Donald Trump once joked about making Canada the 51st state. While his remark may have seemed offhand, it highlighted a deeper issue—Canada’s existing trade barriers with the U.S. make its domestic economy uncompetitive.
Canada’s Economic Dependency on the U.S.
At first glance, Canada appears to be a stable economy. However, a closer look at the numbers reveals a heavy reliance on the United States. This dependency has been exacerbated by Prime Minister Justin Trudeau’s policies, which have significantly expanded the public sector. Without a strong tax base—largely dependent on economic ties with the U.S.—Canada struggles to sustain its government spending.
Who Really Pays for Tariffs?
Contrary to popular belief, tariffs are primarily paid by Canadian consumers, not Americans. When U.S. tariffs are imposed on Canadian goods, businesses in Canada face two choices:
Absorb the higher costs, potentially leading to bankruptcy.
Relocate their operations to the U.S., which may be Trump’s actual goal—to attract more businesses to manufacture within American borders.
The Entitlement Factor: U.S. vs. Canada
Some argue that U.S. workers expect too much, but in reality, Canadian workers may be even more entitled. The U.S. offers a lower cost of living and, overall, a better economic environment for both skilled and unskilled immigrants. Moreover, America has a higher number of small and mid-sized businesses per capita compared to Canada. Many Canadian businesses already rely on American markets, making them vulnerable to trade disputes.
Canada’s Weak Position in a Trade War
If Canada retaliates with tariffs, the strategy would likely focus on making Trump unpopular domestically by shaping public perception. However, in terms of actual economic strength, Canada is at a severe disadvantage. The numbers suggest that if a full-scale trade war ensues, the Canadian economy could collapse within a year.
Many Canadians fail to realize that Canada already imposes tariffs and trade barriers on U.S. goods, which contributes to the country’s high cost of living. The reality is that Canadians—not Americans—bear the financial burden of these policies.
The Power of the U.S. Dollar and Economic Strategy
Currently, the U.S. dollar remains significantly stronger than the Canadian dollar on the international stage. This gives Trump more leverage, allowing him to subsidize industries affected by his tariff policies if necessary.
Ultimately, trade wars are as much about perception as they are about numbers. In a fiat monetary system, fiscal policy dictates economic success—and the U.S. economy is far better structured to withstand the impact of tariffs than Canada’s.