RESOLVING THE LEDGER
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0 Share Newsweek is a Trust Project member See more of our trusted coverage when you search. Prefer Newsweek on Google to see more of our trusted coverage when you search. Donald Trump believes he is demonstrating American power. Mark Carney is drawing a very different lesson: that it has become dangerous to depend too heavily on America.
That is what makes the collapse of U.S.-Canada trade negotiations much more consequential than another Trumpy tariff drama. Carney's response is not simply to retaliate against Trump's tariffs, although Canada will do that. He is attempting something much more ambitious: to make Canada less vulnerable to American economic pressure in the first place.
Canada intends to double its non-U.S. exports over the coming decade. It is seeking deeper economic relationships with Europe and Asia and pursuing agreements with India, in south east Asia, South America and elsewhere. And it is investing in the ports, transportation corridors, energy infrastructure and critical-mineral projects needed to get Canadian products to those alternative markets.
In other words, Trump looks at Canada's dependence on the American market and sees leverage. Carney looks at Trump's willingness to exploit that dependence and sees a vulnerability that must be reduced.
And others are moving in the same direction.
The EU has been pursuing major trade agreements with India and the South American trading bloc Mercosur, potentially giving European companies far greater access to two enormous markets outside the United States. These negotiations long predate Trump's latest tariff wars, so it would be wrong to claim that he caused them. But their strategic significance looks rather different in a world in which Washington is increasingly willing to use access to the American market as a political weapon.
This isn't decoupling from America. It isn't necessarily even anti-American. It is hedging against America—and it was caused by Trump —who appears to fundamentally misunderstand the source of his own country's power.
America has profited mightily from the fact that much of the world voluntarily organized itself around the United States. Countries wanted access to American markets. They depended on American security guarantees. They held dollars, integrated their supply chains with American companies, adopted American technologies and standards, and generally believed that close alignment with Washington made them safer and richer.
That dependence gave the U.S. extraordinary leverage. Trump sees the leverage but appears incapable of understanding what created it. He treats other countries' dependence on America as something permanent that can therefore be exploited indefinitely. But if your largest customer repeatedly threatens to ruin your business, eventually you start looking for other customers.
Which brings us to the economic madness of the current confrontation with Canada.
The United States has imposed 50 percent tariffs on roughly $20 billion worth of Canadian goods, and Carney has promised to retaliate dollar for dollar
The basic deception at the heart of his tariff policy is astonishingly obvious. Trump talks about tariffs as if he were sending Canada a bill and Carney were writing a check to the U.S. Treasury. He routinely describes tariffs as money that foreign countries pay America.
That is not how tariffs work. American importers pay them. The costs are then absorbed by American companies or passed along, in whole or in part, to American consumers. Canada is certainly hurt: its goods become more expensive in the American market, Canadian companies lose sales, and Canadian workers may lose jobs. But the tariff itself is paid on the American side of the border.
This produces one of the strangest features of Trump's political success. Because foreign leaders become angry when he imposes tariffs—as Carney clearly is—their anger is presented as proof that the policy is “working.” Trump is sticking it to Canada, his credulous supporters are told; look how upset the Canadians are!
But both things can be true. Trump can hurt Canada by making its exports less competitive while simultaneously taxing Americans who buy Canadian products. There is no contradiction but instead just boneheaded economics.
What makes this episode still more bizarre is the country Trump has chosen to “fight” with the most gusto. Americans did not spend the decades before Trump lying awake at night worrying about the Canadian menace—yet their country is now actively destroying goodwill with one of its closest allies and most integrated economic partners.
Trump has recklessly talked about making Canada—which is larger in size than the U.S.— into the 51st state , joked that it is led by a “governor,” and questioned its economic viability, fueling the sense of betrayal. Canadian travel to the U.S. is now sharply down, harming U.S. tourism.
Trump’s economic pronouncements tend to be a jumble of instinct, grievance and half-understood mercantilism. Carney is an actual economist who has spent much of his adult life thinking about how economies and financial systems work. He has run not one but two major central banks, serving as governor of the Bank of Canada and then governor of the Bank of England—the first non-Briton ever appointed to the latter job. He helped steer Canada through the global financial crisis and Britain through the economic turbulence surrounding Brexit. So he is unusually difficult to bamboozle with hogwash about who pays a tariff.
And unlike his predecessor Justin (“Governor”) Trudeau, he certainly cannot be mocked as weirdly wokey, and he seems remarkably unfazed by Trump. Trump has often been effective at dominating foreign leaders by making outrageous threats, creating uncertainty and then offering relief from a crisis he himself created. Carney is actually fighting back, calling for a revision of the world political and economic order to price in ridiculousness coming from t...
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