Canada’s Strategic Misstep: Why Trudeau’s Retaliatory Tariffs Were a Costly Mistake and How Canada Can Recover

Introduction

Trade disputes between nations are nothing new, and history is filled with examples of how countries have responded to economic pressures—some with success and others with disastrous consequences. When President Donald Trump imposed tariffs on Canadian steel and aluminum, Prime Minister Justin Trudeau reacted hastily, imposing retaliatory tariffs on U.S. exports. However, history suggests that such tit-for-tat measures often hurt the weaker party more than the aggressor.

Unlike larger economies such as China or the European Union, Canada does not have the economic or political leverage to engage in a prolonged trade war with the United States. This makes Trudeau’s response not only impractical but also strategically flawed. If Canada had approached the situation differently—through diplomacy, economic realignment, and targeted negotiations—the outcome could have been more beneficial.

By analyzing both the historical context of similar trade disputes and Canada’s unique position in the global economy, we can understand why Trudeau’s response was a mistake—and, more importantly, what Canada must do now to reverse the damage.

Why Trudeau’s Response Was a Strategic Error

1. Canada is the Weaker Party in This Trade Dispute

To understand why Canada should not have responded with retaliatory tariffs, we must look at the asymmetry in economic power between Canada and the United States.

• Trade Dependence: Nearly 75% of Canada’s exports go to the U.S., while only 15% of U.S. exports go to Canada. This means that Canada has far more to lose in a trade war.

• Economic Scale: The U.S. economy is about ten times larger than Canada’s, giving Washington a significant advantage in a prolonged trade dispute.

By analyzing both the historical context of similar trade disputes and Canada’s unique position in the global economy, we can understand why Trudeau’s response was a mistake—and, more importantly, what Canada must do now to reverse the damage

• Past Trade Conflicts Show the Risk: In the 1930s, the Smoot-Hawley Tariff Act led to retaliatory tariffs between the U.S. and Canada, causing a deep collapse in North American trade. Canada suffered significantly, as its economy was much more reliant on U.S. markets. The current situation bears similarities, as Canada once again faces an uphill battle in a trade war it cannot sustain.

Lesson from History: When weaker economies try to retaliate against a stronger trade partner, they often bear the heavier cost. Canada should have recognized this and sought a different response.

2. Canada Lacks Alternative Trade Partners

One of the biggest problems with Trudeau’s decision is that Canada has few alternatives to the U.S. market. Historically, nations caught in trade disputes have tried to diversify their markets, but this is easier said than done.

• China is Not a Reliable Alternative

• While China has been expanding its trade partnerships worldwide, Canada faces major barriers in deepening trade with Beijing due to diplomatic tensions.

• The arrest of Huawei’s CFO, Meng Wanzhou, in Canada in 2018 led to severe retaliation from China, including the arbitrary detention of Canadian citizens.

• Unlike Australia, which has successfully expanded its trade with China, Canada does not export enough high-demand raw materials to replace U.S. trade with Chinese buyers.

• Europe and Asia Cannot Replace the U.S. Market

• The EU-Canada Comprehensive Economic and Trade Agreement (CETA) exists, but it has not led to significant trade growth.

• Asian markets are competitive, and Canada does not have the trade volume or infrastructure to quickly pivot to these regions.

Lesson from History: The United Kingdom faced a similar dilemma after Brexit, when it sought to replace EU trade with the U.S. and Asia. However, despite negotiations, the UK has struggled to find trade deals as favorable as those within the EU. This shows how difficult it is to replace major trade relationships.

3. The U.S. is Playing a Smarter Trade Game Than Canada

Unlike Canada’s reactionary tariffs, the U.S. has strategically used trade pressure to negotiate from a position of strength.

• China’s Response to U.S. Tariffs Offers a Lesson

• Instead of outright retaliation, China carefully imposed tariffs on politically sensitive U.S. industries, such as agriculture, to put pressure on Trump.

• At the same time, China engaged in backchannel negotiations, ensuring it had leverage while keeping diplomatic doors open.

• Canada, by contrast, reacted emotionally, closing doors instead of opening them.

• Trump’s Tariffs Are a Bargaining Tool

• Unlike Canada, the U.S. uses tariffs as a tool to extract better trade deals.

• Trump’s administration has a clear endgame—pressuring partners into renegotiating trade terms.

• Canada should have recognized this and responded with negotiation, not confrontation.

Lesson from History: During the Reagan administration, Japan faced pressure from the U.S. over its car exports. Instead of retaliating, Japan negotiated voluntary export restraints and shifted focus to building factories in the U.S., creating goodwill. Canada should have considered a similar approach.

How Canada Should Have Responded Instead

1. Diplomacy Instead of Retaliation

• Instead of imposing retaliatory tariffs, Canada should have engaged in quiet diplomacy to negotiate an exemption from Trump’s tariffs.

• Canada should have leveraged American industries affected by Trump’s tariffs—such as the automobile sector—to apply internal U.S. pressure for policy change.

2. Strengthening Economic Ties With U.S. Businesses and Lawmakers

• Canada should have built strategic alliances with American businesses and lawmakers who opposed the tariffs.

• By working behind the scenes, Canada could have secured bipartisan support within Congress to push back against Trump’s measures.

3. Expanding Trade Relations While Keeping the U.S. as a Priority

• Instead of antagonizing the U.S., Canada should have quietly strengthened trade ties elsewhere.

• Unlike China, which actively seeks global trade diversification, Canada put itself in a weaker position by escalating a trade war instead of broadening trade options.

What Canada Must Do Now to Reverse the Situation

1. Restart Diplomatic Talks With the U.S.

• Trudeau must de-escalate tensions and re-engage with the U.S. diplomatically.

• Public acknowledgment that Canada values U.S. trade relations would help in mending ties.

2. Strengthen Ties With U.S. Businesses and Lawmakers

• Canada should actively court U.S. industries affected by the tariffs and create internal pressure to reverse them.

3. End the Retaliatory Tariffs and Seek Compromise

• Canada must drop the ineffective retaliatory tariffs and negotiate for targeted trade relief instead.

• This would shift Canada from a position of weakness to one of constructive engagement.

4. Consider a Radical Economic Integration With the U.S.

• One bold option is closer economic integration with the U.S.

• While full statehood (becoming the 51st state) may be politically unrealistic, deeper trade ties and joint economic policies could offer a solution.

Conclusion: Canada Must Rebuild Its U.S. Relationship, Not Fight It

Trudeau’s retaliatory tariffs were an emotional response rather than a calculated strategy. Canada lacks the economic scale and alternative trade partners to sustain a trade war with the U.S. History shows that smaller economies fare better when they engage in diplomacy rather than retaliation.

Moving forward, Canada must shift from confrontation to cooperation, prioritize diplomacy, and seek economic strategies that strengthen—rather than weaken—ties with the U.S. Otherwise, it risks long-term economic damage with no clear alternative.

Dr. Brian O. Reuben is the Executive Chairman of The Sixteenth Council.