With increasing frequency, Donald John Trump persists in saying that Canada should become part of America as the 51st state.
But in Canada, a new carny show has just arrived in town. Can it tame the orange tufted tweeting clown?
Jodie Foster and Robbie Robertson in Carny
Mark Carney and many other Canadians, from politicians to people in the street, insist that Canada will never become part of the US. But this is a reactive emotional response, without any real analysis. This is a pretty serious challenge and should not be brushed aside so lightly. There is a long history of American threats to Canada.
The 19th century saw the rise of “Manifest Destiny” in the United States, the belief that American expansion across North America was inevitable. This was used to justify the annexation of Texas in 1845 followed by the Mexican–American War which resulted in Mexico ceding to the U.S. all the land from Colorado and New Mexico to the Pacific.
Many U.S. politicians assumed that Canada would eventually fall to their Manifest Destiny and become part of America and some Canadians saw economic advantages in annexation.
The Canadian-American Reciprocity Treaty of 1854 provided duty-free trade in key goods, boosting Canada’s economy. However, the U.S. terminated the treaty in 1866, partly as retaliation for Britain’s tacit support for the Confederate States during the Civil War. This left Canada economically vulnerable and reinforced the need for a unified response to U.S. expansionist pressures.
The urgency of these fears led to Confederation in 1867. Here’s a cartoon from 1865 depicting Confederation as a wedding of two brothers (Upper and Lower Canada) with two young ladies (New Brunswick and Nova Scotia) along with a child (Prince Edward Island). Uncle Sam is skulking out in the hall, disgruntled that he was not invited.
In the aftermath of Confederation, border fortifications were improved and a large militia was created. The new Canadian government quickly moved to expand its borders westward, purchasing Rupert’s Land (most of western Canada and part of Nunavut) in 1870 from the Hudson’s Bay Company, preempting a U.S. claim to the region. Manitoba became a province in 1870, followed by British Columbia in 1871. In 1875 work began on the Canadian-Pacific Railway and continued until the last spike was driven in 1885.
President Ulysses S. Grant, in speeches and interviews during his presidency (1869–1877) speculated that Canada might seek union with the U.S. for economic and political advantages.
In 1911, a proposed Reciprocity Agreement between the two countries was the central issue in the Canadian federal election. Conservative leader Robert Borden campaigned against it, arguing that it would lead to political union with the U.S. His victory in that election was seen as a rejection of deeper economic integration in favor of maintaining Canada’s distinct status within the British Empire.
Trump may think that by hinting Canada should become part of the U.S. it will magically happen. He pulled it off with Panama. After repeated claims about taking back the Panama Canal, the giant American investment bank Black Rock ($11.6 trillion in assets under management) announced on March 4 that it had made a $22.8 billion deal to buy controlling stake in the Hong Kong company that operates the ports at each end of the canal. This effectively gave the U.S. control of the Panama Canal without firing a single shot.
But Canada is much bigger than the Panama Canal and even Elon Musk can not afford to buy it.
It is unlikely that Trump with all his bravado would engage the military to turn Canada into the 51st state. He in fact has said on several occasions that it would be done with economic force.
Trump’s main weapon for exerting economic force is tariffs. He loves tariffs for many reasons, as was covered in the recent blog Trump’s Tariff Tirade.
Trump’s current plan is a 25% tariff on all imports from Canada (paused until April 2). There is no doubt that erecting a wall of tariffs against Canada would exert a strong economic force. How strong would this force be?
The tariffs would make Canadian goods more expensive in the U.S. than from other suppliers. This would inevitably lead to lower sales by Canadian companies which would likely lead some businesses, especially those in industries hard hit by the tariffs, to reduce production and lay off workers.
Compounding this are the retaliatory tariffs planned by Canada which would raise the prices of many consumer goods for Canadians. As a result, consumer spending on everything from food to cars to housing supplies would slow, further weakening the economy.
The Bank of Canada has analyzed various tariff scenarios and their worst case has the Canadian GDP falling by 3%. This may not seem like very much, but it would probably put Canada into a recession.
The Bank typically fights a recession by reducing interest rates to stimulate the economy, making it easier for consumers to spend and for businesses to borrow to buy new equipment and hire more people.
But a trade war will also increase inflation, triggered by increased costs of imported goods, shortages of critical materials brought on by a trade war and a drop in the value of the Canadian dollar due to less demand for Canadian products. Ultimately most of these costs will get passed through to the prices of goods and services in Canada, raising inflation.
Since Trump’s election, the Canadian dollar has dropped from .72 to .69 and some forecasts have it declining to .60.
To control inflation the Bank of Canada increases interest rates. This helps slow economic growth that pushes up prices. Higher interest rates make credit more expensive and reduces consumer and business spending.
But the bank can’t enact policies to counter a recession (reducing interest rates) and combat inflation (raising interest rates) at the same time.
On Feb 21, 2025, Tiff Macklem, Governor of the Bank of Canada, spoke about how a trade conflict would affect the Canadian economy and monetary policy. Here is his conclusion.
“Central banks can do little to mitigate the damage caused by a trade war. Our role will be to balance the upside risks to inflation from higher costs with the downside risks from weaker demand. Our focus will be to help smooth the painful adjustment to a lower path for the economy while preventing price increases from becoming higher ongoing inflation.”
Bank of Canada guidance
For more detailed explanations of the economics of a trade war, watch Andrew Chang on About That.
There is a sharp increase in unemployment during recessions. Notice that only one recession in Canada since 1945 lasted (slightly) more than 2 years.
In a recent poll, 40% of Canadians said they were worried about losing their jobs. And this is even before the effects of any tariff has impacted the economy.
Job worries
A recession brought on by a trade war could last as long as heavy tariffs depress the Canadian economy. What if the tariffs lasted throughout Trump’s term for 4 years?
Canadians have never lived through a recession much longer than 2 years. How many Canadians would be able to struggle through such a long recession with high unemployment for some and a reduced standard of living for all?
How many people in this situation might find the prospects of an economic union with the U.S. attractive in order to improve their financial prospects?
Kevin O’Leary is promoting the idea of an economic union with the U.S. (that many people feel is a stepping stone towards political union). He claims that there is already very strong interest among his 10 million followers on social media.
Canada-U.S. Economic Union
What if the next U.S. administration decides to continue the tariff policies in 2028?
How many more people would feel desperate and ready to sacrifice some Canadian sovereignty for financial security as a solution to very dire circumstances?
Never underestimate the power of the dollar, especially if it’s an American dollar that could be worth $1.87 Canadian at that time.
