As we approach Inauguration Day in the United States on January 20, 2025, we must consider the consequences of an America-First presidency under President-elect Trump and a Republican-controlled Congress. With confirmation hearings for his cabinet picks on the horizon, a significant shift in U.S. policy is imminent. Countries worldwide, particularly Canada, must prepare for an impending overhaul of economic and security relationships with the United States.
Canada, America’s closest ally, stands at a pivotal moment. Its historical dependency on the American economy is again about to collide with unbridled national U.S. interests. As an aggressive distributive (“win-lose”) negotiator, Trump has set an extreme tariff anchor of 25 per cent, making it difficult for Canada and Mexico to adjust from this level. He has primed the pump for a more challenging Canada-United States-Mexico Agreement (CUSMA) renegotiation by preemptively demanding national security concessions rather than purely economic ones.
The Trump administration will likely coerce Canada into offering both concessions in exchange for a lower tariff below the 25-per-cent anchor level. This is not a drill; the game is on.
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This is not the first time Canada has faced the threat of an economic crisis stemming from protectionist U.S. policy. Historical precedents illustrate a troubling pattern — marked notably by the Smoot-Hawley tariffs of 1930, which caught Canada off guard, and the fears of U.S. dominance during the North American Free Trade Agreement’s (NAFTA) emergence in the 1980s.
Canada’s economic model has often placed it as a “taker” during critical negotiations, with little leverage to shape the outcomes. As the likely renegotiation of CUSMA looms in 2026, Canada must avoid repeating this pattern. It must create a coherent strategy that strengthens its economic and strategic position regionally and globally.
The rapidly evolving global arena, driven by technological advancements, shifting trade dynamics and mounting geopolitical tensions, has raised the stakes for countries vying for economic leadership. The U.S.-China trade conflict, Europe’s Green Deal, and the increasing weaponization of data and technology underscores the importance of securing comparative advantages or toehold positions in critical areas. For Canada, the path forward lies not in temporary spending or reactive investments. Instead, it must establish a national strategy prioritizing long-term positioning for sustainable prosperity and security globally.
This national strategy must strengthen Canada’s position in high-value, innovation-driven sectors that will dominate the future economy. The required strategic repositioning involves moving beyond its traditional reliance on resource exports and bulk commodities. It must target areas where the country can establish leadership, such as artificial intelligence, quantum computing and advanced manufacturing. These sectors promise economic returns and represent critical nodes in global value chains where control over intellectual property and technological innovation drives disproportionate benefits.
Canada must deliberately expand its capacity to generate and commercialize intellectual property to achieve this. The capacity to own and monetize patents and proprietary technology is increasingly a key determinant of influence in global business networks. For instance, artificial intelligence and machine learning, areas where Canadian research institutions excel, must be translated into commercial applications involving Canadian entities. Similarly, progress in quantum technologies must lead to tangible economic gains and commercialization rather than ending at the research or start-up stage.
The development of robust business ecosystems is equally critical. Canada must foster, attract and incentivize firms capable of scaling and anchoring innovation ecosystems in these emerging fields. This requires creating and maintaining conditions encouraging high-growth firms to scale globally. Rather than merely funding start-ups or research initiatives, the strategic focus should be fostering firms that can transition from innovation to commercialization and scale within competitive global markets.
This is not the first time Canada has faced the threat of an economic crisis from protectionist U.S. policy. Historical precedents illustrate a troubling pattern, write Horatio M. Morgan and @PaulRSamson #innovation #cdnpoli #CanadaUS #CUSMA #Trade
Policymakers must recognize the need to secure a national portfolio of essential intellectual property and digital assets, spanning rare earth minerals for green energy and electronic components. Canada risks being sidelined without a secure position in the underlying supply chains as other nations consolidate control over valuable resources and strategic positions.
A forward-looking economic strategy also requires Canada to play a proactive role in shaping global norms and regulations. As international rules governing trade, technology and environmental standards fragment, Canada must align its domestic policies with efforts to influence these systems internationally. Building coalitions with like-minded economies to establish fair trade agreements and harmonized rules for data governance can provide leverage in negotiations with powerful nations and ensure Canadian firms compete on a level playing field.
At the core of this approach is recognizing the growing connection between economic and national security. Strengthening cybersecurity infrastructure and ensuring the resilience of critical supply chains are not merely defensive measures but strategic imperatives for maintaining Canada’s economic sovereignty. In critical sectors like energy and defence, these efforts will not only safeguard Canadian interests, but also position the country as a reliable partner in a volatile geopolitical environment.
Canada’s path forward will not be without challenges, but the moment’s urgency demands clarity of purpose and bold action. It is worth considering sectors with an advantageous resource base, the highest potential for accelerated learning, and the capacity to sustainably drive Canada’s productivity and prosperity. These conditions can catalyze globally-oriented Canadian firms with emerging technologies, accelerating Canada’s strategic repositioning.
A moment of profound choice is before us. The opportunity to define Canada’s role in the next phase of globalization lies within reach, but it requires moving beyond reactive measures toward a strategic vision. By strengthening its foundation in innovation-driven sectors, securing critical supply chains, and asserting its influence in global business networks, Canada can thrive amid uncertainty and position itself as a leader in the 21st-century economy.
Let us seize this moment to foster a resilient, forward-looking Canada capable of navigating external pressures while safeguarding its interests and ensuring sustainable prosperity for decades.
Horatio M. Morgan is an economist and associate professor of international strategy and entrepreneurship at the University of Waterloo.
Paul Samson is the president of the Centre for International Governance Innovation.
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Publish date : 2024-11-28 21:23:00
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