Trade tensions between Canada and the United States have flared up in recent years, with disputes ranging from softwood lumber tariffs to electric vehicle incentives. Despite the U.S.’s overwhelming economic advantage, Canadian Foreign Affairs Minister Mélanie Joly has asserted that Canada is not defenseless—and could even prevail in a trade conflict.
This article examines Joly’s stance, the historical context of Canada-U.S. trade disputes, and whether Canada truly has the leverage to win a trade war against its largest trading partner.
The Context: Rising Canada-U.S. Trade Tensions
Canada and the U.S. share the world’s largest bilateral trade relationship, with over $1 trillion in annual trade. However, recent disagreements have strained this partnership:
Key Trade Disputes
- Softwood Lumber Tariffs
- The U.S. has repeatedly imposed duties on Canadian lumber, arguing that Canada unfairly subsidizes its forestry industry.
- Canada has challenged these tariffs at the WTO and USMCA (NAFTA 2.0) dispute panels.
- Electric Vehicle (EV) Tax Credits
- The U.S. Inflation Reduction Act (IRA) initially excluded Canadian-made EVs from tax incentives, threatening Canada’s auto sector.
- After intense lobbying, Canada secured some concessions, but concerns remain.
- Buy American Policies
- U.S. government procurement rules often favor American suppliers, limiting Canadian businesses’ access to contracts.
- Dairy Supply Management
- The U.S. has long criticized Canada’s dairy quotas, leading to disputes under USMCA.
Mélanie Joly’s Argument: How Canada Could Win
Despite the U.S.’s economic dominance, Foreign Minister Mélanie Joly has argued that Canada has strategic advantages in a trade war:
1. Legal Recourse Through USMCA
- Canada has successfully used trade agreements (NAFTA, USMCA, WTO) to challenge U.S. tariffs.
- Example: In 2022, a USMCA panel ruled against U.S. dairy restrictions, forcing policy adjustments.
2. Economic Leverage: Critical Exports
- The U.S. depends on Canadian resources:
- Energy: Canada supplies 40% of U.S. oil imports.
- Minerals: Essential for electric vehicles and tech (nickel, lithium, uranium).
- Electricity: Canadian hydro powers parts of the Northeast U.S.
3. Diplomatic & Political Alliances
- Canada can rally international support (e.g., EU, Mexico) to pressure the U.S.
- Domestic U.S. industries (auto, energy) also lobby against trade wars with Canada.
4. Retaliatory Tariffs Worked in the Past
- After Trump’s steel/aluminum tariffs (2018), Canada imposed $16.6B in counter-tariffs, hitting politically sensitive U.S. goods (whiskey, motorcycles).
- The U.S. eventually backed down, showing Canada’s ability to inflict economic pain.
Could Canada Really “Win” a Trade War?
Arguments in Favor
Legal Wins: Canada has a strong record in trade dispute rulings.
Resource Dependence: The U.S. can’t easily replace Canadian energy and minerals.
Political Pressure: U.S. industries and lawmakers oppose trade wars with Canada.
Arguments Against
Economic Disparity: The U.S. economy is 10x larger—prolonged conflict would hurt Canada more.
Limited Retaliation Options: Canada can’t match U.S. tariff firepower.
Risk of Escalation: A full-blown trade war could disrupt supply chains and investment.
Conclusion: Canada Can Fight, But Avoids All-Out War
While Mélanie Joly is right that Canada has tools to push back, an outright trade war would be damaging for both nations. Instead, Canada’s best strategy is:
- Pursuing legal challenges (USMCA, WTO).
- Leveraging energy and mineral exports as bargaining chips.
- Building coalitions with other U.S. trade partners.
History shows that Canada can defend its interests, but the goal remains cooperation over conflict in North America’s deeply integrated economy.
