In war, the first casualty is truth.
This venerable adage applies perfectly to U.S. President Donald Trump’s trade war with Canada.
Since Prime Minister Mark Carney decided not to accept the U.S. president’s trade terms on Aug. 21, Trump and his cabinet have unleashed a storm of misinformation. They aim to justify the conflict to disapproving Americans, and to divide and demoralize defiant Canadians.
As Canada’s reciprocal tariffs on $28 billion in U.S. goods take effect this week, we can expect even more pressure — economic, informational, and political.
We need to cut through this fog of war by busting some myths. Here are five.
Myth: Without a U.S. deal, Canada’s economy would be devastated.
Truth: A deal is important, but not existential.
U.S. trade is vital to our economy. In Ontario, 900,000 jobs depend directly on it. Even with substantial growth in non-U.S. markets in the last year, close to 70 per cent of Canada’s exports still flow southward. The Canada-U.S.-Mexico Agreement is important to our prosperity, and businesses are anxious for its renewal.
A 25 per cent tariff is severe — but survivable
There is a difference, however, between important and existential. Some 70 per cent of our exports does not mean 70 per cent of our economy. Economists’ estimates suggest that U.S. trade represents approximately 15 per cent of Canada’s GDP. Since some half of this represents goods for which the U.S. has no other viable source, our vulnerability is about half of this total. A 25 per cent across-the-board tariff would knock a couple of percentage points off Canada’s GDP growth — severe but survivable.
Myth: The U.S. is too big to care about Canada’s counter-tariffs.
Truth: Counter-tariffs will cause pain in both countries.
It’s true that tariffs usually hurt the country imposing them more than the country they target. For local businesses, they make imports more expensive and nudge up prices from domestic competitors.
It’s also true that many Canadian businesses will be hurt less by Trump’s tariffs than Canada’s counter-tariffs, and that the massive U.S. economy will barely feel Canada’s response.
That does not mean they can’t be politically effective. The impact will be felt in highly targeted industries and regions — particularly in economically linked battleground border states such as Ohio, Michigan and Maine where senate seats hang in the balance in November’s U.S. midterm elections. It is also a signal that Canadians will not easily surrender, and that respecting CUSMA is a more sensible path for America.
Myth: Trump’s tariffs will reindustrialize America.
Truth: U.S. businesses depend on free trade and stable alliances.
While tariffs were popular 100 years ago, today’s global economy depends less on national economies than interdependent, international ecosystems. The most sophisticated example is North America’s auto industry. Because its competitiveness depends on supply chains that span the U.S., Canada and Mexico, Trump can’t hurt our industry without damaging his own.
There are other realities: tariffs are driving up costs for U.S. businesses and consumers — the people who pay them. And the constant changes in trade policy are dampening business investment and job creation, and driving up the risk premium for U.S. investment.
Finally, the damage to America’s international relationships has been severe. When your allies and partners decide you are untrustworthy or unreliable, they build new relationships elsewhere.
Myth: Free trade with the U.S. was a mistake.
Truth: Free trade made us prosperous, and we need to expand it with other nations and trading zones.
This one is tempting to believe, because it’s true that Canadian business, infrastructure, and supply chains and merchandise exports have become much more oriented toward the U.S. in the last four decades.
However, no one can deny the economic prosperity and productivity gains unleashed by free trade as exporters gained broader access to the world’s largest market.
Free trade was never supposed to be about America alone. Since the late 1980s, Canada has signed some 15 free trade agreements with 51 countries representing two-thirds of the global economy.
The mistake Canada made wasn’t choosing free trade with America; it was not building on this success by aggressively helping business expand trade to other markets.
Myth: Carney’s biggest job is to get a deal with Trump.
Truth: Carney’s biggest job is to restore dynamism to the Canadian economy.
The Canadian government made various unilateral concessions to bring the U.S. back to the table, and then negotiated with a good faith that was not returned.
The current president is uninterested in any fair deal and unwilling to abide by any deal he signs. While Canada should keep open lines of communication, until U.S. political dynamics change, we will have to live with short-term turbulence rather than accept long-term subjugation.
Surveys suggest that Canadians are clear-eyed about this: they know there will be pain, but see it as necessary to forestall a long-term threat to our businesses, our economy and our sovereignty.
Our governments will therefore be judged on how well they make good on their promise to build our own economy: incentivizing capital investment, expanding interprovincial and international trade, building infrastructure, developing a skilled workforce, and making it attractive for high-potential businesses to grow and sustain themselves in Canada.
Doing this requires both discipline and unity, rooted in a clear-eyed understanding of the facts. That’s why in a trade war, Canada’s defence starts with the truth.
