5 min readAug 28, 2026 07:10 AM IST First published on: Aug 28, 2026 at 07:10 AM ISTMark Carney walking away from a lopsided trade deal with the US raises the question of whether Canada can withstand American economic and political pressure. More than 70 per cent of Canada’s trade is with the US, compared to about 15 per cent of US trade with Canada. A great power is asserting dominance over a neighbour that Donald Trump has repeatedly portrayed as a potential 51st state or, at minimum, a vassal with limited capacity to pursue independent policies.Canada’s defiance will bring short- and potentially medium-term pain to its economy and standard of living. The $27 billion in dollar-for-dollar tariffs announced by Ottawa could further anger Trump and prompt additional tariffs on Canada. If the US carries out its threatened 50 per cent tariffs on Canadian autos and steel from January 1, and Canada’s threatened retaliatory tariffs on oil and electricity exports take full effect, prices could rise significantly on both sides of the border. High unemployment could follow.AdvertisementBut countries do not always behave according to economic rationality when confronting a cantankerous neighbour. When the stronger side asserts too much power, it can generate nationalism in the weaker country, as is evident in Canada today. Carney cannot unilaterally accept a trade deal that could become a domestic quagmire for him and the Liberal Party. For provinces like Ontario, the auto-parts provisions are a major issue; for Quebec, restrictions affecting French-language marketing are a no-go zone. Separatist movements in Quebec and Alberta could also be emboldened if Ottawa were seen as submitting to American pressure, although Alberta could be particularly affected by any Canadian tariffs on the oil products it exports to the US. Washington appears to have underestimated Canada’s domestic dynamics and the implications for its federalism.Carney’s calculation may be that, despite the power asymmetry, Canada holds several trump cards that can be used in the negotiations. Studies show that Canada performed well in previous North American Free Trade Agreement negotiations and in negotiating its successor, the Canada-United States-Mexico Agreement. Canada secured several provisions that are now being contested, although their long-term benefits remain uncertain.The larger issue is Canadian sovereignty and its determination not to be, as Carney himself has put it, a “subsidiary” of the US. The Trump administration’s neo-imperial policies do not distinguish reliably between allies and adversaries. Carney wants to diversify Canada’s trade relationships, including with China and India, and reduce its dependence on the US market. This strategy is integral to the vision he presented in Davos that middle powers such as Canada should remain independent actors. Protecting and strengthening Canadian manufacturing in collaboration with partners in Europe and Asia will be central to that strategy.AdvertisementFor the Trump administration, time may be short. Impending electoral cycles could constrain its policies. Carney may be calculating that a mercurial president could abandon an agreement at any time over another issue, perhaps even one driven by personal considerations, and that a possible Democratic victory in the November congressional elections could place greater restraints on Trump’s unilateralism. Moreover, more than half of all American states depend heavily on trade with Canada and could pressure Trump and his trade negotiators to make concessions and compromises.If Canada succeeds in persuading the US to compromise, it could provide other countries with an example of how to deal with Washington. In the long run, external pressure could also help Canada build a more self-reliant economy capable of manufacturing a broader range of products, despite its relatively small population and economy.you may likeA stronger Canada can say no to America’s tendency toward neo-imperialism and neo-mercantilism. Even during the Cold War, Canada resisted participating in some US military interventions and has now refused to join the ongoing Iran war. Canada also maintained diplomatic and economic relations with Cuba despite US efforts to isolate the communist regime. America under Trump is more strident, while Canada’s options are limited: Accept an unfavourable trade agreement or stand firm in pursuit of a better one.Other middle powers and European partners are closely watching the emerging saga. They are unlikely to form a formal coalition of resistance with Canada, but they can cooperate with Ottawa in less conspicuous ways. Sometimes ruptures and crises are necessary, even among friends, to make clear what is at stake in unequal relationships. Canada may be doing the international order a favour by refusing to concede.The writer is Distinguished James McGill Professor at McGill University, Canada