GLOBAL ECONOMICS
Patrick Grady
Trump's America First Presents an Opportunity as well as a Challenge for Canada
September 5, 2025
As a dual national with deep roots in both Canada and the United States, I am distressed about the deterioration in relations between my two homelands. Canada has long been the United States closest ally bound together by ties of friendship and family across the world's longest undefended border. And hopefully, it will get through their current misunderstandings and stay that way.
It is disconcerting to see Canadians so riled up ever since last December when President Trump joked about Canada becoming the 51st state and called the former Prime Minister Governor. Prime Minister Trudeau was the first victim of the darkening of Canada's mood, which forced him unceremoniously out of office. Sure, Trump made fun of Trudeau at Mar-a-Lago, but this was just Trump being Trump and getting back at Trudeau for mocking him at the NATO Summit in London in 2019. The second casualty of this unfortunate episode was, of course, Opposition leader Pierre Poilievre who saw his 20-point margin in the polls go up in a puff of smoke as Canadians rallied around the flag and the new Liberal leader untainted by Trump's disrespect.
Canadians just don't get Trump's style. If they did, they'd know that Trump revels in making outrageous statements and creating insulting nicknames. Just because he says that Canada should become the 51st state doesn't mean that he is going to do anything to make it happen. I'm sure that President Trump knows that Article IV, Section 3 of the U.S. Constitution gives Congress the sole authority to admit new states and not the President. Moreover, an act admitting Canada as the 51st state would be impossible to get through Congress (particularly the Senate where 60 votes would be required to invoke closure and bring any such bill to a vote). Before the act would even get to Congress, a precondition would be that Canada would have to draft a state constitution and get it approved in a Canadian referendum. Canadians shouldn't need be told that the odds of such a referendum ever passing are zilch. So there's no need for Canadians to worry about becoming the 51st state.
Canadians also should realize that even though Americans generally like Canadians and almost consider them as family, Republicans fear that if Canada were to join the United States, it would be as one of the bluest of blue states and would drastically shift the political balance in the U.S. to the left. Convincing Republicans to support Canada becoming a 51st state would thus be an impossible sell.
Trump's undiplomatic joke has had a profound effect on the Canadian political climate. It got Mark Carney elected as the new Liberal leader on March 9. And Trump's America First policies have set the Canadian political climate and agenda. Prime Minister Carney's first job was to deal with the proposed increases in tariffs that were to be levied on Canada and Mexico to force action on illegal immigration and drugs. Egged on by Premier Doug Ford, his "elbows-up" strategy of retaliation and the hostility of many Canadians in boycotting American imports and travel haven't made the U.S. any more willing to make a deal on trade and tariffs.
Quite the opposite! The 25-percent Canadian retaliatory duties announced in April provoked the U.S. to increase tariffs even more to 35 percent on non-CUSMA Canadian goods. And tariffs on steel, aluminum, and copper have been set higher at 50 percent. Canada did not endear itself to the U.S. by retaliating rather than negotiating like the United Kingdom did, which incidentally got it the best deal so far from the Americans.
The Canadian government doesn't seem to see the current situation as the biggest threat Canada has ever faced with respect to its economy and living standards as it undeniably is. Instead, it takes comfort that, at least for the present, trade under the CUSMA is exempt from the new higher tariffs being imposed by the Trump administration. According to the Prime Minister, 85 percent of Canadian exports are sheltered by CUSMA. But this assurance should not be allowed to lull Canadians into a false sense of security. Remember CUSMA is just another piece of paper like all the other U.S. trade agreements that Trump has torn up. Indeed, it is not only possible, but probable, that the CUSMA will soon be scrapped. It is so obviously inconsistent with Trump's America First approach to trade. The United States cannot successfully pursue a policy of reindustrialization through high tariffs if countries can sidestep the tariffs by exporting to the U.S. indirectly through Canada.
Don't think the U.S. negotiators don't know this. It is exactly what happened after NAFTA gave Mexico duty-free access to the U.S. market. From 1993 to 2024, the U.S.'s trade balance with Mexico swung from a $1.7 billion surplus to a $172 billion deficit in 2024. This was the largest deficit the U.S. had with any of its trading partners except for China ($295 billion) and it wasn't because of an expansion in traditional Mexican exports but high-tech goods including vehicles and electronics. The deficit with Canada of $62 billion in 2024 pales in comparison, and, unlike Mexico's surplus, Canada's was more than half covered by its surplus on services of $33 billion.
President Trump's America First agenda has overturned the world trading system. It is likely to be the trade regime that Canada will have to live with for many years. The Democrats aren't showing any signs of getting their act together and putting forward an alternative strategy capable of garnering the support of the American people. And if past experience is a guide, in the off chance that they win in 2028, they might very well stick with most of the policies Trump puts in place.
The only way Canada can avoid being damaged by America First is to seek to reach an agreement with the U.S. on greater economic integration. At a minimum this means a customs union where Canada and the U.S. levy a common external tariff on the rest of the world. Obviously as the U.S. is the dominant partner with a GDP more than 12 times as large, this will mean accepting the U.S. tariffs as Canada's own.
When Trump says that the U.S. "doesn't need anything" from Canada, he is being disingenuous. Canada has a lot to offer. It has the energy and resource supplies that the U.S. is going to need, and an integrated industrial sector that can only be cut off at a significant cost to U.S. production capacity. Furthermore, Canada will be spending a lot of money on defence as it increases spending from less than 1.5 percent of GDP to 5 percent by 2035 under the new NATO pledge.
Given that Canada has a Defence Production Sharing Agreement with the U.S. that enables Canadian companies to sell to the U.S. Department of Defense on the same basis as domestic companies, it doesn't make sense to try to diversify procurement to European suppliers as the Canadian government seems to be trying to do. Offering this procurement prize up to the Americans would make a customs union more attractive. President Trump has shown a willingness to look more favourably on trade agreements in return for commitments to invest or spend in the U.S.
A mutually beneficial deal can be struck here if Canada approaches the negotiating table rationally and not emotionally. Canada is leaving a lot of cards on the table that it is not playing. The current shakeup in trade provides a unique opportunity to participate in the renewed industrialization and prosperity that Trump's America first strategy promises. Canadians shouldn't let the current Anti-American mood stand in the way of taking advantage of it.
Enhanced economic integration does not mean political integration as Canadians should well know from experience with Quebec. Canada has its own distinctive tradition and culture, which it cherishes and doesn't want to give up to become a U.S. state (if that were even a serious possibility). But this shouldn't preclude it from reaching out its hand and offering to become a partner with the U.S. in pursuing an America First Agenda, provided, of course, that this could be broadened into a complementary Canada First agenda that would strengthen Canada as an independent country.