President-elect Donald Trump speaks at AmericaFest on Dec. 22, in Phoenix.Rick Scuteri/The Associated Press
Jeff Mahon is director of geopolitical and international business advisory at consulting firm StrategyCorp and an executive-in-residence at the Canada West Foundation.
Donald Trump’s threat to use “economic force” to annex Canada has not only broken new ground in his call to make our country the United States’ 51st state, it also strikes deep at the heart of Canadian identity.
When combined with the effective use of economic coercion – in the form of a 25-per-cent tariff threat – to move the needle on a swath of Canadian policies tied to border security and fentanyl, the long-standing belief that Canada is a “trading nation” is at risk of passing into the realm of mythology, where stories are at once tied to reality yet divorced from it.
Like those fur-trading voyageurs who cut a deal with the devil to fly through the sky in a magical canoe to be with their sweethearts on New Year’s Eve, Canada’s proximity and preferential market access to the U.S. has been both a blessing and a curse.
Market access solved some challenges associated with Canada’s smaller market. It helped some sectors achieve economies of scale and promoted the development of the North American automotive supply chain. The path to the U.S. served as the economic development path of least resistance. One result is that 77 per cent of Canada’s exports are destined for the U.S. An unfortunate byproduct is that it bred complacency about building deeper trade relationships with the wider world. This unbalanced dependence on the U.S. enabled the conditions for Mr. Trump’s effective use of economic coercion.
Economic coercion occurs when a country uses economic tools – often the threat of cutting off market access – to punish or influence unrelated policy issues. Regardless of the legitimate concern the U.S. has with Canada on this issue, threatening tariffs is economic coercion. Ironically, Canada and the U.S. have levelled veiled condemnations against China for deploying similar tactics.
The president-elect’s latest attack that seeks to undermine Canada’s integrity as a sovereign state and his musings about territorial expansion are in violation of the spirit of Article II of the United Nations – the bedrock foundation of the postwar rules-based order – which declares that countries “shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state.” Mr. Trump has confirmed that in this new era, where economic security is elevated to the level of national security, economic coercion is a form of force.
While a social-media post or a stump speech is a far cry from Canada becoming the 51st state, the reality is that Canada is on a trajectory to be aligned ever more closely with the U.S. Ottawa’s recently released fall economic statement took great pains to demonstrate the alignment and value Canada brings to the U.S. It even conceived the future of our economic prosperity in continental terms.
The economic statement also correctly identified a key impact of the emerging economic security regime: that “we must recognize that Canada is engaged in a fierce global competition for capital investment and the jobs it creates.” However, it’s here where Canada’s dwindling strategic autonomy and U.S. trade dependence may come home to roost.
As the U.S. also fights for productive investment and jobs, a Trumpian industrial policy will view Canada’s role in continental supply chains differently than the fall economic statement and previous U.S. administrations.
A plausible guide is Immanuel Wallerstein’s world-systems theory, which sees periphery economies serving the core through the provision of raw materials while the added value is derived and retained in the core. This dynamic doesn’t need to be limited to traditional raw materials, like forestry products and energy. It also traps our tech industries, limiting Canada to being a purveyor of R&D and startups to be scaled and commercialized in the U.S.
Mr. Trump clearly sees Canada as a peripheral economy, and in many respects, he is not wrong. The country is now at risk of this becoming our new identity.
Should the U.S. consistently revert to tariff threats against Canada, whether to address traditional trade irritants or to coerce policy outcomes, the resultant uncertainty erodes Canada’s value proposition as an investable platform for accessing the U.S.
Canadian sovereignty needs to prioritize both economic prosperity and the autonomy needed to define and pursue its own interests. While this will often include working closely with the U.S., it excludes being the 51st state or a vassal state.
True independence can only be achieved if we revitalize our identity as a true trading nation, which means diversification. However, history shows that Canada has always struggled with diversifying its trade. While there is no easy solution, Canada needs an approach that reflects hard commercial capabilities and cold geopolitical calculation. This means not basing our trade policy on identity politics and instead inviting agriculture, energy and resources back to the main table alongside advanced manufacturing and innovation.
The Canadian foreign and commercial policy canoe has been adrift for some time now, unmoored from the material and transactional realities of today’s world. Urgent action is needed to prevent it from drifting further into the realm of memory and mythology.