In this Impact opinion piece, Christian Dippel, Associate Professor of Business, Economics, and Public Policy at Ivey Business School, distills key insights from his full Lawrence Centre Perspective on U.S.- Canada trade relations.
When the Trump administration first took aim at trade with China in 2017, the rationale was clear. Economists largely opposed the tariffs, but the political logic was undeniable – Chinese imports had eroded American manufacturing, gutting the Rust Belt, where Donald Trump enjoys massive voter support.
This time, the target is Canada, and the move is far more puzzling. Not only will these tariffs drive up inflation – a top political issue in 2024 in a way it wasn’t in 2016 – but Canada is not China, in ways that should matter.
So, if you’re wondering why this is happening, you’re not alone.
Yet, while the media frames this as a long-term shift in U.S.-Canada trade relations, I see it differently. Trump’s tariffs are more about symbolism than strategy – of political posturing over a focused course of action. And because of that, I believe tensions will ease sooner than expected. Here are six reasons why.
1. Trump’s negotiation style is disruptive, not strategic
Trump’s negotiation style thrives on disruption. From a game theory perspective, he treats trade policy as a series of one-shot games, where being unreasonable can create leverage. This is something he excels at and is a tactic that often shifts outcomes in his favor. However, as the 2026 renewal of the Canada-United States-Mexico Agreement (CUSMA) approaches, the game will change, and trade talks will inevitably return to more conventional, cooperative negotiations.
2. Reducing trade deficits won’t boost the economy
Many believe that reducing trade deficits and cutting imports will boost GDP, but this is a misconception. Trade deficits are driven more by capital flows than trade policy. When foreign investment flows into a country, its currency strengthens, making exports more expensive and imports cheaper – naturally leading to a trade deficit. This means restricting trade with Canada won’t stimulate U.S. economic growth.
3. The ‘Triffin Dilemma’ makes U.S. trade surpluses impossible
The U.S. dollar’s role as the world’s reserve currency, along with global demand for USD assets, creates a persistent trade deficit for the country. This is known as the ‘Triffin Dilemma,’ where the dominant global economy must supply the world with its currency, which inevitably leads to trade deficits. As a result, Trump will eventually have to shift his focus away from tariffs.
4. Canadian imports strengthen American manufacturing
Unlike imports from China, which largely consist of finished goods that displaced U.S. manufacturing, Canadian exports are primarily raw materials, energy, and agricultural products. These serve as essential inputs for American industries. Making these imports more expensive undermines Trump’s goal of reshoring supply chains.
5. Inflationary pressures will force a policy shift
Tariffs on Canadian goods, especially energy and food, will increase costs for American manufacturers and consumers. With inflation a major voter concern, particularly among Republicans, pressure will mount to ease tariffs to prevent further price hikes. This political reality will likely accelerate the rollback of trade restrictions.
6. Political shifts in Canada could reset trade relations with the U.S.
Trudeau and Trump have always had fundamental policy differences, adding to trade tensions. However, with Canada’s federal election approaching, a new government could shift the political landscape, paving the way for smoother U.S.-Canada relations.
A temporary disruption, not a lasting policy shift
In combination, these six arguments strongly suggest to me that we should expect a normalization of U.S.-Canada trade relations relatively soon, and that we’ll be back to normal by the time CUSMA negotiations pick up in earnest.
Want deeper insights into U.S.-Canada tariffs and why trade tensions may be short-lived? Read Christian Dippel’s full perspective now on the Lawrence Centre’s website.
