Dealing to Stay, Play, or Delay?

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HERE'S MY TAKE

By now, we’ve all taken in extensive media coverage of the politics and economics related to US President Trump’s tariff policy and its impact around the world, but especially on Canadians. While the analysis is interesting, most of it is speculation and follows predictable, politically motivated perspectives, which influence our perception of heroes and villains in the story, leading us to assess the day-to-day impacts accordingly. I won’t offer yet another perspective here. Instead, I want to suggest a way to cut through all the analysis and rhetoric to see where Canada actually stands in all this. Most of this boils down to three broad strategies Prime Minister Carney can use to lead Canada out of the tariff situation—stay, play, or delay—but before we get to those, it’s important to start with the big picture.

Not surprisingly, the big picture includes Donald Trump. For many, he’s easily the villain in the story, though for many others, he is brilliant and can do little wrong. President Trump relies on narratives, truthful or not, and is relentless in creating them. Creating the External Revenue Service to collect tariffs paid by other countries, replacing the taxes collected by the Internal Revenue Service from American taxpayers, sounds like a terrific deal. Mind you, American importers generally pay the tariffs on foreign goods; foreign countries do not. That can translate into increased prices for American consumers or difficulties for American manufacturers, but the exact effect on prices or job implications is complicated to measure on the best of days. Meanwhile, President Trump is determined to make it more difficult to measure such things, firing the Labor Department statistician who delivered numbers the president didn’t like and threatening to fire US Federal Reserve Chair Jerome Powell in an attempt to influence the bank’s interest rate policy. The president remains convinced that the strategy will result in economic growth as manufacturing investment will create jobs and the lower domestic taxes will make his country a more attractive place for business. On Wednesday, the American president claimed tariffs were raising “hundreds of billions of dollars,” though he declined to provide a specific number since the revenue growth was so spectacular that “we don’t even know what the final number is.” Presuming that investors are considering the president’s claimed numbers in the context of other data, the Associated Press reported on Thursday that the US trade imbalance for the first half of 2025 was 38 percent higher than in 2024, while construction spending was down 2.9 percent.

In Canada, a similar partisan lens divides the analysis. The job of opposition parties in Parliament is to oppose the government. So, we should not be surprised that Conservatives are pointing out the gap between the tough “elbows up” rhetoric that Prime Minister Carney used during the election campaign and his seemingly “elbows down” explanations for why he has missed several deadlines to secure a new trade deal with the United States. Polls suggest that Canadians are less patient than the prime minister with the majority supporting a tough approach. That’s something Ontario Premier Doug Ford also advocates, saying, “We better be ready and throw everything and the kitchen sink at this.”

Whatever your position or strategy, there’s a pundit out there making your case. This is why I say the advice Prime Minister Carney is getting seems to fall into three general tracks: stay, play, or delay.

Stay the Course

The view of some is that history and geography will win out eventually in Canada-US trade relations. This camp emphasizes the plain fact that Canada and the United States have the largest bilateral trade relationship in the world. While the renegotiation of the United States-Mexico-Canada Agreement (USMCA) scheduled for 2026 requires some tinkering with the arrangements, regardless of which president Americans elected, economic and political realities mean trade will continue through the bluster. “Stay the course” folks recognize that an estimated 86 percent of Canadian goods continue to enter the United States tariff-free. So, in their view, Canada can do some remedial work to adjust the few industries that are targeted by US tariffs (steel, aluminum, softwood lumber, and inevitably Canada’s highly protected dairy sector), but in the long run, it will all work out.

Deal to Play

The “deal to play” camp line of argument is that the disruption to global trade arrangements is permanent and will continue for the foreseeable future, well after the Trump presidency has expired. For this group, Canada needs a strategy to diversify its trade so that not as many of its eggs are in the American basket, to build energy resource infrastructure to take valuable exports to global markets, and liberate Canada’s economy by removing internal trade barriers to incentivize investment and productivity. Taken together, these steps, we’re told, will make Canada a more significant player on the global stage that is less dependent on the United States.

Delay is Preferable to Error

The chorus of voices calling for “delay” is growing louder. This group focuses on the recent deals that the United States has struck with Japan and the European Union, both of which have netted some positive short-term market response (which may simply be the result of ending the uncertainty built up during the negotiation process rather than the provisions of the agreement itself). There is concern that these “deals” are not precise or enforceable and have more in common with a vassal-payment for the kindness of a dominant empire in previous eras than a modern trade deal. Although the United States is not an empire in the classical sense, its present economic and military dominance provide parallels and the deals being negotiated are not really win-win economic arrangements between two sovereign negotiating parties. Rather, they look more like a “neo-tributary” model of global relations.

So, the “delay” argument sees no deal as the best strategy, hoping that Canada can humour the president through talks for as long as possible to minimize tariff announcements. In spite of the rhetoric, Canada has the lowest effective tariff rate in the world through USMCA exemptions. Hopefully, the political and economic realities facing President Trump (or, if we delay long enough, his successor) will change so that the American realization of self-interest will force a deal that isn’t available today. The interim uncertainty and disruption of ongoing negotiations, even if it is measured by years, is a better outcome than any bad deal. In this line of thinking, success is the failure to secure a deal.

Since President Trump took office, he imposed a 25 percent tariff in March, which he hiked to 35 percent on August 1. However, for an estimated 86% of exports deemed USMCA-compliant, the tariff doesn’t apply. There’s lots of uncertainty, of course. Businesses worry that what one official deems compliant today, a more zealous official with orders to clamp down could overturn tomorrow. The liability involved is huge for most, meaning that even for those exporting USMCA-exempted goods, there is risk. If nothing else, the uncertainty means that there is very little new investment happening until there is confidence about what comes next.

For those involved in sectors with special tariffs (most notably 100 percent on semiconductors and electronics, 50 percent on steel and aluminum, and 25 percent on the automotive sector), the impacts are existential. Although counter-tariffs and government sectoral aid programs are focused on softening the effect of these American tariffs, the US president's open intent is to force Canadian production to move to his country. Certain regions of the country feel the economic effects more than others, depending on which industries they have. If the proverb “a recession is when your neighbour loses their job; a depression is when you lose yours” is applied here, the general recession that economists might tell us is coming is minimal compared to the depression some of our neighbours feel.

Prime Minister Carney has negotiated many deals in his life. I’m certainly not going to publicly advise him on what strategy to pursue. Nor would I suggest it prudent for him to declare his strategy publicly. “Talk policy, do strategy” remains sage advice. While many of the arguments defending or criticizing his approach to this file are predictable based on partisan interests, most businesspeople I talk to (even Conservatives) hold a “wait and see” attitude. They understand that this file is not entirely in Canada’s control, and they sincerely want Mr. Carney to succeed. 

As fall approaches, the internal pressure on Prime Minister Carney will mount. The “stay” and “delay” strategies both rely on President Trump feeling more pressure than Canada. Mind you, trade with Canada accounts for less than 2 percent of American GDP, while trade with the United States makes up over 22 percent of Canada's GDP. So, there is little doubt who will feel the economic effects the most. The question is how this translates into political pressure for the leaders to take action.

The “play” path is the one that the prime minister seems to be publicly promoting, but that too is a long-term solution. We may want to deal more with Europe and Mexico and build new infrastructure, but none of these can happen overnight. All of these are multi-year initiatives. So far, we have only been discussing them, not actually implementing them. The multi-year clock hasn’t even started the countdown yet.

The “stay, play, or delay” options aren’t mutually exclusive, but strategically, the prime minister needs to place them in order of priority. It would seem that Mr. Carney has adopted a “play, delay, and stay” approach, but he’s not telling publicly, nor should he, from a tactical perspective. The tariff game isn’t one that we would have chosen for ourselves nor is it fun, but at least for the foreseeable future, we’re stuck with it.

WHAT I’M READING

Universalizing Benefits

Matthew Alexandris argues in his Hub essay that the Conservatives could distinguish themselves by backing the universalization of federal benefits. Instead of targeting benefits like welfare and disability payments to those most in need, Alexandris suggests making the benefits universal—reducing the administrative costs of delivering the programs—and using the tax system to recover benefits from higher-income Canadians who wouldn't qualify under targeted programs. The opportunity exists to promote universal welfare programs federally to lower the costs and size of the administrative state and to eliminate distortions and disincentives inherent in the current social welfare system.

Chinese Family Crisis

Nancy Qian’s opinion piece in the Globe and Mail vividly describes China’s demographic challenge, which economic issues complicate further for its 1.4 billion people. Chinese households have a relatively low household income level while young people have limited economic prospects. Combined with the demographic burden of fewer younger individuals supporting a larger older population, China faces real challenges with no clear solutions. “How will a civilization built around family units and networks fare as a nation of individuals without siblings and cousins?” asks Qian. “What will the lives of the elderly be like when there are few young adults to care for them? Can ordinary Chinese, to whom family represents both a virtue and a way of life, feel content without children? As the spectre of social and economic upheaval looms, these questions must be answered.”

The Democrat Alternative

Former Obama staffer Michael Wear challenges American Democrats in his Unherd essay, slamming their failure to articulate a positive vision as an alternative to US President Trump. “What America needs today is a Democratic Party with a prosocial vision advanced through prosocial means: to defend human beings as fundamentally social, cooperative, and mutually dependent, both in the way they campaign and in the policies they promote,” writes Wear.

Work-Life Imbalance

Howard Levitt’s Financial Post piece describing the “myth of work-life balance” created considerable online buzz as he cited his own example of working more than 100 hours per week for years “without a day off” in order to get ahead in his career. “Dispensing with the niceties: ‘work–life balance’ was never a sustainable model for success. Now, employers are not even disguising that view. They are advertising it,” he writes. Levitt suggests that “competition, sacrifice, and focus” is the way of getting ahead. “Employees navigating this landscape should recognize that this isn’t paranoia—it’s the new normal.” Needless to say, there were many critics arguing that excellence isn’t measured by hours and that Levitt was misguided in his framing of the present realities.

MEANINGFUL METRICS

1.6 Kids Gets You Decline

Low fertility rates are a global phenomenon, not just a Western one. The Wall Street Journal published an essay by two economists noting that declining fertility (at 2.25 children per woman, the global rate is barely above the replacement rate of 2.1 required to maintain a stable population) has consequences on par with “plague, nuclear war, or environmental catastrophe.” In contrast to progressives (who equate population growth with climate change and environmental degradation) or conservatives (who are less concerned with global population rates but do want their national population rates to increase so that domestically-born babies outnumber immigrants), the authors (who describe themselves as centre-left) note that ingenuity and problem-solving come from humans. “While there will always be some suffering and poverty, over time people are becoming healthier, wealthier, and more fulfilled, so a larger population will raise both aggregate, and average, health, wealth, and fulfillment. Who wouldn’t want that?”

TAKE IT TO-GO

Game-Set-Match

So 18-year-old Victoria Mboko served up a Canadian classic, acing her first Women's Tennis Association title on Thursday in Montreal. My wife has the home court advantage within the Pennings family when it comes to knowing about the tennis pros. Thanks to her enthusiasm for Mboko’s meteoric rise through the rankings this week, we all became Mboko fans. A week ago, I would have double-faulted had you asked me to serve up her name. But the ball bounced her way this week. We watched her string together consecutive wins, beating four Grand Slam champs. She fully deserves much more than backhanded compliments. So yes, I’ll confess. The score is 40-love and she’s serving to become Canada’s new tennis hero, netting the loyalty of a nation that loves teenage sensations and underdog stories. Congratulations, Queen Victoria. Long may you serve.

Insights will be back in your inbox next Saturday morning. Hoping your week is a delightful one.