The path to Canadian prosperity lies not in economic decoupling from the US but in strategic modernization within the North American context.
President Donald Trump’s ongoing tariff threats against Canadian exports has sent shockwaves through Ottawa’s political establishment. As businesses from Windsor to Vancouver brace for potential economic fallout, a fundamental question has emerged: Should Canada diversify away from its overwhelming economic dependence on the United States, or should it instead use this moment to modernize and upgrade its economic hard and software within the North American context? The evidence overwhelmingly supports the latter approach in which Canada reduces interprovincial trade barriers and regulations, builds infrastructure to move energy and other resources within Canada, and invests in Canadian human capital and relationships with the US to maximize synergies, stakeholder buy-in and mutual benefit.
The knee-jerk reaction to blame Trump’s economic nationalism misses a crucial point: America’s retreat from championing global free trade began well before his unorthodox political ascendance in 2016. The Obama administration’s signature Trans-Pacific Partnership (TPP) faced mounting bipartisan skepticism before Trump withdrew from it in 2017. Hillary Clinton, during her presidential campaign, explicitly stated she would oppose the deal, reversing her earlier support. “I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership,” Clinton declared during a campaign speech in Michigan in August 2016.
When President Joe Biden took office, rather than resurrect the TPP, his administration proposed the Indo-Pacific Economic Framework (IPEF). Unlike traditional trade agreements, the IPEF conspicuously omitted market access provisions while emphasizing supply chain resilience and environmental standards. During the IPEF ministerial meeting in Los Angeles in September 2022, U.S. Trade Representative Katherine Tai specifically noted that the framework “moves beyond the traditional model” of free trade agreements.
These policy evolutions reflect a deeper transformation in American economic thinking: a bipartisan consensus has emerged around industrial policy aimed at rebuilding domestic manufacturing, securing critical supply chains, and maintaining technological leadership against authoritarian competitors such as China.
Prime Minister Justin Trudeau and his Cabinet fundamentally misunderstood these shifts, leading to a series of diplomatic missteps that have damaged Canada-US relations. Most damaging has been a pattern of public rhetoric dismissive of both Trump personally and his MAGA supporters more broadly.
In June 2018, following the G7 summit in Charlevoix, Quebec, Trudeau declared in a press conference that Canada “will not be pushed around” by the United States, characterizing Trump’s tariffs as “insulting.” This prompted Trump to withdraw his endorsement of the summit’s joint statement and label Trudeau as “very dishonest and weak” on Twitter.
Former Deputy Prime Minister Chrystia Freeland repeatedly aligned the MAGA movement with authoritarianism. In an August 2022 speech at the Brookings Institution, she characterized Trump supporters as part of a global “anti-democratic movement.” In October 2023, she went further, drawing parallels between MAGA and authoritarian regimes like Russia and China. These statements resonate poorly with nearly half of American voters who supported Trump in recent elections and are borderline disinformation with such exaggerated mischaracterizations of American voters.
Former Foreign Affairs Minister François-Philippe Champagne was caught on camera in December 2022 referring to Trump’s policies as “deranged” while speaking with European counterparts. The video, which social media users circulated widely, further inflamed tensions between the administrations.
Such diplomatic indiscretions might be dismissed as political theatre if they didn’t coincide with concrete policy failures. The Trudeau government neglected critical infrastructure projects that would have strengthened North American economic integration while reducing Canada’s vulnerability to U.S. policy shifts.
To illustrate, Japan and Germany approached Canada to secure liquefied natural gas (LNG) exports as part of their efforts to reduce reliance on Russian energy supplies. Japan expressed high expectations for Canadian LNG during Prime Minister Fumio Kishida’s visit, while Germany explored LNG opportunities during Chancellor Olaf Scholz’s visit, emphasizing the urgency of diversifying energy sources due to geopolitical tensions. However, Trudeau rejected these requests, citing a weak business case for LNG exports from Canada’s East Coast due to logistical challenges and lack of infrastructure. Instead, Trudeau shifted focus to clean energy initiatives and critical minerals, reflecting Canada’s evolving industrial policy priorities.
The economic relationship between Canada and the US represents perhaps the most thoroughly integrated bilateral commercial partnership in the world. The statistics alone tell a compelling story: daily two-way trade exceeds $3 billion, supporting approximately 2.7 million Canadian jobs – roughly one-in-six workers in the country.
This integration manifests in countless ways across industries.
For example, in automotive manufacturing, a single vehicle assembled in Ontario typically crosses the Canada-US border seven times during production. A Honda Civic assembled in Alliston, Ontario, contains components from both countries, with engines from Ohio and transmissions from Georgia integrated with Canadian-made bodies and electronics.
The energy infrastructure between the two nations functions essentially as a single system. The North American power grid delivers Canadian hydroelectricity to major US markets, while Canadian refineries process crude oil from both countries. TransCanada’s natural gas pipeline network serves both markets seamlessly, with approximately 3.2 trillion cubic feet flowing between the countries annually.
In aerospace, Bombardier’s commercial aircraft division collaborates with American suppliers like Pratt & Whitney and Collins Aerospace, creating integrated supply chains that span the border. Montreal’s aerospace cluster works in close coordination with counterparts in Seattle and Wichita.
Beyond traditional industries, American-Canadian technological collaboration has accelerated in recent years. For example, the Vector Institute in Toronto has established formal research partnerships with MIT’s Computer Science and Artificial Intelligence Laboratory, collaborating on foundational AI research. Their joint papers on neural network optimization have been cited more than 3,000 times since 2020.
Quantum computing initiatives at the University of Waterloo’s Institute for Quantum Computing maintain ongoing research exchanges with Google’s quantum computing team in Santa Barbara, California. Their shared work on quantum error correction protocols has advanced the field significantly.
In clean technology, Hydro-Québec’s energy storage division and Massachusetts-based Form Energy announced in 2023 a $240 million joint venture developing grid-scale iron-air batteries to enable renewable energy deployment across North America.
The SCALE.AI supercluster, headquartered in Montreal, includes American tech giants like Microsoft, Amazon, and IBM collaborating with Canadian start-ups on supply chain optimization technologies.
Against this backdrop of deep integration, calls for Canada to diversify away from the US toward markets like China reflect wishful thinking rather than economic reality. Dezan Shira & Associates in its China Briefing advocated expanding commercial ties with Beijing despite China’s documented history of economic coercion toward Canada.
This recommendation ignores the painful lessons of recent history. The arbitrary detention of Michael Kovrig and Michael Spavor for over 1,000 days in Chinese prisons, the imposition of punitive restrictions on Canadian agricultural exports following the arrest of Huawei executive Meng Wanzhou, and documented interference in Canadian domestic politics all demonstrate the risks of economic dependence on China.
The CD Howe Institute’s March 2025 analysis cites the overwhelming preponderance of trade flows: 76 per cent of Canadian exports go to the United States, compared to just 3.7 per cent to China, 2.4 per cent to the UK, and 2.32 per cent to Japan. As the report notes, “Given geographic proximity, linguistic compatibility, and complementary regulatory frameworks, any significant trade diversification away from the United States would require decades of sustained effort and acceptance of considerably higher transaction costs.”
Rather than pursuing illusory diversification, Canada should focus on strategic economic modernization that positions it as an indispensable partner in America’s industrial revitalization.
First, Canada must dismantle internal trade barriers that fragment its domestic market. The Canadian Federation of Independent Business estimates these interprovincial trade barriers cost the economy $130 billion annually – nearly 7 per cent of GDP. Harmonizing regulations and procurement practices would create a more efficient national market better positioned to integrate with the US economy.
Second, Canada should leverage its critical mineral resources – including lithium, cobalt, and rare earth elements – as strategic assets for North American supply chain security. The Minerals Security Partnership launched in 2022 provides a framework for such co-operation, but Canada has yet to fully capitalize on its geological advantages.
Third, Ottawa should accelerate east-west energy infrastructure development to enhance continental energy security. The proposed Energy East pipeline, which would have transported Western Canadian crude to Eastern refineries, fell victim to regulatory hurdles in 2017. Reviving such projects would reduce Eastern Canada’s dependence on imported oil while creating more resilient North American energy networks.
Finally, Canada should position itself as a key contributor to emerging technology initiatives. Trump’s proposed $500 billion AI infrastructure investment represents an opportunity for Canadian AI researchers and companies to integrate more deeply into US innovation ecosystems.
The path to Canadian prosperity lies not in economic decoupling from the US but in strategic modernization within the North American context. The integrated nature of the two economies – built over generations through geographic proximity, shared values, and complementary capabilities – represents a competitive advantage too valuable to abandon.
As American industrial policy evolves to address 21st-century challenges, Canada faces a choice: it can either adapt its economic framework to remain an essential partner in this transformation or risk marginalization through misguided diversification efforts. The evidence overwhelmingly supports the former approach.
For Canada, the answer is smarter, not less, North American integration.
Dr. Stephen Nagy is as a professor at the International Christian University, Tokyo and a senior fellow at the Macdonald-Laurier Institute. Concurrently, he is a visiting fellow with the Japan Institute for International Affairs (JIIA). He serves as the director of policy studies for the Yokosuka Council of Asia Pacific Studies (YCAPS), spearheading their Indo-Pacific Policy Dialogue series. He is currently working on middle-power approaches to great-power competition in the Indo-Pacific.
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“So we’re going to have an order on that pretty soon – we can’t do that to our farmers and leisure too, hotels, we’re going to have to use a lot of common sense on that.”
President Donald Trump said Thursday that changes are coming to his aggressive immigration policies after complaints from farmers and business owners.
“Our great Farmers and people in the Hotel and Leisure business have been stating that our very aggressive policy on immigration is taking very good, long time workers away from them, with those jobs being almost impossible to replace,” Trump wrote in a social media post Thursday morning. “In many cases the Criminals allowed into our Country by the VERY Stupid Biden Open Borders Policy are applying for those jobs. This is not good. We must protect our Farmers, but get the CRIMINALS OUT OF THE USA. Changes are coming!”
Later Thursday, Trump made it clear that businesses need workers.
“Our farmers are being hurt badly. They have very good workers – they’re not citizens, but they’ve turned out to be great. And we’re going to have to do something about that,” the president said.
He added: “We can’t take farmers and take all their people and send them back because they don’t have, maybe, what they’re supposed to have.”
Just how Trump may change his approach to immigration enforcement remains unclear, but he said he wants to help farmers and business owners.
“You go into a farm and you look and people, they’ve been there for 20 or 25 years and they work great and the owner of the farm loves them and you’re supposed to throw them out. You know what happens? They end up hiring the criminals that have come in, the murderers from prisons and everything else,” Trump said.
Trump said changes would be coming soon, but gave little detail on how policies could change.
“So we’re going to have an order on that pretty soon – we can’t do that to our farmers and leisure too, hotels, we’re going to have to use a lot of common sense on that.”
In a later post on Truth Social, Trump said illegal immigration had destroyed American institutions.
“Biden let 21 Million Unvetted, Illegal Aliens flood into the Country from some of the most dangerous and dysfunctional Nations on Earth — Many of them Rapists, Murderers, and Terrorists. This tsunami of Illegals has destroyed Americans’ Public Schools, Hospitals, Parks, Community Resources, and Living Conditions,” the president wrote. “They have stolen American Jobs, consumed BILLIONS OF DOLLARS in Free Welfare, and turned once idyllic Communities, like Springfield, Ohio, into Third World Nightmares.”
He added that deportations would continue: “I campaigned on, and received a Historic Mandate for, the largest Mass Deportation Program in American History. Polling shows overwhelming Public Support for getting the Illegals out, and that is exactly what we will do. As Commander-in-Chief, I will always protect and defend the Heroes of ICE and Border Patrol, whose work has already resulted in the Most Secure Border in American History. Anyone who assaults or attacks an ICE or Border Agent will do hard time in jail. Those who are here illegally should either self deport using the CBP Home App or, ICE will find you and remove you. Saving America is not negotiable!”
For years, Canada’s political class sold us on the idea that carbon taxes were clever policy. Not just a tool to cut emissions, but a fair one – tax the polluters, then cycle the money back to regular folks, especially those with thinner wallets.
It wasn’t a perfect system. The focus-group-tested line embraced for years by the Trudeau Liberals made no sense at all: we’re taxing you so we can put more money back in your pocketbooks. What the hell? If you care so much about my taxes being low, just cut them already. Somehow, it took years and years of this line being repeated for its internal contradiction to become evident to all.
Yet, even many strategic conservative minds could see the thinking had internal logic. You could sell it at a town hall. As an editorial team member at an influential news organization when B.C. got its carbon tax in 2008, I bought into the concept too.
And now? That whole model has been thrown overboard, by the very parties had long defended it with a straight face and an arch tone. In both Ottawa and Victoria in 2025, progressive governments facing political survival abandoned the idea of climate policy as a matter of fairness, opting instead for tactical concessions meant to blunt the momentum of their foes.
The result: lower-income Canadians who had grown accustomed to carbon tax rebates as a dependable backstop are waking up to find the support gone. And higher earners? They just got a tidy little gift from the state.
The betrayal is worse in B.C.
This new chart from economist Ken Peacock tells the story. He shared it last week at the B.C. Chamber of Commerce annual gathering in Nanaimo.
Ken-Peacock- B.C. Chamber of Commerce annual gathering in Nanaimo.
What is shows is that scrapping the carbon tax means the poor are poorer. The treasury is emptier.
What about the rich?
Yup, you guessed it: richer.
Scrubbing the B.C. consumer carbon tax leaves the lowest earning 20 percent of households $830 per year poorer, while the top one-fifth gain $959.
“Climate leader” British Columbia’s approach was supposed to be the gold standard: a revenue-neutral carbon tax, accepted by industry, supported by voters, and engineered to send the right price signal without growing the size of government.
That pact broke somewhere along the way.
Instead of returning the money, the provincial government slowly transformed the tax into a $2 billion annual cash cow. And when Mark Carney won the federal election, B.C. Premier David Eby, boxed in by his own pledge, scrapped the tax like a man dropping ballast from a sinking balloon. Gone. No replacement. No protections for those who need them most.
Filling the gas tank, on the other hand, is noticeably cheaper. Of course, if you can’t afford a car that might not be apparent.
Spare a thought for the climate activists who spent 15 years flogging this policy, only to watch it get tossed aside like a stack of briefing notes on a Friday afternoon.
Who could not conclude that the environmental left has been played. For a political movement that prides itself on idealism, it’s a brutal lesson in realpolitik: when power’s on the line, principles are negotiable.
But here’s the thing: maybe the carbon tax model deserved a rethink. Maybe it’s time for a grown-up look at what actually works
With B.C. now reviewing its CleanBC policies, here’s a basic question: what’s working, and what’s not?
A lot of emission reductions in this province didn’t come from government fiat. They were the result of business-led innovation: more efficient technology, cleaner fuels, and capital discipline.
That, plus a hefty dose of offshoring. We’ve pushed our industrial emissions onto other jurisdictions, then shipped the finished goods back without attaching any climate cost. This contradiction particularly helped to fuel the push to dump carbon pricing as a failed solution.
The progressives’ choice was made once the anti-tax arguments could no longer be refuted: to limit losses it would be necessary to deep six an unpopular strand of the overall carbon strategy. This, to save the rest. That’s why policies like the federal emissions cap haven’t also been abandoned.
To give another example, it’s also why British Columbia’s aviation sector is in a flap over the issue of sustainable aviation fuel. Despite years of aspirational policy, low emissions jet fuel blends remain more scarce than a long-haul cabin upgrade. The policy’s designers correctly anticipated that refiners would never be able to meet the imposed demand, and so as an alternative they provided a complex carbon credit trading scheme that will make the cost of flying more expensive. For those with a choice, nearby airport hubs in the United States where these policies do not apply will become an attractive alternative, while remote communities that have no choice in the matter will simply have to eat the cost. (Needless to say, if emissions reduction is your goal this policy isn’t needed anyways, since the decisions that matter in reducing global aviation emissions aren’t made in B.C. and never will be.)
I’m not showing up to bash those who have been genuinely trying to figure things out, and found themselves in a world of policy that is more complicated and unpredictable than they realized. Simply put, the chapter is closing on an era of energy policy naïveté.
The brutally honest action by Eby and Carney to eject carbon taxes for their own political survival could be read as a signal that it’s now okay to have an honest public conversation. Let’s insist on that. For years now, debate has been constrained in part by a particular form of linguistic tyranny, awash in terminology designed to cow the questioner into silence. “So you have an issue with clean policies, do you? What kind of dirty reprobate are you?” “Only a monster doesn’t want their aviation fuel to be sustainable.” Etc. Now is the moment to move on from that, and widen the field of discourse.
Ditching bad policy is also a signal that just maybe a better approach is to start by embracing a robust sense of the possibilities for energy to improve lives and empower all of the solutions needed for tomorrow’s problems. Because that’s the only way the conversation will ever get real.
Slogans, wildly aspirational goal setting and the habit of refusing to acknowledge how the world really works have been getting us nowhere. Petroleum products will continue to obey Yergin’s Law: oil always gets to market. China and India will grow their economies using reliable energy they can afford, having recently approved the construction of the most new coal power plants in a decade amid energy security concerns. Japan, which has practically worn itself out pleading for natural gas from Canada, isn’t waiting for the help of last-finishing nice guys to guarantee energy security: today, they are buying 8% of their LNG imports from the evil Putin regime.
Meanwhile, we’re in the worst of both worlds: our courageous carbon tax policy that was positioned as trailblazing not just for B.C. residents but for the world as a whole – climate leadership! – is gone, the poorest are puzzling over why things feel even more expensive, and nobody knows what comes next.
Ken-Peacock- B.C. Chamber of Commerce annual gathering in Nanaimo.
