What if Trump is right on trade?

Canadians have long viewed Donald Trump’s trade policies with apprehension, fearing his tariffs and threats could bring economic instability. However, could some of his ideas resonate with Canadians?

Trump’s Protectionist Trade Approach

The potential impact of Trump’s second presidency on Canada is significant. He has proposed a 10 percent tariff on all U.S. imports, which could reduce Canada’s GDP by up to five percent. Such uncertainty could harm business confidence and investment.

Trump has consistently criticized free trade as detrimental to American workers—a stance echoed by many in his administration. In No Trade is Free, Robert Lighthizer, Trump’s former trade representative, argues that free trade has benefitted corporate profits at the expense of American manufacturing, which has been hollowed out by factory closures and outsourcing.

Despite skepticism, Trump’s team claims their protectionist policies stimulate growth, citing the outcomes of his first term. Although Trump initially threatened to cancel NAFTA, the renegotiated Canada-United States-Mexico Agreement (CUSMA) has been celebrated as a mutually beneficial trade deal. Since its implementation, trade between the three nations has grown by over 30 percent, reaching more than $1.5 trillion, according to economic analysts.

Canada’s Role in Trade Politics

Trade lawyer Mark Warner observes that Trump’s presidency reshaped the Republican Party’s stance on trade, aligning it more closely with public opinion that has long been skeptical of free trade. Warner notes, “Trump said, ‘We’re not going to be the old Republican party—we’re going to drive a harder bargain.’”

This shift isn’t limited to Republicans. U.S. President Joe Biden retained several Trump-era tariffs, while Canada has also adopted protective measures, such as tariffs on Chinese steel and policies regulating the origins of materials like steel.

Lighthizer’s critique of Canada in his book highlights friction points, such as the country’s supply management system for dairy, which he describes as excessively protectionist. However, his broader focus remains on China, which he accuses of violating trade rules, stealing intellectual property, and dominating global resources.

Opportunities and Risks for Canada

While Trump’s policies primarily target China, Canada could play a strategic role in providing the raw materials and energy the U.S. needs to reduce reliance on Chinese imports. However, experts warn that reshaping global trade relations carries risks.

Trade has increased since CUSMA’s implementation, but economists argue that this growth is partly due to broader economic expansion, not solely the new agreement. The challenges of decoupling economies as interconnected as Canada’s and the U.S.’s are considerable.

Scott Lincicome, an economist and trade expert, cautions that Trump’s tariffs could amplify economic uncertainty. “To try to decouple these two economies even a little bit is like doing surgery without anesthesia,” he explained.

Trade Politics Over Economics

Lincicome disputes Trump’s claim that free trade harms most Americans, asserting that the majority—around 90 percent—benefit. However, he acknowledges that the negative impacts of trade are concentrated in politically crucial swing states, making trade policies more about politics than economics.

While Lincicome remains optimistic about the long-term benefits of free trade, he warns of the damage that protectionist policies could inflict before public opinion shifts back toward free trade principles.

As Canada navigates the challenges of a potentially protectionist U.S. administration, the nation’s leaders are already preparing for the possible introduction of new tariffs and trade tensions.