Canada's tougher trade stance may raise tensions and economic risks, experts say

A tougher trade stance by Canada risks escalating tensions with the United States and adding pressure on its economy, experts say, as uncertainty threatens investment and long-term growth.

Kim Richard Nossal, a professor emeritus of political studies at Queen's University, said the government of Canadian Prime Minister Mark Carney appears determined to avoid what officials have described as an "entry fee" for talks.

"The Carney government is rejecting what officials have called an 'entry fee' – concessions on trade issues — that must be 'paid' before talks even begin," he told China Daily.

He added that Ottawa has drawn lessons from past efforts to ease tensions with Washington.

"It would appear that the Canadian government recognizes that giving concessions unilaterally would not be in Canada's interests," he said, pointing to earlier moves such as withdrawing retaliatory tariffs and abandoning the Digital Services Tax.

"These concessions had no impact on Washington's continued hostility towards Canada," he said.

Carney has also argued that US tariffs on Canadian goods violate the CUSMA, but Nossal suggested the message is not primarily aimed at US policymakers.

"I do not believe it is a negotiating tactic aimed at Washington, because it is clear that the administration does not care whether its tariffs violate CUSMA," he said.

Instead, he said the statement is likely directed at US business interests affected by supply chain disruptions.

"My own view is that this is a reminder targeted at all those American business owners whose firms are being affected by the disruption caused to present supply chains — perhaps in the hope that they will make their dissatisfaction known to their members of Congress or to the administration directly."

A tougher stance from Ottawa, however, may carry risks.

"The Trump administration is not going to accept the refusal of Canada to bend to its demands on an 'entry fee' without a punishment of some kind," Nossal said.

"That would be in keeping with the pattern of this administration: to force smaller countries, particularly those that they do not like (such as Canada), to bend to their demands like vassals.

"A tougher stance from Ottawa is likely to make the negotiation more difficult," he said.

Ottawa has recently assembled a new trade advisory team, signaling readiness to engage, but Nossal questioned whether Washington is equally willing.

"Canada may be ready to engage, but it is not clear that the US side is willing to engage unless Canada behaves like a good vassal and gives away key concessions before negotiations begin," he said.

Looking ahead, he said expectations for a breakthrough should remain low.

"I think it much more likely that if Canada refuses to pay the 'entry fee,' the US will simply refuse to sign an extension by July 1, which would create huge uncertainty because it would trigger annual reviews for the next 10 years," he said.

"Indeed, I think it is entirely possible that if Canada continues to refuse to give in, the Trump administration will move to abandon the trilateral agreement altogether," he said, suggesting the US could pursue a separate deal with Mexico despite potential disruptions to cross-border supply chains.

Mesbah Fathy Sharaf, an economics professor at the University of Alberta, said the close economic relationship between the two countries leaves Canada particularly exposed to disruptions.

"If tensions between Canada and the US increase, the effects would show up quickly," he told China Daily.

"The US is Canada's largest trading partner, so tariffs make exports more expensive and less competitive," he added, noting that demand could fall in "key sectors such as energy, manufacturing and agriculture".

In the short term, he said firms may face pressure on profits and scale back expansion plans.

Over time, however, the effects could become more structural.

"Repeated tensions can weaken confidence and create ongoing uncertainty, which gradually slows economic growth," he said.

Sharaf said uncertainty itself can be as damaging as direct trade barriers.

"Investment decisions are usually long-term," he said. "When companies build a factory or expand operations, they are thinking five or 10 years ahead."

"If trade rules between Canada and the US are unclear, firms may simply wait," he added, describing a "wait and see" approach that can weigh on growth.

"This 'wait and see' behavior can be costly. Less investment today means slower productivity growth tomorrow.

"Over time, that can reduce Canada's competitiveness, especially compared to countries where trade conditions are more stable," he said.

There are already signs that companies are adjusting to the uncertain environment, he said.

"Many are diversifying supply chains and looking for new export markets, including Europe and Asia," he added, while others are "shortening supply chains or shifting parts of production closer to home to reduce risk".

While Canada has been seeking to diversify its economy and reduce reliance on the United States, Sharaf said structural constraints remain significant.

"Canada is making a genuine effort to become more resilient, and there has been some progress," he said, pointing to trade agreements with Europe and Asia.

Still, he said, the country remains deeply tied to its southern neighbor.

"Geography, shared infrastructure and long-standing business ties make that link difficult to replace," he said.

gaoyang@chinadailyusa.com