Faced with tariffs, Canada should pivot to the future

Since incoming president Donald Trump threatened 25 per cent tariffs last month, Canadian politicians have flocked to Florida like snowbirds.

Not surprisingly, Canadian business and political leaders are desperate to head off damaging Trump tariffs. In so doing, they are also acting to protect the dominant business model that has developed in Canada since the 1988 Free Trade Agreement.

While this makes a lot of sense, over-committing to the status-quo may also be a mistake.

Trump may have re-introduced tariffs (against China) in 2017, but the Biden administration added to them (he did mostly reverse tariffs on EU steel). The return of tariffs is intended to force American capital to “onshore” or “friendshore” productive investment and reverse the de-industrialization the US has suffered since the 1970s and 1980s.

In so doing, it also hopes to address one of the fundamental imbalances in the contemporary world system: the huge current account deficit the US has run up with China running back to the 1990s. Those deficits have allowed China to use dollars to project power, most recently through massive infrastructure investment that reroutes parts of the global economy through its Belt and Road initiative.

Tariffs, therefore, were also re-asserted American control over manufacturing supply chains (especially high-tech supply chains) in a world supposedly over-run by Chinese overcapacity and growing competition for breakthroughs in key areas crucial to the future of military conflict, such as AI, quantum computing, and access to the most advanced microchips.

Contested free trade

A world of tariffs seems like a big step back into the past, but opposition to free trade has been intense for decades, especially from groups like industrial workers who had traditionally supported the Democratic Party. It was Bill Clinton who ushered in the World Trade Organization and a period of global free trade after 1994.

States like Pennsylvania, Ohio, Michigan, and Wisconsin—where there is an important concentration of industrial workers—voted for Trump in 2016, and again in 2024. Trump tapped support from groups who had opposed free trade by talking openly on the campaign trail in both elections about imposing tariffs.

Moreover, despite assumptions that globalized supply chains would speed up economic growth and efficiency, the evidence from the last 20 years suggests instead slower economic growth and higher levels of income and wealth inequality than previous post-war decades—the source of significant political shocks in recent years, as left-wing social democratic parties failed to mobilize an effective response. Since the 1990s, social democrats have largely acquiesced to the needs of domestic capital for access to international markets. They have rarely challenged the orthodoxies of free trade and free markets.

In the US, where Barack Obama largely ignored the demands of social movements like those that organized around Occupy Wall Street, the excesses of globalization would be taken up more successfully by the Tea Party and the far-right. Trump is a consequence of this “centrism,” by which, we should understand commitment to the status quo, even after its failures are evident. Biden and Harris will be remembered in this camp.

There are few certainties when it comes to Trump 2.0, but tariffs may be one of them. Therefore, Canadians would be prudent to prepare.

Globalization as we knew it is probably coming to an end. At the same time, a global civil society continues to take shape, its future dependent on our collective abilities to navigate the ensuing geopolitical tensions that the end of global free trade is going to bring about.

Decoupling free trade from global cooperation

The world has gone through a similar shock to global integration before. The first wave of free market industrial capitalism launched a globalization process of sorts that sparked a return to tariffs during the long economic stagnation of 1873 to 1896, a period not unlike the last 30 years. The ensuing period of protectionism and competition for raw materials (marked in particular by the Berlin Conference of 1885 and “the Scramble for Africa”) contributed to rising inter-imperial rivalry in Europe. We know now how that ended, and we should seek to avoid a repeat.

In the aftermath of the Great War of 1914-1918, and later, through the Second World War economic liberals in the core capitalist countries, like the economist John Maynard Keynes and US President Franklin Roosevelt, sought to build a mutually beneficial, international order of muted capitalism, in which states were integrated through free trade. Keynes famously believed that states that traded with one another did not declare war on each other.

The traumas of the early 20th century’s experience with over-production and inter-imperial rivalry gave birth to many of the institutions that remain essential to responding to the challenges of the 21^st century, including the ecological emergency and the collapse of a fact-based, liberal public sphere. We no longer need integration through free trade to orient towards our global community of shared fate. Ecology binds us together more tightly than trade ever could.

While it is prudent that Canadian leaders try to forestall the introduction of 25 per cent tariffs (and be seen doing so), we also need to prepare for something else. Sooner or later, we are going to be living with economic de-globalization, or something like it.

Fortress America?

The de-globalization of supply chains has been occurring since Trump’s first term, but despite its origin, it still may take various forms.

One is already discernable from Trump’s recent tweets. Unhinged as it may seem, his desire to see Canada become a 51^st state, and his boasts about buying Greenland and the Panama Canal, merely echo past articulations of American isolationism. It is Fortress America—one in which we fit uncomfortably, no doubt.

Fortress America, however, is a global society of inter-imperial rivalry, which Canada has long resisted through our support for a rules-based international system. Too often, this system has been supportive of rules that favour the powerful, especially corporate elites. But this need not be so.

Rather than looking at participating in a global arms race imposed by Donald Trump, Canada might be better served building new trade ties, and shoring up support for international institutions, like the International Court of Justice, and the United Nations High Commission for Refugees. If the US is going to use tariffs to “onshore” production, so should we.

If supply chains are no longer global, Canadian enterprise is going to be re-organized, and government is going to play an important role in it, just as it did with globalization. As we protect our economic interests, we should also reflect on what kind of national economy we want to see built. Do we want to continue to allow the wealthy to siphon profits into tax havens, or build a more level playing field through fairer taxation and redistribution?

Canadian trade policy should begin the post-globalization pivot by protecting firms from isolationist competitors, while remaining open to new regional trading blocs beyond North America—perhaps with the EU and Pacific Rim, but perhaps in other patterns that are not yet evident: our own form of “friendshoring.”

There are, of course, many other challenges that we are about to face with Donald Trump. As he fleshes out his deranged vision of Fortress America, Canadian workers should seek ways to build greater solidarity with low-income workers in places like Vietnam and Mexico.

Just as in the 1930s and 40s, the path to a more just world is in ensuring everyone’s basic needs are secured. That will be achieved through cooperation and commitment to fairness, rather than force and competition.