This past July, the United States announced that it would not renew the United States–Mexico–Canada Agreement (USMCA), sending the trilateral trade treaty into annual reviews that may potentially extend over the next 16 years. Many are now wondering what conditions will be needed to secure a lasting renewal of the continental agreement.
For those of us in Canada asking such questions, one thing is increasingly clear: our actions may not matter much. Condemned by geography, our country finds itself in America’s sphere of influence and on the receiving end of its demands (and President Trump’s tweets). In many ways, this is America’s world; we just live in it.
The real determinant will more likely be what happens in the United States itself, as the country grapples with the short- and long-term consequences of shifts in its trade strategy. Under the new American approach, interdependence with other countries is increasingly seen as a risk, not an asset. Efforts to decouple from these arrangements are generating costs that will determine how American attitudes toward USMCA and other trade agreements evolve.
In the short term, the costs are clear: American tools of economic coercion have proven effective at securing concessions. Canada, for example, dismantled its digital trade tax simply to restart USMCA negotiations. It invested $1.3 billion in border security in response to fictitious concerns about fentanyl, and it has drastically increased defence spending, after years of ignoring more polite American requests. Trump’s brinkmanship tactics have secured these wins.
But in the long term, American tools of economic coercion may prove less effective: they unequivocally signal untrustworthiness and push Canada and other targets away from the United States. In other words, tools that work in the short term may have long-lasting consequences that we may not anticipate or understand.
The trendline is now well-understood. The United States has undertaken a broad effort to reduce dependence on strategic rivals while weakening confidence among its closest traditional economic partners. The classic idea of openness as a source of American economic strength has increasingly been replaced with the view that economic interdependence is a source of vulnerability.
This approach may have been sensible — and may have provided an important source of American leadership — had it been limited to arenas of American dependence on strategic rivals, such as decoupling American reliance on Chinese minerals and resources that parts of the American defence industrial base depend on.
But American actions have gone much further, using an increasingly transactional approach that has weaponized classic economic security levers reserved for rivals and adversaries against traditional allies as well. Exceptional measures once carefully tailored to punish enemies are now routinely deployed as tools of punishment for everyone.
In Canada, we have felt the blunt edge of these tactics. The United States now imposes higher tariffs on some Canadian goods than their Russian equivalents. A law most economists view as exacerbating the Great Depression has also been used to hit our country with more tariffs.
Fentanyl, forest fires and forced labour have all been used as quickly constructed bogeyman justifications for meting out various forms of economic punishment. As Canada’s former deputy prime minister Chrystia Freeland describes it in her eponymous new book, America has become an unreliable boyfriend.
As the United States looks at rivals and allies alike and sees in both interdependency as a source of vulnerability, not value, its executive government is assessing an array of domains through a new security lens. When and where this thinking asserts itself is highly unpredictable.
The new frequency with which existing interdependent supply chains are recast as critical — and the subsequent scrambled efforts to reshore them — shows that the security dimensions of existing interdependencies are neither entirely well understood nor fully thought out. The rapid and often ad hoc policy responses to many of the subsequent crises wrought by decoupling show that a clear vision for America’s future is missing.
Whether these justifications for economic punishment are grounded in reality is beside the point. For many of us in Canada, it is obvious that they are not. The more important question is their costs — not to rivals or allies but to the United States itself. Until that becomes clear, understanding the impact of these measures will be challenging.
In the short term, President Trump’s track record, especially with Canada, has arguably been a success. But in the long term, the costs are far less certain. Many tools of economic coercion currently being weaponized will become less effective over time because they send an unmistakable message to their targets about untrustworthiness. They force Canadians to grapple with the United States as a source of risk, not security. Canada’s pivot to other jurisdictions such as the European Union and the many boycotts by its citizens against American travel and purchase of goods are clear signs of that.
More serious questions loom. Will tariffs be a temporary cost of reshoring American businesses and bringing manufacturing sectors home — or will they impact the export competitiveness of American businesses? Will American importers paying these tariffs accelerate a transition to domestic goods or fuel inflation? Has the move away from economic efficiency to economic security entered an overcorrection, which will ultimately impact the cost of living and well-being that average Americans expect? Will sanctions punish enemies or will they accelerate decoupling from American financial systems? The US government is increasingly distorting the economy in ways that make the United States much more interventionist, which may also impact the country’s competitiveness.
What all these changes will cost the United States remains far from certain; whether these measures ultimately harm the country is far from settled. What is clear is that a long-term vision of these changes that are underway remains fleeting.
For now, American rivals and allies alike have paid the price of these actions. The question remaining is whether America, too, will ultimately pay this price.
