News Analysis | Triple Game Behind the Canada US Trade War

The trade negotiations between Canada and the United States recently broke down at the last minute. The United States imposed a 50% tariff on $20 billion worth of Canadian goods, and Canada announced retaliatory tariffs on the United States starting from September 8th. US President Trump announced on the 24th that he will increase import tariffs on Canadian cars, steel and other products to 50%, while Canada stated that it will soon announce specific countermeasures against the US.

Analysts believe that in the coming period, the game between Canada and the United States in terms of economic resilience, political fundamentals, and negotiation dominance will influence the direction of trade relations between the two countries, and there is a possibility of escalating tensions or resuming trade negotiations.

Firstly, there is an economic game, which is a competition to see who can better withstand economic shocks. According to data from the US Department of Commerce, including trade in services, the bilateral trade volume between the US and Canada reached nearly $900 billion last year, making it one of the largest bilateral trade relationships in the world. The United States is Canada's largest export market, while Canada is the largest buyer of American goods and services outside the European Union.

For Canada, the US tariff measures will seriously affect industries such as plastic products and electrical machinery, and may even cut off some of Canada's largest markets. According to experts' predictions, the new tariffs will not have a significant short-term impact on Canada, but if they persist in the long term, Canada will lose 90000 jobs, the inflation rate will rise to 4%, and the economic growth rate will decrease by 0.2 and 0.3 percentage points respectively in the next two years. If the US announces other retaliatory tariffs in the future, Canada will be hit even harder.

For the United States, new tariffs will increase operating costs for American households and businesses, exacerbate inflation, and the unpredictability of tariff policies will severely undermine confidence in trade-related industries. Michigan, which borders Canada, is the birthplace of the American automotive industry. Governor Gretchen Whitmer of the state stated that increasing taxes on Canada is equivalent to "increasing taxes on households and businesses in Michigan," and American automakers will face more layoffs.

AT Global Market Analyst Nick Tweedle believes that trade frictions between Canada and the United States have "played out multiple times", and it is expected that both sides will resume trade negotiations or push for some kind of agreement due to their respective economic shocks.

Secondly, there is a political game, which involves competing to see who has a harder political foundation. Currently, public opinion generally believes that the Trump administration will face greater political pressure.

On the Canadian side, trade countermeasures against the United States have become an overwhelming domestic political consensus, receiving widespread support from various parties including the opposition in politics, with over 70% of the public supporting withdrawing from the Canada US trade negotiations. For Canadian Prime Minister Carney, the strong support for the US has significantly increased his own approval rating, and the political risks of signing a trade agreement that the Canadian people cannot tolerate far outweigh the economic risks of tariffs.

On the US side, the imposition of new tariffs on Canada has been opposed by the majority of politicians and businessmen, and has been referred to by The Wall Street Journal as the "dumbest trade war" the US has ever had. Opponents include not only the Democratic Party, but also many Republican lawmakers and governors who are concerned about losing the midterm elections in November. Former Vice President Pence, who served as Trump's deputy, publicly stated, "The last thing we need at this moment is a trade war with Canada

The Economist believes that as the US midterm elections approach, the impact of new tariffs will be further reflected in US inflation, business operations, and employment pressures. Carney's strategy is to delay these issues into a domestic political shock wave in the United States, ultimately forcing the Trump administration to return to the negotiating table.

Finally, there is the game of influence, that is, who controls the negotiation dominance. In the past two days, informed sources and media in Canada and the United States have successively disclosed the breakdown of negotiations and the chaotic situation, which has also increased the uncertainty of the prospects for resuming negotiations and even reaching an agreement between Canada and the United States.

One is the chaotic leadership within the US negotiation team. After the negotiations broke down, Carney stated that the US government's attitude was not unified, implying that the information obtained by Canada from US Trade Representative Greer and Commerce Secretary Lutnik was mixed and even contradictory. Multiple sources have revealed to the media that in the early stages of negotiations, the US was led by Greer and was close to reaching an agreement with Canada. However, some of the trade policies related to the industrial sector in the negotiations were handled by the US Department of Commerce. Lutnik believed that the agreement framework was too lenient towards Canada in the field of metal production, and intervened and exerted pressure at the last minute, leading to the breakdown of the negotiations.

The second issue is that the US is facing increasing resistance in seeking to take the lead on the agenda. Carney stated that the US is attempting to restrict Canada's ability to sign separate trade agreements with other countries, but Canada must ensure that any agreement reached with the US does not limit our ability in this regard. Analysts believe that the US often seeks to achieve "long arm jurisdiction" in the trade field through requirements such as restricting cooperation with third parties in trade negotiations, but more and more trading partners are becoming highly vigilant about this approach by the US.

Former Swedish Prime Minister Carl Bildt stated that Canada is "demonstrating its ability to compete with the United States in trade negotiations". He expects this approach to trigger a reflection between the EU and Japan on whether they should change their previous attitude of "yielding" to the United States.

Nelson Wiseman, an emeritus professor of political science at the University of Toronto in Canada, said that Canada's approach may change the thinking of other countries and may have a "domino effect".

Since the United States launched a large-scale tariff policy last year, Canada has been the only developed country to take substantive trade countermeasures against the United States, and its trade actions with the United States are receiving increasing attention and reference.