What’s the Matter With Canada?

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Five years ago, U.S. President Donald Trump ushered in a new phase in the U.S.-Canadian relationship: the United States–Mexico–Canada Agreement (USMCA). Trump has described the agreement, which borrows heavily from the Trans-Pacific Partnership (TPP) agreement with some modifications, as a “terrific” accord. In his second term, however, the president has a new deal with Canada in mind: an outright acquisition.

As Trump told reporters on Thursday, “Canada only works as a state,” insisting that the country become the fifty-first state. Already, Trump has levied a series of new tariffs and threats, economic and otherwise, that threaten to plunge Canada’s economy into crisis.

Trump’s threats to annex Canada shouldn’t be taken lightly. Nor should the grave consequences of removing Canada from the Five Eyes intelligence-sharing alliance (a group that consists of Canada, the United States, the United Kingdom, Australia, and New Zealand) or reevaluating the North American Aerospace Defense Command (NORAD)—two unprecedented actions briefly floated by the president’s team to punish our northern neighbor for its perceived failures to trade fairly and curb unauthorized migration and fentanyl smuggling.

Real estate seems to be front of mind for the president, whether it’s his focus in Canada, Gaza, or Greenland. He has insisted that the United States and Canada are divided by an “artificial line of separation.”

This tough talk is a sharp departure from past presidential rhetoric about one of the United States’ closest allies. Consider what U.S. President Ronald Reagan said when he signed the U.S.-Canada Free Trade Agreement Implementation Act in 1988. “Let the five-thousand-mile border between Canada and the United States stand as a symbol for the future,” he said. “No soldier stands guard to protect it. Barbed wire does not deface it. And no invisible barrier of economic suspicion and fear will extend it. Let it forever be not a point of division but a meeting place between our great and true friends.” 

Yet as in so many areas, beneath Trump’s unconventional way of presenting his perspective lie nuggets of truth. The grievances with Canada that the president has articulated are hardly unprecedented or unfounded. During my tenure as U.S. trade representative in the Obama administration, I saw firsthand the many persistent trade irritants in the U.S.-Canada relationship, from Canada’s subsidization of softwood lumber to its protectionist dairy policies to other policies that target large U.S. firms.

The timber trade is a prime example. The U.S.-Canadian lumber spat is two centuries in the making, dating back to the early nineteenth century, when Canadian traders fought to ship lumber down the Saint John River, and its tributary, Maine’s Aroostook River, to reach customers in the United States and beyond, much to the chagrin of American loggers. As legend would have it, things grew so tense that lumberjacks from New Brunswick and Maine faced off with axes in hand and mounted a series of armed cross-border raids to seize contested parcels of land and lumber stocks.

Today, the dispute is more civilized but still thorny: the Canadian government owns nearly all of Canada’s forest land and grants logging concessions to domestic producers at bargain prices. In the United States, by contrast, most timberlands are privately owned, and new logging concessions are acquired at market rates, placing American timber firms at a material disadvantage vis-à-vis their Canadian counterparts. While Canada maintains that low fees to harvest the timber on government land fall outside the World Trade Organization’s rules on subsidies, the United States has repeatedly taken anti-dumping measures to curb the flow of lumber into the United States at extremely low prices. Last year, for example, the Joe Biden administration doubled tariffs on imports of Canadian softwood lumber. 

I don’t expect Canada to privatize its timberlands anytime soon, but there are steps Canada could take to level the playing field. And we’ll see to what degree Trump’s new executive order to immediately expand domestic timber production on federal lands, for the sake of “national security,” neutralizes the Canadians’ unfair trade practices.

Then there is Canada’s war against foreign cows. Under the auspices of “dairy supply management,” a program through which the government imposes tariffs of well over 200 percent on dairy imports, Canadian dairy farmers enjoy a de facto monopoly in their domestic market. In Canada, Big Milk has more lobbyists than Big Oil and spends some $80 to $120 million CAD per year to maintain its market power, much to the detriment of Canadian consumers and foreign exporters.

Trump is right to be outraged by what critics characterize as a price-fixing cartel. There are a lot of Canadians who also believe it should be dismantled. But he’s wrong to say that U.S. dairy farmers are really paying tariffs north of 200 percent. Expanded under Trump’s USMCA (and initially under the TPP), Canada opened up a sliver of its dairy market, something equivalent to 3.6 percent, while also applying a series of tariff rate quotas. Dairy products in fourteen categories such as milk, cheese, yogurt, and butter can be exported to Canada duty-free up to a certain level, after which they face tariffs up to 200 percent. U.S. exporters have yet to exceed the new tariff rate quotas, thus enjoying tariff-free access to the Canadian market. The fact remains that Canada was the United States’ second-largest agricultural export market in 2024, buying some $28 billion of U.S. agricultural products and leaving the rest of the non-USMCA world to contend with Big Milk’s tariffs.

This is all to say, there are more than a few grains of truth to Trump’s complaints about Canadian trade policy, not to mention Canada’s digital services tax. Canadians are angry (or as angry as “Canada nice” allows). They wonder what they did wrong to attract more venom than China from Trump. And they want to know what they need to do to get out of the doghouse. They have announced strengthened border action on unauthorized migration and fentanyl, but compared with the situation on the United States’ southern border, these are not major problems. Rather, Canada can and should finally address the longstanding, outstanding trade issues because they go to the heart of the unfairness the president sees in the global trading system: other countries taking advantage of the United States.

Yet Trump’s tariffs against Canada seem motivated by something broader than just trade. They appear designed to generate leverage, force Canadian leaders to bend a knee, and put the rest of the world on notice that he’s in no mood to bluff. 

One issue with this bellicose approach, however, is that Canada can respond in kind. Imitation is the highest form of flattery, but in a trade war, it leads to an escalatory spiral. Trump’s use of tariffs as a strategic cudgel will not only directly increase the cost of living for U.S. consumers, but it will also provoke retaliatory tariffs that will hurt U.S. exporters—and the workers, farmers, and ranchers who produce those exports. What’s more, it will whip up nationalistic political sentiment among our trading partners and incentivize other leaders to deploy tariffs and other trade restrictions as a go-to option. 

This cycle is already manifest in the budding U.S.-Canada trade war. In less than fifty days, Trump has upended Canadian politics. “Canada first” patriotism is surging, epitomized by the dramatic rise in the polls of the Liberal Party (now led by Mark Carney instead of Justin Trudeau) and a nationwide “buy Canadian” movement that seeks to avoid classic U.S. products, from Jack Daniels to Coca-Cola, in favor of domestic alternatives—even if they don’t taste as good. In one poll of Canadians, 42 percent of respondents said they would “absolutely do everything” to avoid buying U.S.-made products. That’s a big deal, given that Canada imported more than $300 billion of U.S. products in 2024.

A boycott of U.S. products is just one item at stake. Despite Trump’s insistence that the United States doesn’t “need anything” that Canada provides, the two countries are dependent on each other for natural resources. Canadian heavy crude oil, which Gulf Coast and Midwestern refineries are optimized to handle, accounts for about 52 percent of U.S. petroleum imports. Few other countries, such as Venezuela, offer comparable substitutes. It’s not easy or cheap to modify the refineries to use lighter, sweeter crude. Canadian power companies export significant quantities of electricity from Ontario and Quebec to keep the lights on in Michigan, Minnesota, and much of the Northeastern United States. Canada is rich in critical minerals, and the United States relies on Canadian mines for nearly 50 percent of its primary nickel imports and 60 percent of its refined zinc imports.

Canadian potash, a family of mined and manufactured salts that contain potassium in a water-soluble form, is also the unsung lifeblood of U.S. agriculture in the Midwest, where most soil lacks enough potassium to produce plentiful harvests. Canada is the world’s dominant potash producer, and the United States imports roughly 80 percent of all potash from the country. Were Canada to apply a potash export surcharge or export cap and sell its potash to other markets, the United States would be forced to rely on Belarusian, Chinese, or Russian suppliers. From food security to energy security, Canada is an indispensable partner.

The same is true in the military domain. Under the auspices of NORAD, Canada and the United States protect North America from our foremost military competitors: China, Russia, and North Korea. Operating side by side under a unique joint command structure, the U.S. and Canadian militaries stand ready to track and intercept aerial and maritime threats. In the wake of 9/11, Canada fought alongside the United States in Afghanistan, where 158 members of the Canadian armed forces lost their lives in the fight against the Taliban.

As a member of the Five Eyes, Canada likewise helps the United States intercept signals intelligence from our adversaries, gathering data on foreign military systems, including intercontinental ballistic missiles, from a network of listening posts. Indeed, Canadian Forces Station Alert, at the tip of Canada’s Nunavut territory, remains the northernmost permanently inhabited settlement on earth, a base where some fifty Canadians brave the Arctic to collect intelligence–largely on our behalf. 

The Trump administration briefly floated the idea of revisiting these joint activities. It then walked that threat back, perhaps because the United States itself would have much to lose if those activities were interrupted.

Canadians have had a historical affinity for the United States, even if it has occasionally been accompanied by a healthy-sized chip on their collective shoulder. But a Léger poll conducted in late February found that more than a quarter of Canadians view the United States as an “enemy country,” while an Ipsos poll that same month found that 68 percent of Canadians thought less of the United States in the wake of its tariff threats.

Being liked isn’t everything, and Canadians are condemned by geography to be forever tied to the United States, whether they like it or not. But it certainly seems like we should be able to solve our outstanding issues with the Canadians, of all people.

It’s been a volatile couple months in U.S.-Canada relations, with tariffs on and tariffs off, sometimes on the same day. Will Trump continue the tit-for-tat and, if so, to what end? How far will Canadian nationalism go? And which country is next on Trump’s list? At the current tempo, we’ll soon find out.