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Canadians today confront a nation-defining question: Do we have the spine for what might lie ahead? U.S. President Donald Trump’s actions in recent days confirmed the vow he made last January to undermine Canada’s independence through “economic force.”
He has imposed sectoral tariffs on steel, aluminum, automobiles, softwood lumber and other products, and repeatedly walked away from trade and tariff negotiations. His most recent tantrum was over a commercial from the government of Ontario reminding Americans that former Republican president Ronald Reagan opposed tariffs.
It’s impossible to know what Mr. Trump’s real motivation was. Perhaps it was anger over Ontario’s commercial. Perhaps he is seeking to force Canada to make further concessions. Prime Minister Mark Carney’s government had already rescinded the digital services tax to reach a deal. Apparently, that wasn’t enough.
And the President’s pique over the Reagan commercial reminded everyone that he would likely scuttle any agreement the two countries do reach if he felt doing so would serve his purpose. The planned review of USMCA, slated for 2026, could provoke further disruptions.
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In the short term, the federal government must do everything in its power, short of compromising sovereignty, to reduce or eliminate the sectoral tariffs. But what if a deal cannot be reached? Ottawa, and Canadians, need to have the answer to that question firmly in mind, not only in the event that negotiations with the U.S. fail – but to give this country its best shot at securing an arrangement.
A basic part of any bargaining is something called the Best Alternative to a Negotiated Agreement, a backup plan should talks founder. Any deal that is better than that backup should be accepted. Any deal that is worse should be rejected.
So, what is Canada’s best alternative in the current talks with the Trump administration? It would likely look something like this: tariffs on most Canadian goods, somewhat lower for items that were economically or politically crucial, from the White House’s point of view. Manufacturing, particularly the auto sector, would shrink.
That would mean lower rates of economic growth, for years to come, as the Canadian economy recalibrated.
There is broad agreement among the major parties at both the federal and provincial political levels about how Canada should respond: seek the best available deal with the United States; reduce trade barriers among provinces; establish new markets for Canadian resources and products; invest in major new infrastructure.
Mr. Carney has been working to secure new markets for Canadian exports. At best, that is a long-term solution. The Canadian economy faces serious headwinds. The United States is this country’s natural export market, will always be, tariffs or no tariffs. We may end up reverting to the trading relationship we had with the U.S. prior to the 1988 free-trade agreement and the 1965 auto pact. If that becomes the new status quo, our economy will be poorer for it.
Sectoral tariffs are already causing economic damage. Automobile companies are transferring assembly line work from Canadian to American factories. The entire automotive manufacturing sector is at risk.
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Older Canadians, with secure jobs or pensions, home equity and investment incomes, will be at least partly insulated from the coming shocks. In a transitioning economy, many younger Canadians will struggle to find secure work and affordable housing.
But polling indicates that Canadians are willing to endure economic pain to safeguard this country’s sovereignty: an Abacus poll released last week showed 70 per cent were willing to accept slower economic growth in order to increase economic independence from the United States. That support cut across regional, age and party lines, the pollster noted.
Canadians will need to keep their spines stiffened. Provincial governments must cease their bickering and learn to work together. Business and labour will need to take risks and tighten belts. And when disputes arise, all sides must walk the path of compromise to achieve a common purpose. In a word: sacrifice.
Canada must learn to stand on its own. Hopefully, that will mean standing beside a friendly United States. But Ottawa, and Canadians, need to be ready for a darker outcome. It will not be easy. But it will be necessary.