Tariff Tensions: U.S. and Canada’s diverging strategies

Are we or aren’t we going to settle with the United States so we can all move forward? As my friend Jack Dawes always says when signing off our frequent phone calls, “Act as if we’re normal.”
As the U.S. and Canada clash over tariffs, private equity manager Stephen Johnston of Calgary, AB argues that their approaches couldn’t be more different. The U.S. has a clear, long-term economic strategy, while Canada is merely reacting with no overarching plan to navigate the shifting trade landscape.
“America is implementing tariffs as part of a much bigger strategic policy, while Canada is just responding,” Johnston explained. The U.S. has committed to re-industrialization, recognizing that economic power is the foundation of military power. The U.S. believes it must rebuild its industrial base to compete with China; tariffs are a key tool.
The U.S. isn’t just imposing tariffs—it’s restructuring its economic framework to attract investment. “At the same time, they’re hitting Canada with tariffs, lowering capital gains taxes, corporate and personal income taxes, and rolling back regulations to make building infrastructure and manufacturing plants easier,” Johnston said. This coordinated effort is to help pull global investment into the U.S., shifting capital away from Canada, the EU, Mexico, and parts of Asia.
What is the long-term impact? Higher growth in the U.S. and weaker economies among its trading partners. Investors who once saw Canada or Europe as attractive markets will redirect their capital to the U.S., where lower taxes and fewer regulations make business expansion more profitable.
Canada, on the other hand, has no such strategy. It has chosen a tit-for-tat approach, imposing tariffs without addressing deeper economic issues. Johnston warns that this will hurt Canada’s economy, weaken the Canadian dollar, and increase inflation. “Without fixing the regulatory environment or lowering taxes, Canada is pushing more investment out of the country,” he adds.
With the U.S. economy 16 times the size of Canada’s, Johnston believes Canada cannot win this fight by simply retaliating. “We’re 1.2 per cent of their economy, and they’re 25 per cent of ours. We need a smarter approach.”
Instead, Canada faces stagnation—low growth and above-trend inflation—because of low investment in productive capital and weak labour productivity. “We’re doing nothing to fix those problems. Instead, we’ve decided to fight, ignoring that this is a long-term strategy for America,” Johnston said.
He believes Canada must acknowledge that the U.S. will continue using every tool available—tariffs today, intellectual property disputes tomorrow—to secure its industrial dominance.
Instead of a fight, Johnston suggests a cooperative approach.
“We should be a low-cost, reliable supplier of all the inputs America needs for re-industrialization—fertilizer, oil, gas, nickel, steel, aluminum. We have a competitive advantage over other countries because of our proximity and resources.”
Johnston argued that instead of positioning Canada as an essential trade partner, the government turned the dispute into a personal battle—particularly with Donald Trump. “We made it worse by calling Trump stupid, saying America is a bully. That’s not how you play to personalities,” he said.
A better approach would be to align with U.S. goals. “We could have said, ‘America needs to be the world’s industrial powerhouse. That’s good because it allows America to lead the free world. We want to help.’”
Had Canada taken that approach, Johnston believes the U.S. would have responded positively, recognizing Canada as a strategic partner rather than a competitor. “Instead, we turned it into a fight, missing a real opportunity to strengthen our economic position.”
If Canada continues its tit-for-tat tariff strategy, the long-term consequences for economic growth, capital investment, and inflation will be severe. “They’re all bad,” Johnston warned. A weaker Canadian dollar will drive inflation, while reduced capital inflows will further slow economic growth. “In real terms, our growth has already been flat when adjusted for inflation, largely because of low capital investment in labour productivity,” he explained.
Tariffs will only worsen this issue. “The whole point of U.S. tariffs is to pull investment out of Canada, Mexico, and eventually the EU, redirecting it to America for re-industrialization We should expect Canada’s capital problem to worsen,” Johnston said. Canada’s stagflation—low growth and persistent inflation—will deepen without removing tariffs. Countervailing tariffs will further harm the domestic economy, as many essential products don’t originate in Canada.
“People say, ‘Buy Canadian,’ but what does that mean? We don’t manufacture supercomputers. We don’t produce flat-screen TVs. We don’t even have our computer operating system,” he pointed out. “We’ve de-industrialized even more than the U.S., so we can’t win this fight.”
Johnston argued that Canada has painted itself into a corner, and someone needs to acknowledge the reality. “This is a losing strategy, and we need an adult in the room to say so.” •