The Moose That Roared Why Trump will lose his war with Canada Paul Krugman Aug 24

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Two years ago the idea of a trade war between Canada and the United States would have seemed absurd. Canada was our closest ally, a nation whose soldiers have fought and died alongside Americans in many wars, up to and including Afghanistan. Most of us speak more or less the same language. And we’ve had free trade agreements with Canada since 1988, with the most recent version signed by none other than Donald Trump.

But days after taking office, Trump II imposed steep tariffs on Canadian goods. His supposed economic rationale was nonsensical, and I immediately argued that it was a “dominance display”. Canada is a relatively small economy that relies heavily on selling to the U.S. market. So Trump believed that he could make an example of Canada, forcing it to grovel and even possibly bullying it into becoming the 51^st state.

Fortunately, it didn’t work, as a provoked Canada reacted with defiance. Among other things, most Canadian provinces have banned sales of U.S. alcohol, a serious blow to U.S. businesses. Before Trump began his bullying, Canada’s Conservatives were generally considered to be a shoo-in to win the April 2025 election. But the perception that the Conservatives were Trump-friendly led to a stunning upset that made Liberal leader Mark Carney Prime Minister:

Carney currently has 60 percent approval and 31 percent disapproval — almost exactly the opposite of Trump’s numbers.

Yet a bully refuses to learn that his actions are counterproductive and instead doubles down. So Trump persisted, most recently by imposing steep new tariffs on Canadian exports, invoking a never-before-used section of the 1930 Smoot-Hawley tariff act as legal justification. In an effort to head these new tariffs off, Canada entered negotiations with the United States, talks that for a while seemed on track to ramp down the tensions. But on Friday Canadian negotiators walked out — and the U.S.-Canada trade war is now on.

Why did the talks break down? According to U.S. officials, the Canadians made additional last-minute demands, although they offered no specifics on what these demands were. According to the Canadians, it was the Americans who suddenly changed the terms. According to the Toronto Star, Carney

was faced with a trade agreement that was suddenly transformed into an attack on Canadian sovereignty, an attempted psychological annexation that could have turned Canada into an American client state, a sort of North American Belarus.

Does anyone seriously doubt that Canada, not the Trump administration, is telling the truth?

Anyway, the trade war is now on. Who will win it?

On the face of it, the opponents — I still have to rub my eyes at the idea of Canada as an enemy — appear extremely unevenly matched. The U.S. economy is a dozen times larger than Canada’s. We buy three-quarters of their exports, while they buy only about a sixth of ours. Surely they must have much more than we do to lose from trade conflict.

Yet one clear lesson from a year and a half of Trumpian trade war is that when trade conflicts become extreme, access to crucial imports is more important than the ability to export to another country’s markets. In the case of Trump’s tariffs on China, they have been little more than an inconvenience to the Chinese economy. But China’s threat to cut off exports of rare earths is an existential threat to Western technology industries.

And the U.S. economy is far more dependent on Canadian goods than most Americans realize.

For example, Trump has declared that the U.S. doesn’t need Canadian lumber, an assertion whose truth depends on the meaning of the word “need.” The U.S. does indeed produce most of its own lumber, but Canada dominates the supply of lumber with a high strength to weight ratio, which is preferred by contractors for framing.

Another example: The U.S. is a net exporter of crude oil, but imports millions of barrels a day from Canada, mainly into the upper Midwest. That region could in principle get its oil from Texas instead, but that’s an immediate non-starter: the pipeline infrastructure isn’t there and refineries need heavy Canadian crude rather than lighter Permian basin oil.

Yet another example: U.S. imports of electricity from Canadian hydropower are small compared with overall consumption, but are often a significant part of total supply in New York and New England.

And a disruption of the huge U.S.-Canada trade in automobiles and auto parts will be immensely disruptive to the auto industry on both sides of the border. U.S. automakers and other manufacturers are already at a competitive disadvantage because of Trump’s tariffs on Canadian steel and aluminum.

The point is not that Canada has “escalation dominance” — the ability to retaliate to every U.S. action with an even more damaging counterreaction — in a trade conflict with the United States. Rather, the point is that an all-out trade war would create a lot of pain in the U.S. in addition to inflicting severe damage to the Canadian economy. And all indications are that the Canadians will be much more willing to bear the pain of a trade war than Americans will – especially given that the great majority of Americans are already dissatisfied with Trump’s economic management.

Despite Trump’s best efforts, only a minority of Republicans — and nobody else — has been persuaded that the Canadians are acting badly:

On the other side, Trump has managed to convince Canadians of all political stripes that the U.S. can’t be trusted:

So, does Trump have any chance of winning his trade war with Canada?

The truth is that it’s hard even to figure out what a Trump win would mean in this context. Would it mean Canada agreeing to become the 51^st state? That’s not going to happen.

Would it mean, as Carney suggested in his remarks after the talks broke down, Canada giving up on its promotion of French as a co-equal language with English? That also won’t happen.

Or would it mean Canada making enough concessions that Trump can at least claim victory? That’s also tricky, because until Trump went on the attack Canada wasn’t doing anything wrong. So it can’t promise to end its unfair policies when there basically weren’t any such policies.

The bottom line is that Trump is going to lose his trade war with Canada as thoroughly as he has lost his shooting war with Iran. But because he won’t face reality, trade with our northern neighbor will probably be disrupted until the narcissistic bully in the White House no longer controls trade policy.

MUSICAL CODA

Who says Canadians don’t get angry?