As the ongoing dispute between Canada and the U.S. continues, there are three primary outcomes that can shape the future of their relationship. These three scenarios are often referred to as the good place, the bad place, and the messy middle.
The Good Place: Economic and Military Cooperation
In this ideal scenario, Canada and the U.S. repair their relationship, especially in trade and security. Both countries would benefit from tariff-free trade, which would be a relief for Canadian industries that face high tariffs on certain goods, such as steel and aluminum. The U.S. would continue to provide defense security to Canada under its military umbrella, ensuring Canada’s defense needs are met. In fact, Canada might even find itself at a competitive advantage, as its trade barriers remain lower compared to most other countries, particularly in light of the recent trade war. The U.S. also imposes fewer tariffs on Canadian goods under the new trade agreement, CUSMA (Canada-United States-Mexico Agreement), and this allows Canada to have more access to the U.S. market, which would otherwise be difficult for other countries.
Robert Lighthizer, Donald Trump’s former trade czar, expressed optimism about this possibility. He pointed out that Canada is in a better position now than before, as the country benefits from its relationship with the U.S. despite the trade war. Still, there are issues to address, such as tariffs on certain Canadian industries, particularly in the automotive sector.
The Messy Middle: Uncertainty and Daily Shifts
The middle ground is where things stand right now — unstable and unpredictable. While Canada enjoys certain exemptions under CUSMA, there are still shifting tariffs and trade barriers. The situation could change day by day depending on decisions from the U.S. administration, making it hard to predict the future. The system is chaotic, and both Canadian and U.S. businesses are trying to navigate a world of fluctuating tariffs that can change at any moment. The agreement between Canada, the U.S., and Mexico (CUSMA) might survive, but the framework around it is unstable, leaving the future uncertain.
A recent statement from Jamieson Greer, the current U.S. Trade Representative, further complicated things. He mentioned that Latin American countries have a competitive advantage over Canada and Mexico when it comes to textile production. However, just days later, the U.S. president eliminated the tariff advantage that Latin American countries had, which disrupted any stability that might have existed. Now, nearly all countries face a uniform 10 percent tariff rate, which leaves the entire trade situation in flux.
The Bad Place: Full-Blown Crisis
The worst-case scenario is a full escalation of tensions, where things could worsen drastically. This outcome would mean Canada and the U.S. are at odds with no meaningful resolution in sight, resulting in a deeper rift. At times, Donald Trump has suggested that he would take drastic measures to hurt Canada economically, even at one point hinting that Canada might be forced to join the U.S. However, this extreme rhetoric has died down in recent months, and it remains uncertain whether Trump would return to such threats after the next federal elections in Canada.
For now, the harsh rhetoric seems to have quieted, but the possibility of it returning looms large. Whether the relationship deteriorates into a full crisis depends largely on the actions taken by both governments in the upcoming months.
Rebuilding Trust
Whatever scenario unfolds, rebuilding trust between Canada and the U.S. will take time. Experts suggest that a cooling-off period is needed before both countries can sit down and have constructive discussions. For example, Canada has long-standing concerns about meeting its defense obligations, and the U.S. is upset about Canada’s defense spending and its failure to meet some of the targets. Canada, on the other hand, has expressed frustration over the continuous tariffs being imposed on its industries, which creates a tough environment for negotiation.
The process of renegotiating trade deals like CUSMA could take years, and it is unclear whether Trump will follow formal procedures or seek a quicker resolution. Negotiations could be delayed further because of the stretched resources of the U.S. trade team, which is dealing with several other countries as well.
What does Canada want?
Canada’s main goal is to ensure that U.S. tariffs can’t be used arbitrarily against its industries. For example, Trump has previously used tariffs as a negotiating tool in other disputes, including with Mexico over water rights. Canada wants to protect its industries from such unexpected and destabilizing tariff hikes.
What does the U.S. want?
The U.S. has several key objectives in these negotiations, including Canada’s digital services tax, and the issue of Canada’s supply management system for dairy, eggs, and poultry. The U.S. also seeks to remove foreign parts, especially from China, from the U.S. manufacturing supply chain, particularly in steel and auto components. The auto industry, which is a major point of contention, will likely be a focus of future discussions.