Trade talks between Canada and the United States collapsed at the last minute last Friday (August 21, 2026). Negotiations went to the wire but ultimately failed because the United States introduced terms into the negotiations that directly threatened Canada's political and economical sovereignty. These terms are and will remain unacceptable to Canadians. Prime Minister Mark Carney was right to walk away from the negotiating table after it became clear that a deal would be worse than no deal. New U.S. tariffs on Canada are now in effect, and Canada will retaliate "dollar for dollar", as the Prime Minister has indicated.

What did the Trump Administration demand from Canada that was unacceptable?

In a nutshell, the Trump Administration is trying to subjugate Canada by limiting Canada's ability to enter into trade agreements with third countries without America's approval. Trump is asking Canada to become a vassal state, and quite literally he has said more than once that he wants Canada to become the 51st state. This, of course, is absolutely infuriating to any patriotic Canadian (including myself). Sorry, Mr. Trump, but our liberty and sovereignty is not for sale. Last-minute demands from the Americans also called for dismantling protections that Canada had put into place for our francophone culture and heritage, a direct attack at Quebec and its laws that protect and promote the French language. C'est inacceptable pour nous aussi. Notre souveraineté n'est pas à vendre.

Does the Trump Administration have any economic objectives in this trade war with Canada?

The Trump Administration is also aiming to destroy Canada's steel and auto industry so as to "repatriate" manufacturing jobs to the United States. Of course, that is a complete economic miscalculation. The auto industry's economic integration across the border has generated important economic efficiencies for the industry overall that allows it to compete better against foreign producers. Remove this integration and production costs will rise. The Trump Administration thinks they can raise tariffs against all auto imports to help America's auto industry thrive. That will fail too because a molly-coddled American auto industry will fall behind in the innovation space. It is foreign competition that has propelled America's auto industry towards innovation. Without that competition, the industry will be left behind by the emerging transition to electric vehicles. That transition is no longer dependent on subsidies and public policies; it is driven by battery innovation that makes EVs increasingly cheaper than their alternative.

Can any deal with the Trump Administration be trusted?

Even if a deal with the United States had emerged, could it be trusted to last? If there is one certainty about Mr. Trump it is that nothing is certain about him. He has proven again and again that he is not able to stick to a strategic direction for long, changes direction on a whim, and will rip up a deal when it suits him. A few years ago, Mr. Trump called the Canada-US-Mexico Agreement (CUSMA) the "best agreement we've ever made" and the "largest, fairest, most balanced, and modern trade agreement ever achieved". Now he is at the verge of dismantling it bit by bit as the new 50% tariffs under Section 338 (of the Smoot-Hawley Tariff Act of 1930) are violating CUSMA provisions as industries are targeted that are covered by CUSMA. These tariffs affect about 5% of Canada's trade with the United States. The bottom line is that any deal struck could unravel tomorrow. Very likely, concessions made today will only embolden the Trump Administration to threaten more tariffs and ask for more concessions. Andrew Coyne called it shakedown in the Globe and Mail on August 25. He is right. And Ontario Premier Doug Ford compared Donald Trump to a schoolyard bully who "acts like a person who would steal your lunch money on the first day, a hat on the second day, and your running shoes on the third day." I think the Ontario Premier is not far off the mark.

Will the trade war intensify?

Sadly, the trade war may get worse before it gets better. I don't expect much to happen before the Midterm Elections in the United States, and the adverse effect of the new U.S. tariffs on Canada will likely not be felt by U.S. consumers for some time as businesses have likely been increasing inventories in anticipation of the tariffs. Trump is already threatening 50% tariffs on all Canadian-made automobiles and auto parts. The aim here is clearly to dismantle Canada's auto industry.

Canada's response has been measured. U.S. tariffs have been countered "proportionally". In the auto industry, this is essentially a tit-for-tat response, and across other industries, the volume of targeted goods has been matched with an equal volume of counter-tariffs. Canada will need to continue on this path of proportionality. However, there comes a point where the level of economic pain reaches a threshold where the gloves will need to come off. We hope we won't get there. But when the gloves come off, more strategic responses may be needed. I had written about the feasibility of export surcharges back in January 2025. Nothing will get the attention of the U.S. electorate more than rising prices at the pump. But let's be clear that we have not reached this point yet, and that this is not the time for desperate measures.

The point is not to escalate the trade war, because that ultimately hurts Canadians too. The quest is on to find an "off ramp" for de-escalation. But this off-ramp is difficult to find if the other side is interested only in subjugation and not in finding compromise. The Canadian side has tried several times to appease the American side by removing the Digital Services Tax (DST), moved to eliminate the CRTC's mandated financial contributions for foreign online streaming platforms, and cancelled some of the initial counter-tariffs. But this has clearly not resonated much on the American side. Concessions that Canada makes unilaterally seem to fail. With hindsight, making these concessions in advance was a strategic error—although one that was worth trying at the time to see if it would facilitate finding the elusive "off ramp". In the end, it didn't.

Canadians need to be ready to shoulder significant economic pain. Our governments need to be ready to deal with the fallout. But there is really no alternative. The federal government negotiated in good faith, aiming for a deal that would put Canada among the "least disadvantaged" in trade with the United States. But the U.S. side was clearly not prepared to settle for something that could have been sold as a "win" for both sides. Psychologically, Trump only wants a deal where he "wins" and the other side "loses". For him, the world is a zero-sum game. As any trade economist will tell you, however, international trade is not a zero-sum game. Through comparative advantage and specialization, everyone can gain. International trade is a win-win for both sides. The U.S. is aiming to become more autarkic and isolated. This will cost American consumers dearly, because ultimately tariffs are taxes—on imported goods.

So what can we do?

The federal government of Canada does three important things. First, protect affected industries by countering U.S. tariffs with Canadian tariffs, and offering a helping hand financially to soften the blow. Second, Canada is actively trying to diversify international trade destinations. But that is difficult and takes a long time. Geography is still a major determinant of trade, and trading with your closest neighbour is always going to be more advantageous than trading with distant partners. Pivoting away from the United States will not be easy, and will come at a cost. And third, Canada is investing in its own economy through building infrastructure and boosting domestic demand.

But there is also something every Canadian can do: avoid buying U.S. products until the situation changes. If there is a suitable Canadian substitute, buy Canadian—or if not Canadian, than from a third country. Some products are only available from the U.S., but if you can't find Canadian strawberries and there are only U.S. strawberries on sale, why not buy some Canadian pears or apples? Each purchase is small, but together it makes an impact. Already, Canadians have stopped vacationing in the United States to a large extent, as Statistics Canada reports. For anyone going on vacation, there is much to explore in Canada. This year, my family vacationed in Nova Scotia and in Newfoundland, and we enjoyed every moment of it.

Until something changes in the United States, sit tight. Let's do all we can to boost our own economy.

Will the United States change course?

The current administration in the United States is going down a dangerous economic path. Tariffs are hurting the U.S. economy already. The U.S. government, despite its Republican credentials, is far from fiscally conservative. Public debt is ballooning, and long-term bond yields are rising as investors fear a bout of inflation may follow. On August 24, 2026, 30-year bond yields were 5.23%, up by about 35 basis points from a year ago. The United States may be heading towards a public cdebt crisis, having accumulate 40 trillion dollars of debt. If the current administration in the United States changes course, than this change will likely be driven by movement in the bond market and the stock market. If the U.S. goes into a debt crisis, the economic repecussions will also hurt Canada. So can things get worse? The U.S. trade war against the rest of the world may only be a symptom of a deeper economic crisis lurking in the U.S. economy, and neither President nor Congress seems to be focused on it. Manifestly bad economic policies will ultimately come at a steep price to Americans. The U.S. Administration is on a collision course with economic turmoil.