President-elect Donald Trump’s threat to impose a 25 percent tariff on Canada’s exports to the United States has prompted proposals for deeper Canadian-American integration to avert a potential trade war with damaging consequences for Canada. The threat is in response to Ottawa’s alleged failure to control the flow of illegal migrants and fentanyl into the United States. US border agents intercepted fewer than 200,000 illegal entrants and less than 20 kilograms of fentanyl from Canada last year.
Ian Robertson and Jordan Brennan call for “deeper integration and co-operation with the U.S. at multiple levels” in a “Fortress North America” that would merge trade into a “broader framework of defence, energy security, food security, critical minerals and supply chain integration.” Kevin O’Leary proposes a Canada-US “economic union” with a common currency and passport, and unfettered trade, especially in energy resources, combined with a common defence of the north to deter Chinese and Russian adventurism. But even if Canadians supported such schemes—and there is no evidence that they do—the plans would only be workable if they were embedded in a framework of laws that levelled the playing field between two unequal players.
Similar “Grand Bargain” proposals were offered in the wake of the 9/11 terrorist attacks on the United States when American restrictions dramatically curtailed cross-border trade and transit. They went nowhere. Both sides, wary of arrangements that infringed on their sovereignty, preferred parallel remedial measures to big idea approaches. Grand bargains are even less likely now, given Trump’s disdain for rules and Canadians’ wariness of his intentions.
The closest the two sides have come to binding arrangements are the rules and dispute settlement arrangements contained in the 1988 Canada-US Free Trade Agreement, carried forward in North American Free Trade Agreement in 1994 and its successor the Canada-US-Mexico Agreement in 2020. Canada had sought to harmonize trade remedy measures but settled for a dispute settlement mechanism to ensure each country’s anti-dumping and countervailing duty laws were fairly applied. Even so, the resulting decisions have not settled all disputes and there is no guarantee that the provision will survive when the Canada-US-Mexico Agreement is reviewed in 2026.
Canada’s response to Trump’s tariff threat is complicated by the current turmoil atop the federal government. In the absence of strong national leadership some provinces have freelanced their own, often contradictory, approaches. Ontario Premier Doug Ford has proposed that Canada abandon Mexico and negotiate its own trade deal with the US, and called for energy export ban if Trump goes ahead with the tariff. Alberta’s Premier Danielle Smith agrees with Ford on excluding Mexico but disagrees with him on cutting off energy exports, and announced plans for an Interdiction Patrol Team to police the Alberta side of the Canada-US border. All this is despite the fact that international trade and borders are a federal responsibility.
One thing all agree on is that they should continue to make common cause with US interests that would be harmed by a possible tariff war. Although Canada’s overall impact on the United States is far less than that of the US on Canada, certain regions and sectors of the US economy depend on Canadian trade. Should Trump sanction Canadian exports Ottawa would have to respond though it would surely lose if it tried to match Trump’s tariff stance. Measures targeting specific US vulnerabilities would likely have more effect.
Ottawa has already shared plans to improve border security with Trump representatives. But it is risky to put too much on the table without knowing what Trump’s real bottom line is. Preemptive measures could lead Trump to push for even more concessions. Indeed, he has since complained that the United States subsidizes Canada “to the tune of over $100,000,000 a year”—a mischaracterization of Canada’s current trade surplus, which is mostly accounted for by rising energy imports.
Canada does need to increase its defence spending from the current 1.4 percent of GDP to NATO’s 2 percent standard to meet US and other allies’ complaints that it is not pulling its weight and to enhance its own credibility on defence and related matters. It also needs to beef up its long-neglected Arctic sovereignty and security posture to counter Chinese and Russian challenges and to avoid becoming a strategic liability to the United States.
Mexico, too, is a target of Trump’s tariff threat. With more than 2 million illegal migrants and over 9,000 kilograms of fentanyl intercepted by US agents last year, its border issues with the United States dwarf Canada’s. But it would be a mistake for Ottawa to strike a bilateral trade deal with Washington, leaving Mexico City to reach its own. This would weaken both countries’ bargaining power and create a hub and spokes arrangement that would give Canada and Mexico preferred access to the US market, but not to each other’s, leaving the United States as the main beneficiary and disrupting trade and investment flows among them..
In addition, Canada should maintain its efforts to diversify trade relations to reduce its dependence on the United States. But in order to do so it needs to continue to develop the necessary infrastructure to exploit foreign market opportunities. A good example is the recently completed Trans Mountain Pipeline Expansion project that gives Canada greater access to energy markets in Asia, thereby breaking the US monopoly price for oil sands exports. Ottawa should also ensure that deals reached strengthen the rules-based multilateral trading system on which Canada as a trade-dependent middle power depends.
Donald Barry is a professor emeritus of political science at the University of Calgary. He has written widely on Canadian foreign policy, including Canada-US relations.