On Monday, Canadian Deputy Prime Minister Chrystia Freeland should have been preparing to present the country’s first economic plan since the US election in November. Instead, she stepped down from her role and delineated her reasons in a letter to Canadian PM Justin Trudeau, which was published on social media. “For the past number of weeks, you and I have found ourselves at odds about the best path forward for Canada,” she said.
In her letter, she cited disagreements over how to deal with an incoming Trump administration that will pursue a policy of “aggressive economic nationalism”. The politicians had also been at odds over a policy to give eligible Canadians a cheque for $175 (C$250).
As the weeks shorten until Trump’s inauguration, Western allies are trying to agree, internally and externally, on the best course of action. Freeland’s row with Trudeau may be representative of how Trump’s aggressive protectionist stance could seed divisions beyond the US’ own borders.
Trump’s threats to impose import tariffs of up to 20% have put the world on edge, but it has especially worried Canada and Mexico. Good and services trade between Canada and the US was estimated at $908.9bn in 2022. Trade with Mexico came close that year, standing at $855.1bn. The imposition of high import duties is also technically illegal, given the three countries are part of a free trade agreement that is due to be renegotiated under Trump’s presidency.
One of Trump’s grievances with the two countries is about illegal immigrants and goods coming through their borders into the US. Earlier this month, Canadian officials annoyed Mexico when they said the border problems between the two shouldn’t be compared.
“Mexico must be respected, especially by its trading partners,” Mexican President Claudia Sheinbaum said in response. She said Canada also had problems with fentanyl circulation and “could only wish they had the cultural riches Mexico has”.
The scale of migrant crossings and drug circulation into the US from Canada and Mexico are vastly different. In the last fiscal year, the US seized 43 pounds (lb) of fentanyl at the Canadian border compared with 21,100lb at the Mexican border.
Freeland’s earlier worries about cheap Chinese goods slipping into North America through Mexico also sparked discontent in the latter.
Whether the comments are superficial spats or suggestive of a more fundamental rift between Canada and Mexico, only time will tell. The likelihood that either of them will throw each other under the bus to stay in Trump’s good graces, however, seems high given the economic importance the US has to both of their economies.
Europe is fighting multiple fires right now. Aside from the war in Ukraine, two of the continent’s major players, Germany and France, are facing crises of leadership. Hovering above it all, however, is Trump’s economic policy.
Before the election took place, POLITICO reported that some EU diplomats secretly hoped he would win. “The return of Trump would be a beneficial shock that will enable the EU to move forward, like the pandemic or the energy crisis following the war in Ukraine,” a senior diplomat anonymously told the publication. The story alluded to six EU diplomats who shared this attitude. They hoped Trump would serve as the “bitter medicine” that would push the EU to work together.
Although the EU functions as an open market, different countries have different dependencies on the US as an export market. Germany, Ireland and Italy’s economies would be the most affected by high import tariffs. In 2023, German exports to the US reached a high of $172bn, for example. Agathe Demarais, a senior policy fellow on geoeconomics at the European Council on Foreign Relations, writes that “there is a high risk of EU fragmentation in response to a potential US-EU trade war, especially if Trump picks different tariff rates for each of the bloc’s 27 member states”.
Associate Fellow at Chatham House Sebastien Maillard highlights that the structure of the EU prevents Trump from signalling a country out for a general bilateral deal. “Anything that Trump wants to do on the EU, he cannot do it individually […] He cannot single a particular country out even if he wanted to,” he explained to Investment Monitor. The EU is a single market and if Trump wants to impose tariffs then the person he would have to deal with is EU Commissioner Ursula von der Leyen, Maillard added.
This is made more difficult, of course, by the fact that “Trump hates the EU. He prefers to deal with national leaders within the Commission.” Someone like Italian Prime Minister Georgia Meloni, can “perhaps try to facilitate or ease the tension”, particularly since there is more trust for her than for Hungarian President Viktor Orban.
“The real risk for division has more to do with security,” because defence spending is not as consolidated as economic policy in the bloc. Even though Trump hasn’t officially come to power yet and none of his threats have materialised, Meillard expects that some countries might be tempted to increase their defence spending, by offering to buy more US weapons, for example.
Maillard thinks the Trump shock is unlike Ukraine or Covid, as referenced by the diplomats who spoke to POLITICO. Rather, the real difference is that “the EU cannot see the US anymore as an ally […] Any negotiation will now be based solely on interests, not in any kind of solidarity with [NATO’s] Article Five. It will be purely protecting America first. The EU has to be clear on their interests […] and think for itself.”
“As US protectionism looms, a unified approach is in question” was originally created and published by Investment Monitor, a GlobalData owned brand.
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