Shutterstock

By John M. Weekes

March 5, 2025

During the weeks and months following Donald Trump’s election last November 5th, his relentless tariff threats and verbal assaults on Canada’s sovereignty created the equivalent of a phoney war, with the atmosphere of suspense and uncertainty doing economic damage to Canada even before tariffs were imposed. And while little economic harm was felt in the United States during that period, that should change now that the real trade war has begun.

Now, many Americans are finally going to begin speaking out about how that trade war is harming their interests. For the first time, American politicians are going to need to weigh in on their constituents’ interests in this fight. So, ironically, the fact that tariffs are now in force may actually hasten the day when we will be able to restore some normalcy to our bilateral trade relationship.

Canada needs to take decisive action to make sure that we get through the current crisis but also that we take steps now to ensure that we will not be caught in the same situation again. Make no mistake about it: this is not some minor crisis that will disappear after a few months. We Canadians are facing a challenge that may put in jeopardy our identity and our future as a viable, independent country. We have learned that threats from an American president can be as effective at undermining the prospects for future economic prosperity as are actual trade actions. At this critical juncture, Canada’s response should include:

• Taking retaliatory action against the United States, as the government, the provinces and individual Canadians are already doing.
• Working with the many Americans who have an interest in restoring conditions of open and predictable trade, in order to promote this common objective.
• Using the dispute settlement provisions of the World Trade Organization (WTO) — a process our WTO ambassador, Nadia Theodore, initiated on Tuesday — and the CUSMA to establish that the American actions are illegal and to demonstrate that Canada continues to believe in the rule of law in international trade relations.
• Reaching out to Mexico to discuss the most effective way of dealing with the current challenge we both face.
• Making major changes in domestic economic policy to strengthen the Canadian economy and make it more resistant to punitive trade action from the United States or other countries.

Reaching out to other countries, particularly those with whom we share common values, to strengthen economic cooperation between us and to work together to improve and bolster international trade rules through the WTO. In this regard, two recent posts in Policy are worth reviewing Canada’s Trade Pivot: Engaging Asia’s Giants for Strategic Autonomy. (Beck & Dade) and Doubling Down to Diversify: CETA and the US Tariff Threat (Plunkett & Camilleri). In taking these steps, Canadians should bear in mind the importance of recognizing the close relationship between international political and military security and the proper conduct of economic relations through a system of rules that are respected by all participants.

Canadians should treat reforming domestic economic policy and strengthening cooperation with other countries as part of an integrated effort to strengthen the Canadian economy and make it more resilient. This cooperation should be based on Canada’s strategic advantage as a resource super storehouse, and it would lead to related investments in technological development. We should begin with attention on our NATO partners in Europe. We start from a good basis with the Comprehensive and Economic Trade Agreement (CETA) with the EU and our deep relationship with the United Kingdom. The world has changed in the last few weeks and Canadian policy needs to respond.

Perhaps the place to start would be by reaching out to the new German government trying to invigorate the discussions initiated by Chancellor Olaf Scholz when he came to Canada in 2022 looking for opportunities to buy LNG. It would be logical for the Canadian government to view LNG exports to Europe as part of an effort to help our European allies defend themselves against Russian aggression. European purchases of Russian oil and gas are larger than their military and economic assistance to Ukraine. It would also make sense from an environmental perspective to help Europe as part of a transition program to move away from continued use of coal to cleaner Canadian fuels.

To be successful, such a project would require changes to Canadian laws and regulations as well as a Canadian commitment to maintain such new policies in place for a substantial period of time. Obviously, this would also require major investments, but it is probable that willing European partners would be found particularly given the price differential between natural gas in Germany and Canada. This week’s decision by Chancellor-in-waiting Friedrich Merz and his Social Democrat coalition partners to exempt defense spending from Constitutional spending limits shows that Germany is ready to make massive, unprecedented expenditures in strengthening its security.

It would be important to have as many countries as possible make a statement to the effect that they intend to continue to respect WTO rules and to apply them in trade relations among themselves.

Similar partnerships could be developed in a range of minerals, including rare earths. Some such projects might be in northern Canada and would offer opportunities for economic development of interest to Indigenous communities. Such developments could also be of strategic interest at a time when Canada is increasingly worried about Chinese and Russian interest in Canada’s North. In many ways, the Europeans would be excellent partners for such cooperation given that we have similar values, common objectives in protecting the environment, and respect for the rule of law.

Japan would be another important candidate for such enhanced cooperation. Japan has the 4th largest GDP in the world and is a partner interested in stable, long-term economic relationships with Canada. It is also of course along with Canada a member of the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP).

Economic development projects in the North could go hand in hand with efforts to strengthen our military capacity to protect our sovereignty in these areas.

Finally, we should work with the same partners and other likeminded countries to protect the WTO against American indifference, or worse. Such other countries should include Chile, Singapore, Australia and New Zealand, which can always be counted on to bring good ideas to the table. It would be important to have as many countries as possible make a statement to the effect that they intend to continue to respect WTO rules and to apply them in trade relations among themselves. We should also look for opportunities to move forward in the WTO to address new issues and develop new disciplines, of necessity, for the time being, among coalitions of the willing.

If we were successful, a by-product of such cooperation would be increased interest from American businesses in seeing their country become more engaged once again as a key WTO partner. A recent article by Alan Wolff, a former deputy United States trade representative, a former deputy director general of the WTO, and now a senior fellow with the Peterson Institute for International Economics, sets out some ideas as to how such a project might be undertaken.

After months of economic uncertainty, Canadians now have some clarity about this entirely avoidable and unjustified act of economic aggression by the president next door. Americans will soon be armed with similar clarity.

John Weekes, who was Canada’s chief negotiator for the original NAFTA and ambassador to the WTO, is a member of the Expert Group on Canada-U.S. Relations, and a fellow of the Canadian Global Affairs Institute.