“Canada doesn’t even allow U.S. Banks to open or do business there. What’s that all about?” Trump asked in a Feb. 3 post on his Truth Social account. He complained about unspecified “many such things” before moving on to drug war concerns, and later opined that Canadians do not purchase enough U.S.-raised and -grown food for his liking.

Though the president delayed his decision to impose a 25% tariff on most products shipping from Canada for 30 days, the threats have continued to come fast and furious — on Canadian goods generally, lumber, aluminum, and other products.

Trudeau’s failure, Liberal gains?

After Trump’s reelection to a nonconsecutive second term and before his inauguration, three-term Canadian Prime Minister Justin Trudeau showed up at the then-president-elect’s Mar-a-Lago club in Palm Beach, Florida. Canada’s leader tried in November 2024 to talk the former and future president down from the threat of a trade war.

Trump told, or perhaps trolled, Trudeau that there was an easy way to avoid the coming tariffs. Canada has long been nicknamed America’s 51st state. Simply make that official and tariffs would no longer be an issue, Trump said.

That proposal did not get a welcome reception, to put it mildly, with folks north of the 49th parallel, who are, on the whole, against annexation. A YouGov poll taken around the time of Trump’s inauguration found 77% of Canadians did not like the idea. That rejection is having knock-on political effects.

“The effect of Trump’s tariff threats has been staggering, thoroughly upending federal and provincial politics,” Paul Tuns, author of the Trudeau biography The Dauphin, told the Washington Examiner.

For instance, “The Ontario [provincial] government has used the tariff threat as an excuse for an early election” — about 18 months early.

Tuns said Trudeau “was already unpopular and probably on his way out.” The threat of tariffs helped to ease him out of office sooner rather than later, by Trudeau’s admission. His Liberal Party will elect a new leader and prime minister on March 9, and a national election will likely be held shortly after.

Trudeau’s party had been seen as a dead man walking but now, maybe not. “There is a rejuvenation of Canadian pride, which is often expressed as being ‘not American,’” Tuns said.

The Trudeau biographer explained that “while nationalism and national pride are often associated with right-wing parties, in Canada, the Liberal Party has been the party that has most successfully wrapped itself in the red and white maple leaf.”

The Conservative Party, led by Albertan Pierre Poilievre, had built up a commanding lead over Trudeau in the polls of about 20 points. That has shrunk to about 10 points as Poilievre has been forced to “pivot from opposing the domestic carbon tax to opposing foreign tariffs,” Tuns said.

Canada’s predicament

Trump’s threats cut deep because they are a real threat to Canada’s economy. Canada has a population roughly one-tenth the size of America’s. Its landmass is larger than the continental United States, even including Alaska.

Yet most Canadians are clustered within about 100 miles of the American border, which runs from Maine to Washington state on an east-west axis. Why is that?

The main reason for the clustering of Canadians is simple: the U.S. The Canadian and American economies have become so integrated that there is often more economic activity between provinces and the states to their south than among one another.

“Eight of 10 provinces do more trade in goods with the U.S. than with the rest of Canada, including all the large provinces,” Tuns said.

Ontario is Canada’s most populous province and home to its capital, Ottawa. It does about “four times the amount of trade in goods with the U.S. than the rest of Canada,” Tuns said because Canada’s manufacturing base is “highly integrated into the supply chains of the American industrial midwest around the Great Lakes.”

This trend preceded Trudeau, but he did next to nothing to improve matters, Tuns said. In America, states can do little to mess with interstate commerce. Canada has significant interprovincial trade barriers that are a drag on the economy.

Alberta’s United Conservative Premier Danielle Smith recently put out the figure of $350 billion, in Canadian dollars, to be saved annually by knocking those barriers down. And there is finally some momentum behind doing just that.

Trump’s shock therapy

The latest trade threat from Trump is what he calls reciprocal tariffs, announced on Feb. 13. The president explained that this meant “whatever Countries charge the United States of America, we will charge them — No more, no less!”

That would seem to let Canada off the hook for the most part. But then Trump pulled the football. “For purposes of this United States Policy, we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff,” he wrote.

Of course, Canada has a VAT, or a “value-added tax,” on most goods purchased. In 2020, this tax amounted to about 13% of the national government’s total revenues, according to the Tax Policy Center.

If Trump wants to boost American business, a reciprocal tariff for the VAT is a quirky way to go about it. In normal, nonpandemic times, the VAT is, quantifiably, a huge boon to American businesses just over the border. Canadians travel south in great numbers, to take advantage of America’s structurally lower prices.

But if it came down to it, if the VAT was the only thing standing between free trade and a trade war, Canada’s national government could probably be moved to scrap the VAT and put up taxes elsewhere to make up some of the gap.

That remedy is fairly straightforward. It’s likely to be more complicated for Canadian regulators and politicians to deal with Trump’s demand for such things as increased access to Canadian markets for U.S. banks.

“Trump exaggerates that U.S. banks cannot operate in Canada,” Tuns said, citing the fact that “more than a dozen U.S.-based banks operate in Canada,” in some form.

JUDGE REINSTATES MERIT SYSTEMS PROTECTION BOARD CHAIRWOMAN FIRED BY TRUMP

Still, he conceded that U.S. banks “face some regulatory hurdles [in Canada] as well as a consumer sector that is controlled by a small number of banks.”

Many observers characterize the Canadian banking sector as a somewhat closed “oligopoly.” Trump is pushing for American banks to have greater market participation. If he gets his way, that could shake things up for Canadian consumers.

Jeremy Lott is the author of The Warm Bucket Brigade: The Story of the American Vice Presidency.