How to Lose a Trade War
· The Atlantic
U.S.-Canada trade talks collapsed last night. Punitive Trump tariffs will now go into effect. Canada will reciprocate with retaliatory tariffs of its own.
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The story may not be over. Donald Trump is notorious for issuing threats, then reversing them. Wars are on, off, on again, off again, then on a third time—but only as a “little detour.” This is not an administration that thinks even one move ahead. But without a supersized Trump TACO, the U.S.-Canada impasse likely won’t resolve soon.
The Trump administration has one big idea about Canada: The U.S. is larger, stronger, and richer than Canada, so Canada must sooner or later surrender to Trump’s demands. That one big idea is wrong.
Yes, Trump can hurt Canada more than Canada can hurt Trump. That part of Trump’s thinking is true. But wars are not decided only by the question Who can inflict more pain? Wars are also decided by the question Who can endure more pain? Trump’s failure to accept this truth is why he lost the Iran war—and why he is losing his trade wars.
Canadian Prime Minister Mark Carney has much more political permission to accept pain from a U.S.-Canadian trade war than Trump does.
To read current Canadian polling is to see a country united under its political leadership—and energized by its dislike and distrust of Trump’s United States. A majority of Canadians view Trump’s America as a more immediate threat to their security than Russia or China. Two-thirds favor the government taking a hard line in trade talks; fewer than one-quarter regard the United States as trustworthy. Meanwhile, Carney is backed by the Canadian public, polling at about 60 percent approval, a remarkable figure in a multiparty political system.
The Canadian economy has definitely suffered because of Trump’s hostility. Exports were down last year, and growth slowed. But this year, Canada got an unexpected bailout: Trump’s Iran war and Trump’s inflation have boosted prices for Canadian oil, gas, minerals, and food products. Canadian incomes are rising again. Meanwhile, Canada’s low levels of public debt have kept inflation low. Whereas the U.S. government must pay 5.3 percent to borrow money for 30 years, Canada pays 4.2 percent.
By contrast, Trump is facing an omnishamble. “Trump’s Economic Challenge: $40tn Debt, 6.7% Mortgages and $5 Diesel.” That’s a headline in today’s Financial Times. The paper could have added one more: 33 percent job approval, and falling fast.
Trump’s tariffs are costing the typical American household $1,100 a year in both direct collections and indirectly in higher prices, according to the Yale Budget Lab. Although teasing out Canada-specific costs is tricky, one indicator is the price of aluminum. In 2024, about one-fourth of the aluminum consumed by Americans came from Canada, the U.S.’s single largest source of imported aluminum. Result: Whereas European and Japanese consumers now pay about $3,000 a ton for aluminum, Americans pay almost $5,000, driving up the cost of everything from a can of beer to the construction of a new hospital.
Although Canada’s economy is much smaller than the U.S.’s, Canada’s government has a more rational and intelligent leadership—and can therefore target its retaliation in ways that better serve national ends. U.S. alcohol exports to Canada have collapsed by 80 percent as Canadian provincial liquor stores ban U.S. wine and spirits. Canada’s booze boycott hurts more than one might expect given the comparatively small size of the Canadian market. Alcohol exporters to Canada prepare special labels for their products to meet Canadian legal requirements. More than 1 million bottles of wine intended for Canadian markets now slumber in U.S. warehouses, unsellable anywhere else without costly repackaging.
More than 30 percent of Ohio’s exports go to Canada, and almost 40 percent of Michigan’s. Both states will this year elect a U.S. senator and fill open governor’s seats. Not only is Trump putting at risk his party’s position in purple Michigan, but suddenly the races in beet-red Ohio look in jeopardy too. With these states, may turn control of the Senate—and Trump’s chances of facing meaningful accountability next year for his law-breaking and corruption.
Trump’s theory of his trade war, like his theory of his Iran war, is that the bigger bully always wins. Size counts for a lot, but not for everything.
As Trump has declared over and over again, his ultimate goal in this trade war is to add Canada as a 51st state. Why? To make the United States look bigger on the map. For that goal, which excites ultra-MAGA crackpots, Trump is hazarding not only America’s most important trading relationships, but very possibly every other political equity he holds, including avoiding investigations and accountability by a Democratic House and Senate after January 2027.
Against Canada, Trump is fighting a trade war that very few Americans support, under leadership that most Americans reject, to achieve results that virtually all Americans would dismiss as pointless if not crazy.
Against Trump, Canadians are fighting a trade war that the great majority support, under leadership that commands broad assent, to defend their independence and self-respect. That’s a war that even the weaker side can win, especially if it needs to hold on only a few months longer to survive.