previous few weeks, I encourage you to consider the possibilities presented to Canada and the significant advantages it can provide our country in the future. Canadian businesses have a unique opportunity to reduce our near-suffocating reliance on the United States, and the coming years may be that very moment.

Opportunity in Chaos

Cross-border trade between Canada and the United States accounts for 77% of our international trade portfolio, resulting in a stranglehold on the Canadian economy. Decades of increasing economic dependence on the United States has put Canada in a vulnerable position that uniquely exposes us to the swings of their domestic politics.

As our short-term economic future is directly tied to the United States, the Canada-U.S. relationship will be defined by a growing, protectionist United States that wishes to increase tariffs and other non-tariff trade barriers.

President-elect Trump’s proposed 25% tariff on all imports from Canada is just the loudest of the proposed threats to cross-border trade within North America. Tariffs and protectionism have bipartisan consensus in Washington, D.C., and over the next few years, tariffs will most likely be increased on imports from all countries. In the eyes of policymakers in Washington, trade barriers are no longer limited to strategic adversaries such as China, Russia, and Iran, but can now include goods from Canada and other historical allies and partners.

As a by-product of the media that President-elect Trump has generated, it has sucked up almost all of the oxygen related to other equally important (or, in some cases, far more significant) proposals. I have listed below just a few pending tariff and non-tariff trade barriers that are in various stages of proposition to implementation by the United States:

• Rep. Jared Golden of Maine wishes to impose a 10% tariff on all imports from countries with which the United States has a trade deficit until it becomes a trade surplus. The tariff would escalate by 5% every year.

• A bipartisan group of Senators wishes to impose a carbon border tariff on aluminum, cement, iron, steel, fertilizer, glass, and hydrogen. The tariff will start at 15% and have an escalator if the carbon emissions exceed domestic U.S. production by 10%.

• The United States Trade Representative (USTR) had asked the United States International Trade Commission (USITC) to study steel and aluminium emissions from the United States and other countries as part of the ongoing Global Arrangement on Sustainable Steel and Aluminum (GASSA) negotiations with the European Union. Of note, the U.S. Section 232 tariffs on the Europeans are set to expire in December 2025. I expect Canada will also be subject to those tariffs again in the coming months.

• Voluntary Country of Origin Labelling (vCOOL) in which products will have the little ‘Product of America’ flag plastered on them is set to continue. This is a massive issue in our beef sector as cattle routinely cross the Canada-U.S. border to be born, raised, and slaughtered throughout their life.

• Buy America. While the U.S. federal government did implement a ‘Buy America’ policy, it is overwhelmingly a state and local issue. All three levels of government are involved and apply their own arbitrary procurement standards with little respect for international trade rules.

The post-war period of reducing tariffs on imports worldwide – including on U.S. allies and partners – has been relegated to the past.

It is no longer a question of ‘if’ tariffs will be raised but ‘how’ and ‘when.’ If it’s President-elect Trump’s 25% tariff or a combination of others I listed above that originate in the House of Representatives or U.S. Senate, Canada will contend with a challenging cross-border trading relationship that is more unpredictable, expensive, and transactional.

This then brings us to the greatest opportunity of all: diversification, and why 2025 and the coming years will offer Canada the best chance to make it work. Unlike in the 1970s (which I outlined in my previous article), when the Third Option was presented, the average U.S. tariff rate on imports was ~10%; today, it is 2.3%. During the 1970s, the U.S. government and the developed world focused on decreasing import tariffs and embracing goods from other countries. At the time, the government of Canada was simply swimming in the wrong direction against a tide it couldn’t overpower.

Today, the world is now marching in a new direction, and it is imperative we recognize this and embrace it.

With tariffs now being proposed and implemented for various purposes - such as national security, securing a domestic supply, and limiting carbon production - the developed world is forced to react to the actions of the United States and respond in kind. If policies such as those proposed by President-elect Trump and members of the U.S. Senate and Congress weren’t the sign to look at the situation differently, I’m not sure what is.

Fortunately for Canada and Canadian businesses, the Harper Government signed a record number of trade agreements with other countries. Unfortunately, Canadian companies were often too comfortable with the status quo and routinely failed to utilize the agreements to their full potential.

Further to the agreements, the Harper Government put additional programs such as ‘Going Global’ in place to help Canadian businesses diversify beyond the U.S. market. With a cadre of trade commissioners established worldwide and with the assistance of Export Development Canada and Business Development Canada, Canadian companies failed to embrace change and break from the status quo. Those agreements are still active today, and it is time Canadian businesses brush the dust off them and reevaluate their fitness for 2025 and beyond.

2025 also presents an opportunity to build export capacity for Canadian businesses, allowing us to reach global markets and help transition Canada away from an overreliance on the United States. Investment in critical nodes of our supply chain will secure a more balanced portfolio with greater trade diversity from a variety of countries.

The business case to build export and intermodal terminals (such as hydrogen, LNG, oil, ammonia, etc.) on the Hudson Bay and Pacific and Atlantic Oceans coasts is now. This is an opportunity Canada must seize.

Furthewrmore, we must get our house in order. In doing so, we must address domestic productivity limitations, our ability to construct new mines and critical infrastructure, and address inter-provincial trade barriers. It is also time for municipal and provincial governments to put in place policies that address the obstacles that they have artificially constructed within Canada that limit economic growth. Canada must become the most attractive and easy place to do business out of, period.

Chaos and unpredictability are the antitheses of business and investment. While the United States struggles with these challenges, Canada can provide a stable, reliable environment, making it a preferred place for investment.

If we continue down our current path, Canadians’ lives will only become more expensive. Diversifying our global trade flows is critical to our economic success going forward. To do so, we need to embrace our current situation.

For all our sakes, it’s best we swim in the right direction.