How Canada's Mark Carney is taking on Donald Trump

Trump greets Canada's Prime Minister Mark Carney during a world leaders' summit

(Image credit: Evan Vucci - Pool / Getty Images)

Is Canada worried about Donald Trump?

Yes, Canada is very worried. The advent of Donald Trump’s second term as US president a year ago – accompanied by presidential threats about seeking to make Canada the 51st state – dramatically transformed Canadian politics. The poll ratings of the Conservatives, led by Trump-aligned Pierre Poilievre, slumped. And the Liberals, under their new leader Mark Carney – who campaigned on a platform of hard-headed patriotism and economic nous – surged to an unlikely victory in last April’s election. Just hours after winning his own mandate as PM, Carney delivered an extraordinary warning about how his nation’s powerful neighbour and long-time closest ally was becoming its greatest threat. “America wants our land, our resources, our water, our country,” he told supporters. “President Trump is trying to break us so that America can own us. That will never ever happen.”

How has US-Canada's relationship been?

Up and down, with signs of some grudging respect for Carney in the White House, and some accommodations by the Canadian PM that belie his more robust rhetoric. Tariffs have been imposed, and sometimes walked back. Economically, the worst has not happened. But there has been permanent strategic damage done, and no Nato member has been as assertive as Carney in standing up to Trump’s talk of hemispheric dominance and threats to his neighbours’ sovereignty. In the case of Canada, as in Greenland, that threat is real, not imagined. Last month, US Treasury secretary Scott Bessent encouraged the secessionist movement in the western resource-rich province of Alberta, saying the region should “come on down” and join the US – astonishing talk from a supposed ally. Last month in Davos, Carney won a rare standing ovation from politicians and business leaders after warning of a “rupture” in the world order, and pledged that Canada would take on “the world as it is, not wait around for a world as we wish it to be”.

How intertwined are US and Canada?

Exports account for a third of Canada’s GDP and more than 75% of them go south to the US. By contrast, exports account for about a tenth of America’s GDP, and only around 16% of them go north to Canada. So the imbalance and dependent relationship is stark. While Canada’s exports to the US account for about 25% of its economic output, the US’s exports to Canada make up a tiny sliver (roughly 1.6%) of its national GDP. Moreover, many of the two countries’ biggest industrial sectors, including automotive and energy, are “almost irreversibly interwoven”, says Emily Stewart in Business Insider. For that reason, Carney is treading an exceptionally fine and difficult line between standing up for Canada’s interests and making things worse by angering Trump. In some ways, a more economically assertive Canada has been necessary for a while. From Bush’s “You’re with us or against us” mentality post-9/11 to Obama’s “Buy America” push to Biden’s industrial policy, the US “has been acting like a less friendly friend for a while”, says Stewart. Under Trump, there’s been a radical shift – most recently with his threat of a 100% tariff on Canadian goods if Ottawa follows through on a trade deal with China in the face of US opposition.

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How effective is Trump's tariff threat on Canada?

Currently, about 85% of Canada’s trade with the US is exempt from tariffs under the 2020 US-Canada-Mexico free-trade agreement, known as USMCA. Even so, Trump’s mercantilist trade policies have had a sharp impact on vital sectors of Canada’s economy, in particular the automotive industry, steel and aluminium, and softwood forestry – all of which have suffered significant job cuts as the result of US tariffs. The trade agreement is up for renegotiation later this year, adding to the peril for Canada. Understandably, the Carney government is now working at speed to cut its dependency on the US and boost trading ties with other nations. About three-quarters of Canada’s exports go to the US; the aim is to reduce this to half.

What is Canada doing to that end?

Carney has launched a “nation-building” infrastructure agenda, including high-speed rail and port expansions that will be used to transport abundant natural resources to new markets. In addition, his government has announced plans for more (small modular) nuclear reactors and wind power, a doubling of liquefied natural gas production and faster extraction of critical minerals. To that end, Ottawa is embracing a “more active industrial policy” alongside a streamlined bureaucracy to “try and direct the economy and reduce red tape”, says Ilya Gridneff in the Financial Times. Besides, Trump does not hold all the cards. Most of the oil imported by the US comes from Canada. Canada’s biggest export is oil and gas piped to US refineries through networks that would cost billions to replace. The USMCA is too successful to fail. And the second biggest export sector – cars, vehicle parts and metals – have been built into a cross-border supply chain since the 1960s.

Are markets worried?

They’re pretty sanguine. Fiscally, Canada is in reasonable shape. Royal Bank of Canada expects an overall budget deficit for this year of 3.3% of GDP, not excessive compared with the US’s near-6%. The Canadian dollar has strengthened against the US currency during Trump’s second term and the benchmark TSX Composite index has been hitting record highs – it’s up 30% over the past 12 months, almost twice as much as the S&P 500. The main reason, says Lex in the FT, is that about half of Canada’s stockmarket is accounted for by natural resources – where prices reflect global trends and which the US needs in large quantities – and finance, which is outside the tariff net. In the US, those sectors account for about 15% of the equity market. “Canada is my biggest overweight among developed markets,” says Marko Papic, a chief strategist at BCA Research. “Carney knows exactly what he’s doing.”

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