President Donald Trump has reignited trade tensions with Canada by proposing that the country could avoid impending tariffs by becoming a state of the United States. This proposal comes as part of a broader directive from the president, who has ordered federal officials to review US trade relationships for any unfair practices by April 1. The United States has threatened to impose tariffs on Canadian imports, with Trump suggesting tariffs could reach up to 25% by February 1 if no resolution is found.
The United States is Canada's largest trading partner, with approximately 75% of Canadian exports heading south. Despite this significant export relationship, Canada accounts for only 17% of US exports, highlighting a substantial trade imbalance. The US currently holds a trade deficit with Canada, mostly driven by energy demands, estimated to be between $200 billion and $250 billion. Canadian energy exports reached nearly $170 billion in 2024, contributing to this deficit.
In a statement fraught with implications, Trump remarked:
"You can always become a state, and if you're a state, we won't have a deficit. We won't have to tariff you."
This suggestion underscores Trump's stance that tariffs could bolster the US economy, protect jobs, and increase tax revenue. The president further emphasized his point by asserting:
"We don't need them to make our cars, we make a lot of them, we don't need their lumber because we have our own forests… we don't need their oil and gas, we have more than anybody."
The North American auto industry features highly integrated supply chains, where auto parts often cross borders between the US, Mexico, and Canada multiple times before final assembly. Such integration underscores the complexity and potential disruption tariffs might introduce.
Canada's role as the second-largest trading partner of the United States, following Mexico, adds another layer to the delicate trade dynamic. A trade deficit with Canada is projected to be approximately $45 billion in 2024. This deficit serves as one of the primary drivers behind the president's tariff threats.