THE COST OF DEFYING DONALD TRUMP ARE MOUNTING FOR CANADA / THE ECONOMIST

Deal or no deal

The costs of defying Donald Trump are mounting for Canada

But the waiting game is Mark Carney’s only move

Photograph: Alberto Miranda

Mark Carney is governing through paradox. 

Canada’s largest trading partner, the United States, is led by an unreliable man who uses trade barriers as a weapon. 

For Canada, the diversification of trade partners is wise, but takes time. 

Building infrastructure needed to serve new markets requires significant investment. 

And yet little would do more to get that investment flowing than a trade deal with the United States.

The pursuit of such a deal has pushed both countries to the brink of a full-blown trade war. 

Minutes before midnight on August 21st, two days after Donald Trump said that “a very good deal for both parties” was all but done, Canada’s prime minister abandoned the talks, allowing fresh tariffs of up to 50% to come into force on 5% of Canadian exports to the United States, worth $20bn. 

Mr Trump’s price for normal trade relations was too high. “Our goal has been to secure the best deal for Canadians,” Mr Carney said on August 22nd. 

“Never a deal at any price.”

And so on August 25th Canada matched the new American tariffs with levies of its own on some $20bn of American exports, with implementation delayed until September 8th. 

Support for Mr Carney’s decision to walk away is widespread in Canada. 

A survey by the Angus Reid Institute, a pollster, suggests that 76% of Canadians back the move. 

The political risk that comes with signing a trade deal Canadians cannot stomach is far higher than that from Mr Trump’s tariffs.

But however bad Mr Trump’s deal might have been for Canada in the long run, declining it and letting new tariffs come into force will start to hurt soon. 

The Canadian economy grew by 0.8% between the first and second quarters of this year, having grown by just 1.7% in 2025 after the first round of tariffs came into force in March that year. 

Unemployment hit a two-year low of 6.4% in July, but inflation is creeping up. 

David Colletto, the boss of Abacus Data, a pollster, points out that almost two-thirds of Canadian voters cite the cost of living as their most important issue. 

Nothing else comes close. 

“The threat”, says Mr Colletto, “is not that Canadians tire of the fight. 

It is that the fight collides with the cost of living.”

That seems unavoidable. 

Trevor Tombe, an economist at the University of Calgary, estimates that Mr Trump’s new tariffs will push inflation to 4%. 

Some 90,000 Canadians could lose their jobs, bringing the unemployment rate up to 7%. 

And that does not account for damage that will be caused by the retaliatory tariffs.

If Mr Carney follows through on September 8th, retaliation will come with domestic political risks as much as economic ones. 

Some provincial premiers, such as Doug Ford in Ontario, are gung-ho; in July Mr Ford said that Canada could “dismantle the US if we wanted to” by cutting off energy supplies. 

But others, particularly Danielle Smith, the premier of Alberta, are much quieter. 

Alberta provides the United States with about half of its imported oil and has been almost entirely spared from Mr Trump’s duties so far.

Mr Carney has previously ruled out weaponising Canada’s energy exports, perhaps in part because doing so might irritate Ms Smith’s constituents. 

He is now being urged, at a minimum, to consider the possibility of applying an export duty on Canadian energy bound for the United States if Mr Trump follows through on his fresh threat to double tariffs on Canadian-built automobiles to 50%. 

“I don’t think they want us to stop sending any of that energy,” Mr Carney said on August 22nd.

Pain for all

Any levy on Canadian energy is fraught with peril. 

Large eastern cities such as Toronto and Montreal get much of their fuel via pipelines that run through the United States, carrying hydrocarbons both from Alberta and American sources. 

On August 24th Mr Trump made a veiled threat to turn off the tap.

The more existential danger would be to Canada’s national unity. 

In October Albertans will vote in a referendum (triggered by a petition) which asks whether they are happy to remain in Canada or would prefer to hold a second and binding referendum on secession. 

Even if Mr Ford is right that energy exports give Canada leverage over the United States, it is not a weapon that can be used without risking great self-harm. 

The effect of Canada’s federal government cutting off rich Albertans from their biggest customer is hard to predict, but it is unlikely to help the argument for the province to remain Canadian.

Provincial politics also explain part of Mr Carney’s motivation for declining Mr Trump’s deal. 

Quebecers will vote in October for a new provincial government. 

Public-opinion surveys suggest the separatist Parti Québécois holds a slim lead. 

Mr Carney says the United States wanted to water down measures protecting Canada’s French-language and culture, a demand that, if acquiesced to, might have empowered separatism in Quebec, too.

Canada’s retaliatory tariffs target states such as Michigan and Maine where Republican senators are struggling in tight midterm races. 

Mr Carney must hope that America’s cost-of-living issues, inflamed by higher prices on Canadian imports, push Mr Trump to reopen talks and thereby, at last, give Canada some stability.