AUGUST 24 — Washington is abusing its economic power, but Ottawa must confront an uncomfortable truth: sovereignty without economic resilience is merely a declaration of intent.
There is something undeniably stirring about a smaller country refusing to be bullied by a larger one.
When Canadian Prime Minister Mark Carney suspended negotiations with Washington following the imposition of 50 per cent tariffs on selected Canadian products, the moment was quickly cast as an assertion of national sovereignty. Canada, Carney declared, would not allow another nation to determine its future. Ottawa promised to retaliate dollar for dollar.
For Canadians exhausted by threats from Washington, it was an understandable response. It was also, in important respects, the correct one. No responsible government should accept an agreement whose terms can be rewritten at the eleventh hour, particularly when those terms potentially constrain its ability to negotiate with other countries.
Yet courage is not the same as leverage. Canada may have justice on its side, but the United States has geography, scale and time. The difficult question is not whether Canada is entitled to resist. It is whether resistance, on its own, amounts to an economic strategy.
The immediate dispute concerns Washington’s use of Section 338 of the US Tariff Act of 1930 to impose 50 per cent duties on approximately US$20 billion of Canadian exports. The targeted products reportedly include wine, furniture, dairy goods, cement, clothing, fishing equipment and, with a symbolism irresistible to headline writers, hockey sticks.
Section 338 allows the US president to retaliate against countries deemed to discriminate against American commerce. It is an obscure and largely untested instrument, drawn from the same protectionist era that produced the Smoot-Hawley Tariff Act.
That historical association should make any policymaker uneasy.
Smoot-Hawley did not single-handedly cause the Great Depression, as it is sometimes lazily claimed. But it deepened the economic nationalism of the period. Other countries retaliated, international commerce contracted, and a domestic financial crisis acquired a more destructive global character. Between 1929 and 1934, world trade collapsed dramatically.
The lesson was not that tariffs are always illegitimate. It was that once major powers begin using trade as an instrument of punishment, retaliation develops its own momentum. Each side describes its action as defensive and the other side’s response as escalation.
That is precisely the language emerging today. Washington says its tariffs answer Canadian discrimination. Ottawa says its countermeasures answer American aggression. Both can present a chronology proving that the other side started it.
But the responsibility is not equally shared.
The American measure is grossly disproportionate. It applies punitive duties to numerous products unrelated to the underlying complaints and reportedly denies preferential treatment even to goods that meet the requirements of the Canada–United States–Mexico Agreement (Cusma).
This matters because Cusma was not inherited from some previous administration that Donald Trump had always opposed. It was negotiated, signed and celebrated by Trump himself as the superior replacement for Nafta. To impose extraordinary tariffs on goods complying with that agreement is to weaken the value of America’s own signature.
The United States is therefore more culpable for this escalation. It is employing overwhelming market power to obtain through coercion what it could not secure through ordinary negotiation.
However, Canada is not the immaculate champion of free trade portrayed in some of the more romantic commentary surrounding Carney’s decision.
Canada’s supply-management system for dairy, poultry and eggs is unapologetically protectionist. Imports exceeding prescribed quotas can face tariffs of more than 200 per cent. Canadian governments defend the system as essential to protecting farmers and ensuring stability. American producers see a fortress designed to exclude them from a valuable neighbouring market.
The legal record is mixed. The United States prevailed in an earlier Cusma challenge involving the administration of Canadian dairy quotas. Canada subsequently amended the system and won a later panel decision, although one panellist dissented. Washington’s frustration, therefore, is not entirely fabricated, even if a 50 per cent tariff barrage is an indefensible remedy.
Canada also gave Washington a useful political grievance when several provincial authorities removed American liquor from government-controlled stores in retaliation for earlier US tariffs. The action was popular and symbolically potent. But it also allowed the United States to argue that American alcohol was being deliberately discriminated against.
Canada cannot protect dairy, restrict American liquor, defend preferred cultural and industrial sectors and simultaneously claim an entirely pristine commitment to open markets. Like every country, it practises free trade selectively.
Malaysia understands this instinct. We speak enthusiastically about liberalisation while protecting politically sensitive industries, managing licences and designing policies to favour domestic participants. Governments rarely pursue theoretical consistency. They pursue constituencies.
The difference is that Canada has spent decades conducting this balancing act while relying overwhelmingly on privileged access to the United States.
This is the first hard truth Ottawa must swallow: Canada is sovereign, but it is not economically equal to the United States.
The two countries may sit across the negotiating table as juridical equals. Their bargaining power is anything but equal. Roughly 70 per cent of Canadian exports go to the American market. Entire industries, particularly automobiles, energy, lumber, agriculture and advanced manufacturing, have been constructed around continental supply chains.
The United States would incur substantial costs from disrupting those relationships. American manufacturers rely upon Canadian energy, minerals, components and intermediate goods. Consumers will ultimately pay part of the tariff bill through higher prices.
But America can absorb pain that would be existential for certain Canadian companies. The United States can eventually locate alternative suppliers for many Canadian products. Canada cannot quickly locate another consumer market of comparable size a few kilometres from its factories.
This is not an argument for capitulation. It is the tyranny of geography.
Canadian history has always been shaped by this imbalance. In 1969, Pierre Trudeau famously described living beside the United States as being like sleeping with an elephant: however friendly and even-tempered the beast, one is affected by every twitch and grunt.
The elephant has twitched before.
Richard Nixon’s 1971 import surcharge shocked Canada and helped inspire efforts to reduce its dependence on the American market. Yet geography prevailed. The 1988 Canada–US Free Trade Agreement was followed by Nafta in 1994 and Cusma in 2020. Each arrangement deepened continental integration because commercial logic repeatedly proved stronger than political unease.
Canada and the United States have also fought over softwood lumber for more than four decades. Agreements were negotiated, disputes litigated, duties imposed and panels convened. Yet Canadian sawmills remained oriented towards American construction because no diplomatic slogan could relocate the world’s largest accessible customer.
The second hard truth is that diversification cannot be announced into existence.
Canada has trade agreements covering large parts of Europe and the Asia-Pacific. It possesses resources the world wants: energy, uranium, potash, timber, critical minerals and agricultural output. It can — and should — strengthen relationships with Europe, Japan, South Korea, India and South-east Asia.
But a trade agreement does not automatically create trade. Distance matters. Ports matter. Railways, pipelines, regulatory approvals, shipping costs, customer relationships and production specifications matter.
European and Asian markets cannot absorb displaced Canadian automobiles or furniture overnight. A factory in Ontario designed to supply Michigan cannot painlessly redirect its output to Malaysia. Restructuring supply chains takes years and capital, not speeches.
The third hard truth is that retaliation is not free.
Tariffs are paid initially by importers. Canadian duties on American machinery, electronics, food or industrial inputs will therefore be paid by Canadian businesses and passed, where possible, to Canadian consumers. Retaliation may create useful political pressure by targeting constituencies important to Washington, but poorly designed retaliation merely taxes one’s own economy.
There is a profound difference between retaliating strategically and retaliating theatrically.
The fourth truth is that Canada cannot simply wait for the US midterm elections and expect the problem to disappear. Even if the Republicans lose control of the House of Representatives, Trump will remain president until January 2029. Congress may investigate, obstruct or seek to constrain him, but a change in congressional control will not magically reverse every tariff.
American protectionism is also larger than Trump. Joe Biden retained many of Trump’s first-term tariffs and expanded industrial subsidies and “Buy American” policies. Suspicion of trade agreements now crosses party lines. Canada is not confronting one mercurial president alone; it is confronting a structural change in American politics.
The fifth and most painful truth is that Canada will eventually need to concede something.
That should not mean surrendering its sovereign right to negotiate with other countries or accepting tariffs that Washington can alter at will. It may mean offering more practical access for American dairy and alcohol, revisiting aspects of automotive content rules, and cooperating more closely on Chinese investment, forced labour and continental economic security.
The objective must be to exchange specific, measurable concessions for equally specific and durable American commitments. Canada should not trade permanent structural concessions for temporary presidential goodwill.
Carney may therefore have been right to walk away. There are moments when no agreement is preferable to an unstable agreement whose obligations bind only one party. But walking away is a negotiating decision, not a national economic plan.
Canada’s strongest long-term response lies at home: dismantling barriers to trade among its own provinces, raising productivity, accelerating infrastructure, developing ports and energy corridors, improving the investment climate and building industries capable of selling beyond North America.
For Malaysia and Asean, the lesson is sobering. Treaties remain valuable, but they are not shields against power. A country that depends excessively upon one market, one security guarantor or one supply chain eventually discovers that dependence can be converted into leverage.
The United States is wrong to weaponise its market against a close ally and to diminish an agreement carrying its own signature. Canada is right to resist terms that compromise its independence.
But moral correctness does not repeal economic gravity.
Canada’s challenge is not merely to stand up to the elephant. It is to build a house strong enough that every movement of the elephant does not shake its foundations.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
