Canada Takes a Stand

Media Hit, 2/18/26

I just got done recording an episode of John Batchelor’s Eye on the World, where we talked about my recent article with Civitas Outlook, “Canada Doesn’t Need to Win.” Here’s are two paragraphs that I think summarize the piece

The Realpolitik crowd treats international trade as if it were a single poker game. Canada has weak cards, the US has strong cards, we win. But trade relationships aren’t a single hand. They’re a decades-long game with the same players. And in repeated games, reputation is everything. Economists call this the “shadow of the future.” When you expect to interact with someone repeatedly, there is a powerful incentive to cooperate, build trust, and play fair. Defecting once might lead to a short-run payoff, but your playing partner remembers, and so does everyone else who’s watching. And they’re forming their own opinions about which countries to partner with.

And

Trump asserts that Canada doesn’t have the cards. They might not. But they don’t need to win the hand; they just need to find a new table. And thanks to the Trump Administration’s coercive diplomacy, new tables are opening all over the world. We might win a trade negotiation here and there, but we’ve lost something far more valuable: trust. Sadly, we may not fully understand what this means until it’s far too late to get it back.

Now look, I have obviously been very critical of tariffs. And I’ve been very critical of bad arguments in favor of tariffs. But I’ve also made predictions about what tariffs, if implemented, would do.

At this time last year, I published a number of articles saying, “hey, some countries might capitulate now based on how dependent they are on the US as a trade partner, but that’s going to be less effective going forward as countries find new trade partners.” See here, here, here, here, here, and here for just a sample. I gave talks and went on several podcasts, radio shows, and TV programs all saying exactly this.

Lo and behold, that’s what is happening right now. And that’s what my latest piece at Civitas is about as well as a few other articles I have that should be coming out any day now.

This isn’t rocket science. The United States isn’t just a manufacturing economy, it’s an advanced manufacturing economy. What that means is that we specialize in high skill, final production. We do not specialize so much in low-skill production or in producing raw materials and intermediate goods (though we still do plenty of those things, too). But what this means is that our imports are increasingly made up of… raw materials and intermediate goods that we use to do our high skill final production.

Tariffs make the purchase of these critical materials more expensive. As a result, the very thing that we’re good at (advanced production) becomes more expensive, too. That doesn’t help our manufacturing base; it hurts it.

This is also why tariffs are such a lousy negotiating tactic in today’s world, where shipping things internationally is actually pretty simple. Other countries have options for where to send their raw materials and intermediate goods. It’s why, during the trade war we had with China last year, their US exports fell but their overall exports actually rose.

In a way, tariffs are about as effective as a long run strategy as a customer saying, “I’m never going to shop here again!” Anyone who has ever worked in retail has probably heard some variation of this and has probably laughed internally (if not externally!) at the absurdity of it. But this is exactly what the world is like today. Very few countries are actually dependent on the US for their overall economic well-being. They might suffer a little bit, but maintaining their dignity, as Canada is doing, might actually be worth it.

And as Canada goes, so too goes the rest of the world. Not because Canada and Mark Carney are somehow “world leaders” in this space. It’s because of the simple fact that if Canada, one of America’s longest standing trading partners with the longest undefended border in the entire world, shows that they’ve had enough, why can’t other countries do so, too?