The Future 51st State? Explaining the U.S. / Canada Trade Dispute
“We pay hundreds of Billions of Dollars to SUBSIDIZE Canada,” said President Donald Trump in a February 2nd Truth Social post. The post continued with, “Why? There is no reason. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use. Without this massive subsidy, Canada ceases to exist as a viable Country. Harsh but true! Therefore, Canada should become our Cherished 51st State.”
Trump’s claims for Canadian independence began in January 2025 during a meeting with Prime Minister Justin Trudeau. Trump revealed that he intended to impose harsh tariffs that target Canada’s largest exports—most notably, 25% on aluminium (of which Canada supplies 50% of the U.S.’s total imports) and 25% on steel.
Tariffs are taxes that are imposed on foreign goods that are imported into a country. They typically comprise a fraction of the good’s price – so, a 25% tariff on an item worth £10 would mean having an extra £2.5 charge. Companies that import such goods must pay the taxes, which oftentimes leads to the price of the goods increasing. Thus, the consumers supplement the money that the company lost to tariffs.
Trump’s official reason for the tariffs is to reduce fentanyl smuggling over the U.S. border. This, however, has fallen flat on multiple fronts. First, Trudeau has pointed out that Canada is responsible for less than 1% of fentanyl entering the U.S. What’s more, Canada has recently allocated an additional $1.3 billion (roughly £1 billion) to border security in a show of good faith towards the U.S. – but this has not dissuaded Trump. Second, Trump has subsequently said very little about fentanyl in regards to the tariffs. Rather, his primary point of contention seems to be the trade deficit of $250 billion (£192.5 billion) that is slanted in Canada’s favour. “They’ve taken advantage of us for years,” Trump said shortly after being sworn into office, “and we’re not going to allow that to happen.”
This decision has generally baffled economists. Indeed, Trump’s simple assessment obscures the reality of the U.S.’s trade agreement with its closest and most beneficial ally. For one, his estimate of the deficit is significantly inflated. The U.S. Census Bureau has most recently reported that, on goods traded, the U.S.'s deficit with Canada was US$63.33 billion (£48.7 billion) in 2024. Trump is still correct to point out that, over the past few years, the deficit has been at an all-time high, but this is an integral feature of the trade dynamic between the U.S. and Canada – not due to the Biden administration’s “poor management” as Trump claims, nor the trade subsidies that he says the U.S. has granted Canadian goods.
Instead, the deficit’s highs and lows reflect the price of crude oil and the rate of energy exports, the latter of which is dictated by the U.S. The U.S. buys more goods and services from Canada than it sells. Canada’s crude oil, which receives roughly 4.2 million barrels a day, is especially important. In fact, over half of all the U.S.’s crude oil is imported from Canada. A recent analysis from TD Economics demonstrated that the trade deficit between the U.S. and Canada reflects the consistent increase in crude oil that the U.S. imports to sustain the upward growth of their refineries. According to Gary Hufbauer, senior fellow at the Peterson Institute for International Economics (PIIE), the deficit’s fluctuations “don’t matter much and certainly … are not a reason for imposing U.S. tariffs on imports from Canada.” Instead, the deficit’s recent uptick under the Biden administration is likely due to the U.S. attempting to compensate for labour shortages in the wake of the COVID-19 pandemic.
Simply put, Trump has attempted to paint Canada as a drain on U.S. resources, and, ultimately, as one of the reasons as to why the American economy is struggling. This is not the case; the U.S.-Canada trade deficit is not due to subsidies that the U.S. provides Canada, but rather the steadily increasing amount of crude oil that the U.S. purchases from Canada. This ultimately powers their refineries and, thus, their industry and job market. In fact, if crude oil is omitted from an analysis of U.S.-Canada trade, the U.S. is in a trade surplus with Canada of over USD 30 billion (£23.1 billion).
Meanwhile, Canadian politicians are moving to combat the Trump administration’s remarks. Trudeau has applied retaliatory tariffs to over $30 billion (£23.1 billion) of U.S. imports and has refused to suspend them, despite Trump postponing his tariffs on Canadian goods for a month. “A pause on some tariffs means nothing,” said Doug Ford, Premier of Ontario. “Until President Trump removes the threat of tariffs for good, we will be relentless.” Ford has been particularly vocal against Trump’s tariffs, coining the slogan “Canada is not for sale.” The province of Ontario, which borders the U.S.’s north-eastern provinces, has imposed a 25% export tax on electricity exported to the U.S., banned American companies from provincial contracts, pledged to remove American liquor from liquor stores, and terminated the province’s contract with Starlink.
If the Canadian border is secure, and the trade deficit isn’t due to subsidies but rather American demands for crude oil that only Canada can provide, what is Trump’s real motivation for imposing these tariffs? Though tariffs featured heavily in his campaign as a strategy to increase American wealth, he alluded to them vaguely, and only revealed that he would apply them to Canada after he was sworn into office. Not only will the tariffs be devastating to Canada, but they will similarly affect the U.S. While Trump warned that they would cause “a little pain” for Americans, he is significantly underplaying the gravity of their economic ramifications. Given the extent to which the U.S. is dependent on Canadian exports, the American people will be facing elevated prices on ordinary household items as companies offload the cost of the tariffs onto their consumers.
It seems that Trump’s primary motivation for the tariffs is to simply undermine Canadian sovereignty by asserting American dominance in the region. In Trudeau’s words, Trump desires “a total collapse of the Canadian economy because that will make it easier to annex us.” Indeed, Trump’s behaviour as of late – such as renaming the Gulf of Mexico to the Gulf of America, expressing interest in “get[ting]” Greenland, withdrawing from the World Health Organization and gearing up to alter policy regarding NATO military support, – aligns with what NPR correspondent Scott Neuman equates to a soft expression of manifest destiny; an attempt to rekindle the spirit of an expansionist American empire. While the Trump presidency undermines the sovereignty of their neighbour and closest ally, both the American and Canadian people will pay the price, while large corporations will pocket the difference.
Though President Trump’s second term in office only began on January 20th, his return to the White House has already rocked the international community, with the U.S. assuming an isolationist, combative and defensive demeanour on the global stage. While some worry that his policies will only alienate the U.S.’s allies, embolden anti-democratic movements and agitate fragile international conflicts, others argue that Trump’s strongman attitude is realistic and necessary to strengthen the U.S.’s place as a world hegemon and provide stability during a time of rising tensions and widespread global conflict. Regardless, the U.S.-Canada trade dispute demonstrates that a wealth of ulterior motives can lurk beneath Trump’s dogma. As one another’s closest allies and neighbours, Americans and Canadians must assess the true intentions of their politicians to ensure that the truth will prevail above conflicting and manipulative political narratives.
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The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the wider St. Andrews Foreign Affairs Review team.
