Why Canada Won't Back Down to Trump

0:05The U.S. and Canada are fighting again. Dropping the gloves to fight an all-out trade war. President Trump slapping 50 % tariffs on 20... Canada imposed retaliatory tariffs against the United States today as the two neighbors slide toward an all-out trade war. The escalating trade war with Canada has ruptured a once-close and durable alliance. Last month, the Trump administration threatened Canada with a 50 % tariff on certain Canadian goods. And last weekend, those tariffs went into effect.

0:40Gavin Bade:So Trump kind of reignited this trade conflict on his own accord. Then, Canada hit back. I think the Canada tariffs are really interesting because, as we'll get into, Canada is really the only U.S. ally to retaliate to Trump's tariffs with tariffs of their own. That's our colleague Gavin Bade. He covers trade policy. And that's why you see us periodically get into one of these tit-for-tat tariff encounters or conflicts with, you know, our friends up in Ottawa, because they actually stand up to Trump, whereas a lot of other people have not. America is trying to break us so they can own us. And I promise that that will never, ever happen.

1:28Yeah, how would you characterize this moment that the U.S. and Canada are in?

1:32Gavin Bade:You know, I think there's a lot of bluster and a lot of tension on the surface. The U.S. administration's showing they really want to publicly pressure Canada, and they really want to show that they are the dominant nation in this relationship, but they also don't want to affect the U.S. economy that much before the midterms. So it's an interesting nuanced situation going on here that I think goes beyond the bluster in Trump's truth social posts. Gavin says that this latest resurgence of the tariff trade war is different. The bluster is escalating because both President Trump and Canadian Prime Minister Mark Carney have refused to blink.

2:08Gavin Bade:They were supposed to come to an agreement and then right before the tariff deadline, things fell apart. And we saw that U.S. imposed tariffs. Then Canada came back, said they would impose more tariffs. Then the U.S. said, well, if you do that, we'll impose more tariffs. And so we can see the ball is kind of rolling down the hill here. And what's at stake is the health of both economies and also the political future for both leaders. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Wednesday, August 26th.

2:45Coming up on the show, why Canada won't back down to Trump.

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4:35The two men at the center of this trade fight are U.S. President Donald Trump and Canadian Prime Minister Mark Carney. And it was Trump who started it.

4:44Gavin Bade:So in Trump too, initially what Trump did was he came in and he put these tariffs on Canada, Mexico and China, supposedly for their role in fentanyl trafficking. And they've killed 300 ,000 people last year, my opinion, have been destroyed by drugs, by fentanyl. The fentanyl coming through Canada is massive. He said there was fentanyl that supposedly was coming over the U.S. border from Canada. This is killing Americans. And they said that Canada wasn't doing enough to stop it. So they said, we're going to put this tariff on Canada. And this is like one of the first tariffs that the Trump administration imposed, right?

5:21Gavin Bade:Indeed. These are the first tariffs that Trump imposed in Trump too. And so right off the bat, they're kind of the Canadians were really aghast that why would you come back and hit us like this? There's not much fentanyl at all going over the border from Canada by the admission of customs here in the U.S. So they thought, why is this even happening? It wasn't just the tariffs. Trump was also openly antagonizing Canada. Canada has been very, very bad to us, very unfair to us on trade. So we'll see how it all works out. I would love to see Canada be the 51st state. You can't imagine how much that insults Canadians, right?

5:56Gavin Bade:Like, they are generally stereotyped as very nice people, very polite, but they're also very proud. And they were taken aback by these comments from what they thought was their closest neighbor and ally, certainly their biggest trading partner. On the other side of the fight is Mark Carney, who, when this whole tariff battle started, wasn't even prime minister yet. He was actually kind of a long-shot candidate. Before the tariffs ever go into effect, it looks very unlikely that Mark Carney would ever be elected as prime minister of Canada. Remember, this is Justin Trudeau is coming out of office.

6:32Gavin Bade:he's relatively unpopular, right? He steps down. He was a liberal, right? He was a liberal just like Mark Carney. So he's about to step down. There's going to be an election in Canada. All the polls point to the conservatives sweeping into power. Their leader was very close with Trump in a lot of ways and had praised Trump in the past. Well, then Trump comes in and starts talking this trash about Canada should be a state, starts imposing tariffs, you know, on what Canadians would say are dubious grounds to say the least. And Carney says, I will stand up to him. I know how to do this. I was a central bank governor not only in Canada, but in the UK.

7:05Gavin Bade:I know economics. I know how to stand up to this guy. My question to Canadians is simple. Is Pierre Polyev the person you want sitting across the table from Donald Trump? And you saw him surge in the polls. And that lead kind of brought him into being prime minister. So he really owes his seat and he owes his leadership role in government to being tough on Trump. And so that adds a different element to a lot of these trade negotiations, right?

7:39With Carney in office, Canada didn't just turn the other cheek when Trump took a swing.

7:44Gavin Bade:Yeah, Canada each time has responded what they would say are dollar-for-dollar tariffs, right? So they will look at what the U.S. has tariffed, and they'll also look at some trade-reliant industries in purple states. We saw a lot of attention to, like, you know, industries that could be in Maine or, like, now in New Hampshire, maybe in Michigan, right? And a lot of those coordinate with what the U.S. has tariffed. So the U.S. threw tariffs on automobiles, Canada threw tariffs on automobiles. And so I think that the Canadians would argue that they've been very proportional in their responses, saying that we're only imposing tariffs on the same dollar amount of trade that the U.S.

8:18Gavin Bade:has. In 2025, after the U.S. imposed the first run of tariffs on Canada, things de-escalated pretty quickly. In part because Trump turned his attention to other trading partners with his Liberation Day tariffs. Those got caught up in legal battles and were ultimately thrown out by the Supreme Court. There were a couple other policy things that happened. He exempted a number of products from his tariffs on Canada and Mexico, partially because it was really hurting U.S. automakers. When he did that, then Canada also exempted a bunch of products from their tariffs, and that kind of brought the temperature down for a little bit.

8:53Gavin says the tariff standoff between the U.S. and Canada was basically dormant after that. But the Canadian government had demonstrated something important, that it wouldn't just go along with Trump's demands like other allies had.

9:07Gavin Bade:Most countries did not respond with tariffs of their own. There have only been two countries to actually respond with retaliatory tariffs, Canada and China. Think about other major U.S. trading partners, like the European Union, Japan, or South Korea, United Kingdom as well. Instead, they said, let's come to the table, let's talk and try to work out a negotiated agreement where we can at least bring down the tariff level on a few industries, right? They accepted the fact that there are going to be new U.S. tariffs of some level in the second Trump term. They said, can we just negotiate these down?

9:41Gavin Bade:And by not retaliating, by kind of playing nice with the U.S. even after they hit them with these tariffs, that enabled them to kind of sit down and talk with the Trump administration, ultimately come to some interim, you know, kind of tentative deals. So the Canadians have not been able to do that in part because they hit back before they sit down. That's a big difference in the approach here. So what sparked the latest flare-up? And what happens if Carney or Trump doesn't back down this time? That's next.

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10:57The United States-Mexico-Canada Agreement, better known as USMCA, is a trade deal between the three neighboring countries. It was put in place during Trump's first term to replace NAFTA. Most of the recent tension between Canada and the U.S. started boiling up again when it came time for that deal to be renewed.

11:17Gavin Bade:So then we arrive in the summer, right? There's this July 1st deadline on USMCA. That is legally when the three nations had to come together and say, OK, either we're going to renew this deal in its current form, or we're going to enter a renegotiation process. Canada and Mexico said, we'd love to renew the deal. Trump said, absolutely not. Trump wanted to renegotiate the USMCA with both countries. The U.S. and Mexico almost immediately kick off formal negotiations. We've now had three formal rounds of talks with the Mexican government aimed at renegotiating USMCA. But the U.S. would not open formal negotiations with Canada, in part because Canada still had some retaliatory tariffs on the books.

12:04What is it that the Trump administration wants from Canada?

12:08Gavin Bade:Well, first, I think they want Mark Carney to be pliant. They want them to accept the fact that there are going to be tariffs on Canada and accept their perspective that Canada has been screwing us for a long time and that's why you deserve some level of tariffs. First and foremost, they need to sit down and respect us as the dominant economy in North America. We're not negotiating from an equal footing here. We're the dominant economy. We support you and you have to basically do what we say within reason, right? I think that that is very important for Trump personally, right, and for other people on his team.

12:39Gavin Bade:After that, I think they wanna see Canada take a lot of these lingering protections on some of their industries away. There's a quota system of protections for Canadian dairy. The initial tariff is very low, but then if imports of U.S. dairy products go over a certain point, then there's a very high tariff. You've seen Trump cite that over and over again. You know, in the automotive sector, the U.S. really wants something, what's called a U.S. content requirement. So if you were making a car in Canada that you were going to export to the U.S. under some sort of new trade agreement, they want it to be at least half U.S.

13:12Gavin Bade:parts, right? In July, as part of a way to put pressure on Canada, the Trump administration issued its new tariff threat with a deadline of August 19th. And so Canadian negotiators fly down here. They're meeting with Ambassador Greer, the U.S. trade representative, and his team. They're down here for weeks, right? And they're talking, talking, talking. Then last week, it seems like there's a breakthrough. The first tariff deadline was going to be 12.01 Wednesday morning. And late into the night on Tuesday night, we get a truth social post from Trump saying, I'm delaying these tariffs for three days on the grounds that we have a deal with Canada.

13:51Gavin Bade:And everyone's like, wow, OK, I didn't think they were going to get there. They've got a deal. But as they get into the details, each side starts to ask a little bit more of the other. And trade talks kind of fall apart. The Trump administration confirming tonight there is no deal ahead of the tariff midnight deadline, meaning that tariffs will go into effect at 12.01 Eastern time. And so very late on Friday night, we get word from both sides that actually we've walked away from the table. There's not going to be a delay. There's not going to be a deal. These tariffs are going to go into effect 12.01 Saturday morning.

14:26Gavin Bade:And so they do. The next morning, Carney held a press conference saying that Canada would issue tariffs of its own. Canada will match Washington's new tariffs dollar for dollar in order to protect Canadian workers, farmers, families and businesses. Trump administration comes back and says, great, if you're going to do that, then we're going to respond with more tariffs. And you know how your automobiles are only at 25 percent tariff right now? Well, starting in January, it'll be 50 percent. And so they up the ante more. And then Carney comes back and says, we'll probably respond to that as well.

15:01Gavin Bade:So there's kind of a, you know, he said, he said thing going on here. Who started it? Even if the U.S. started it, was that justified before? There's kind of some finger pointing going on back and forth here. The scene that I'm picturing in my head is like two kids on a schoolyard, each grabbing each other by their shirt and just punching each other back and forth in the face. There's some truth to that, certainly. Although I've been told by both sides that, you know, these negotiations were not acrimonious and like they, you know, were very respectful. I don't know how much that is to be believed at this point, right?

15:36Gavin Bade:It's clear that there's some differences in opinion and also personalities on both sides of this issue, right? But what I do think is interesting is beyond all of that bluster, there has been some restraint from both sides here. There's restraint. And then what's being fought over here is actually pretty limited. The tariffs are at a rate of 50%, but only on$20 billion of Canadian exports to the U.S. That's only about 5 % of Canadian exports to the U.S. yearly, right? And so while it will hit those specific products very hard, it's not going to have huge ripple effects across the economy, right?

16:14It's not on all of Canada's exports. It's just on a sliver of them, 5 % of them.

16:18Gavin Bade:Right. What was on paper was only 5 % of Canadian trade, right? And so then when Canada hit back, they hit back on a similar dollar amount. So while we're going, you know, while we're calling each other names and going tit for tat, actually the economic impact of this is not as big as it might be, right? It's maybe not a punch in the face. Maybe it's more like a pinch. A pinch or something, yeah. On the arm. But that's how a schoolyard fight starts, right? Someone pinches somewhat or someone says something and then all of a sudden you're brawling, right? While the actual dollar amount is relatively small, the rhetoric on either side of the border has escalated.

16:53Ontario Premier Doug Ford called Trump a dictator. And on Truth Social, Trump threatened to rename Lake Ontario, saying that the administration is giving serious consideration to calling it Lake America. What's the sentiment that you're hearing from our Canadian friends right now?

17:09Gavin Bade:They're aghast, but they're really stiff-spined right now. I think there's a lot of sentiment in Canada that they want to see their government stand up to Trump, and they didn't want to take a deal that they thought was not advantageous to them or not fair. So they feel really put off by this. They don't understand this economic aggression as they see it from the U.S. And they are really, you know, supportive of Carney standing up to Trump. You see a really united front to stand up to Trump in Canada. And I think that's something that we don't hear about as much in the U.S., but public opinion is very, very tilted against the U.S.

17:45Gavin Bade:in these talks, at least in Canada. What's your sense of how the Trump administration has felt about Canada's response? They think that Canada is totally reliant on the U.S. market, which is actually the case right now. They've been trying to diversify. And they think the Canadians just hold no cards and that they're being kind of petulant. And they kind of want to put them in their place, right? You keep seeing Trump saying they're terrible to do business with. You know, they don't get it. That's because Carney's standing up to him. And Trump does not like that. He wants to be kind of in control of the narrative in these conversations.

18:16Gavin Bade:He wants to start these negotiations from a position of strength. The Canadians, they're saying, elbows up. We haven't been screwing you. We're your best friends. You mentioned earlier that China is the only other country to stand up to Trump. How did it work out for them? So this is a really good allegory for what's happening with Canada. The Chinese did not back down either. In fact, they played a real trump card in these negotiations, which was to restrict the export of rare earth magnets that are critical for the automotive sector, for US defense companies, and that we can't really get from anywhere else.

18:50Gavin Bade:Well, the US cried uncle and we said, okay, okay, we'll come to the table. We'll do a tariff deal with you. We'll both lower the tariffs if you allow some of these magnets to come out. So they tried to make China do what they wanted and they escalated as far as they could. And they actually found that China had more leverage in these negotiations than they thought. And they actually had to back down, right? And since then, you've seen them actually play relatively nice with China. There are some economic security things that they do, but we're not in an escalating tariff war with China at this moment.

19:21Gavin Bade:Does Canada have as much leverage as China, though? The Trump administration thinks that Canada doesn't have much leverage. If we just go on this escalatory ladder, at one point, they're going to have to cry uncle and accede to our demands. Well, that may be true. It may be not. Canada has other cards they can play here as well. We import a lot of electricity from Canada into some border states. They could start to impose an export fee on that. They could start to cut off electricity exports to U.S. border states. We also get a lot of critical minerals from them. What if they started telling us, oh, now we have a licensing requirement here and we're not going to look favorably on exports of critical minerals to the U.S.?