The latest salvo in Canada and the United States’ escalating trade war — a declaration that Lake Ontario is now Lake America — is upsetting but unfortunately not surprising.
President Donald Trump has long brought a reality TV-type showmanship to the business of running government. And during his second term in particular, he has shown a vindictive side.
So it must have been foreseeable to Prime Minister Mark Carney that last week’s aborted trade talks could quickly spiral.
This does not mean Carney was wrong to walk away from the negotiating table. That was the right decision when talks hit an impasse. But some of his subsequent actions raise concerns.
In response to a reporter’s question, Carney said Canada was at war with the United States. “You’re at war when you get attacked; we got attacked,” he said.
He suspended trade talks, withdrew Canada’s negotiators from Washington, and announced retaliatory tariffs on about $28-billion of goods.
Many commentators have said retaliation is the right move. They have likened Canada’s negotiations with the United States to a game of “repeated prisoner’s dilemma.”
In this textbook game theory model, two parties do best when they both cooperate (as they do with trade). But if one side refuses to cooperate, the best course of action for the other side is to stop cooperating as well.
Under this logic, it is reasonable to impose dollar-for-dollar retaliatory tariffs, as Canada plans to do beginning Sept. 8.
The problem with this framework, though, is it assumes the parties are evenly matched in the costs they can inflict when they choose non-cooperation.
In Canada’s situation, this is unfortunately not the case. This makes a different strategic concept — one known as “escalation dominance” — more relevant. Under this concept, the party that has the greater ability to withstand escalation is the only one that should escalate.
We saw a version of this play out in the United States’ trade negotiations with China last year.
The Trump administration announced tariffs of 10 per cent on Chinese imports. China responded with retaliatory tariffs of its own, and the United States raised rates once again.
However, after China expanded export controls on rare earth minerals essential to American military and tech production, the Trump administration backed down. It paused planned tariff hikes in exchange for China suspending those controls.
Put simply, China held escalation dominance over the United States and, crucially, was prepared to use it.
At present, the same cannot be said for Canada. While the United States relies on Canadian oil, potash and electricity, both Carney and Alberta and Saskatchewan’s premiers have opposed using these exports as leverage in negotiations.
So, where does this leave us?
It means we should de-escalate — not further up the ante. While doing the latter may feel satisfying, it ultimately hurts Canadian consumers, businesses and workers — especially those who cannot afford a costly war of words.
So we are encouraged that Carney reportedly told Liberal MPs late this week to avoid further escalating tensions or provoking the Trump administration.
We would also like to see Carney bring Canadians along in understanding that we are in a new world trading order.
U.S. Trade Representative Jamieson Greer made this point repeatedly in an interview with CBC’s Rosemary Barton this week, noting the United States is pursuing a global trade policy — of which Canada is merely a part.
In this changed world, it is not helpful to necessarily view trade demands as an attack on our sovereignty. Rather, it is incumbent on Canadian leadership to try to seek the best deal possible in the circumstances.
And we should — as Carney is doing — try to diversify and reduce our reliance on the United States. But while we do that, we must temper our expectations about what it is possible to achieve with the United States.
Under this Trump administration, maintaining the status quo is clearly not an option. Therefore, pushing for imperfect but relatively favourable trade terms may be the best course of action.
We hope the coming weeks show our leaders displaying cool reserve, while making best efforts to get our negotiators back to Washington and the negotiations back on track.
Canadian livelihoods depend on it.
