Why Canada Must Keep Talking to Trump’s America
Canada is staring down a trade war it cannot afford to win on symbolism alone. U.S. tariffs are poised to evaporate billions from the Canadian economy and stall investment in critical sectors just as we’re trying to scale innovation and rebuild competitiveness. And yet, the political impulse to escalate—to retaliate, isolate, and pivot away from the United States—is growing louder. However, Canada’s real leverage lies not in retaliation but in knowing when to negotiate.
The month of March opened with rhetorical fireworks and closed with a shift. After tensions escalated between President Trump and Prime Minister Trudeau, newly sworn-in Prime Minister Mark Carney vowed not to engage with the U.S. until the “disrespectful” 51st state jabs stopped. Trump picked up the phone, Carney answered his call. The conversation was labeled “constructive” and “productive,” and the two reportedly agreed to commence comprehensive negotiations after the next Canadian federal election (should the Liberals win). The door to negotiations is now open, and Canada should walk through it.
But plenty of voices are calling for that door to be slammed shut, advocating for Canada to decouple from the United States, pivot to new markets, and build “economic sovereignty.” Needless to say, betting our economic future on a country oscillating between friendship and outright antagonism is not exactly a long-term strategy.
Even in ideal conditions, expanding trade with Asia, Europe, or Latin America will require years of effort to understand local regulations, develop trade infrastructure, and build networks. Most Canadian firms, especially SMEs, lack the bandwidth to retool for that complexity while abandoning a market they already understand. The math is simple: the U.S. remains easier, faster, and more profitable. To be sure, the federal government can and should drive long-term trade diversification by reducing market entry frictions, supporting business development abroad, and investing in export infrastructure. All of this would make it easier for businesses to seek out new markets and hedge on geopolitical risk in the future.
That makes the current tariff threat not just a diplomatic headache, but an economic vulnerability. A blanket 25 percent tariff could reduce Canada’s GDP by 2.6 percent—or about $78 billion, according to early estimates that predate even the additional layers of tariffs on sectors that have since been discussed. Export-heavy sectors like manufacturing, agriculture, and natural resources will be hit first. Such a shock means job losses, stagnant wages, and diminished public revenue for health care, infrastructure, and R&D.
While retaliatory tariffs may offer emotional satisfaction and play well during an election doubling as a referendum on Canadian patriotism, they are not an end in and of themselves. Their value lies in creating pressure, not in prolonging damage. Now that the U.S. has signaled a willingness to talk, Canada must approach the next phase with a clear-eyed strategy and defined priorities.
This should not be interpreted to mean that Canada should roll over or seek appeasement. However, refusing to engage cedes the agenda to others while re-entering the discussion allows us to shape outcomes on our terms. The federal government must approach the next phase of engagement with a clear list of priorities and a tactical lens, providing a clear off-ramp for the Trump administration, which may be reluctant to back off the tariff train out of fear of appearing weak.
Several issues are likely to be front and center in any negotiation:
- Canada’s Digital Services Tax, Online News Act, and Online Streaming Act, all of which the U.S. views as discriminatory
- Canada’s inclusion on the “Special 301” IP watch list
- Longstanding tensions over agricultural supply management
- Foreign ownership limits in financial services, particularly in retail banking
None of these are easy to resolve, but neither are they existential. Some of these issues could be addressed through modest, strategic adjustments with minimal disruption to the Canadian economy. Aligning the Digital Services Tax with OECD frameworks would satisfy U.S. concerns without abandoning Canadian principles. Tweaking Canada’s banking ownership thresholds could introduce more competition without real economic downsides. Even marginal loosening of dairy import quotas would preserve the fundamentals of supply management while opening the door to reciprocal concessions for U.S. import quotas. Canada has room to negotiate, and that leverage should be used to secure the full and permanent removal of tariffs.
If Canada comes to the table first with an open mind, is ready to play ball, and is willing to address legitimate concerns from the United States, then Canada will have a higher chance of driving the agenda of the negotiations. Of course, if Trump isn’t serious about negotiating and is simply playing the longer game of economic coercion, then Canada can and should withhold concessions. And if he continues to indicate that agreements with the United States are temporary and subject to unilateral cancellation, Canada will have little reason to participate in negotiations. But, forcing the United States to say on the record that it is not willing to negotiate in good faith would provide Canada with an even stronger case for retaliation and greater standing on the world stage.
We shouldn’t pre-emptively forfeit our leverage. Re-engagement with the U.S. buys Canada time to diversify our trade partners and build capacity in innovation, infrastructure, and ambitious industrial strategies. Doing so will allow Canada to stand on firmer footing the next time a trade partner decides to become unreliable overnight again.
Canada’s path forward means becoming a more ambitious and productive trading nation that is less reliant, more resilient, and capable of turning said ambition into economic power. But walking away from the most consequential trade conversation of the next decade will not get us there. We aren’t going to win by storming out. We’ll win by showing up with a plan.
