How should Canada handle the new, irrational United States?

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Munir Sheikh is a research professor at Carleton University, former chief statistician of Canada, and author of 2047: The Story of an American Revolution, a novel grounded in the dynamics of irrationality.

Canada faces a dangerous moment in its history thanks to the new United States. Our instinctive response has been familiar: explain that their new policies would hurt them, too; mobilize sympathetic Americans; retaliate; hope that rational arguments prevail.

This approach rests on a faulty assumption – that we are dealing with rational actors.

Decades ago, Daniel Kahneman proved that all of us misjudge reality, even when calm. Emotions – pride, fear, nostalgia, resentment, bias and, especially in the U.S., a sense of superiority – overwhelm reason. Dr. Kahneman, a psychologist who died in 2024, was awarded the Nobel Prize in economics – and then the world promptly forgot about his wisdom and its implications.

The next logical step in Dr. Kahneman’s diagnosis was straightforward: If individuals behave irrationally, then entire countries can, too, when millions share the same emotional triggers at the same time. The modern world has provided exactly those new triggers.

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Social media, grievance ecosystems, identity politics and hyperpolarized parties and leaders make it easy for emotion to synchronize across a population. The result is what one would expect. Emotion-driven policy-making becomes the norm, and while the actual outcomes would contradict the stated goals, the contradiction becomes invisible inside the bubble. The result: collective irrationality.

How are the “victims” supposed to deal with it?

We need to take the following rational steps, because we can’t afford to counter collective irrationality with our own. First, we must diagnose it. This involves a two-part test: is there contradiction between stated goals and expected outcomes, and is the contradiction invisible to those inside the bubble. Second, for every policy step we take, we must ask: would these steps shift those experiencing collective irrationality toward rational behaviour? If the actions won’t, don’t do them. Third: Would our counter-policy steps make our outcomes better or worse? If it’s the latter, again, we shouldn’t do them. Fourth: Is the timing of the effects of our policy actions synchronized with the adverse consequences and the expected duration of collective irrationality?

Let us answer these questions around the situation with the United States.

First, it passes both the tests of contradiction and invisibility. The U.S. wants to revive economic greatness and reassert world leadership. Its chosen strategies would reliably produce opposite outcomes, in addition to punishing the rest of the world: Tariffs make Americans poorer because they are the first in the line of fire; reducing trade deficits shrinks the pool of global dollars available for foreign investment in the U.S.; hostility toward allies reduces U.S. strategic reach; cutting immigration and throwing out others shrinks the work force needed for the cherished manufacturing expansion; treating partners as adversaries accelerates their desire to look elsewhere.

Second, Dr. Kahneman’s work made it clear there are no easy ways to convert someone from irrational to rational thought. The same is true for collective irrationality. The bigger risk is that using rational arguments to convince irrational actors may backfire. The unfortunate conclusion is that some of our responses made things worse; Doug Ford’s recent U.S.-broadcast ad showing an anti-tariff quote from Ronald Reagan is an example. Lying low is not weakness – it is strategy.

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Third, retaliation is a lose-lose proposition: it hurts both parties. While it may be emotionally satisfying, it hurts us more.

Fourth, our principal response has been to speed up the approval of major nation-building projects. Is this response synchronized with the consequences and expected duration of collective irrationality, keeping in mind the contradictions inherent in collective irrationality may begin a self-correcting mechanism in the long run?

What policy responses would be optimal in such situations?

The negative consequences of U.S. collective irrationality began immediately, and they will grow over the short to medium term. The best course of action, then, is to take immediate steps to reverse policies already shown to be causing us immense harm. There are two policies that meet this test: our messed-up corporate tax system and internal trade barriers.

Canada lived through a decade of stagnant living standards, long before Donald Trump took office. Its main cause is the private sector declining to invest in Canada. Foreign direct investment abroad by Canadian companies in 2023 was $2.1-trillion, compared with international FDI in Canada of $1.3-trillion.

On internal trade barriers, think of this irony: We are upset with the U.S., but we don’t want to trade freely within our own country. This may be an example of Canadians’ own collective irrationality – and if so, reforming the corporate tax system and eliminating internal trade barriers is the medicine that this patient needs.