Trump’s zero-sum view of trade imperils decades of integration.
With the global trading system and markets facing renewed strain, U.S. protectionism under President Donald Trump risks undermining decades of economic integration and shared prosperity.
Although many hope for a swift return to stable trade policy, that outcome appears unlikely given recent statements by the U.S. President, statements that reflect a fundamental misinterpretation of trade balances and their strategic implications.
Consider Trump’s response to a reporter when asked about making deals with countries to have tariffs lifted:
Trump: “I spoke to a lot of leaders — European, Asian, from all over the world. They are dying to make a deal, but I said ‘we’re not gonna have deficits with your country’ … to me a deficit is a loss. We’re gonna have surpluses or at worst we’re gonna be breaking even.”
It is well established in economic literature that trade deficits are not inherently detrimental, as those deficits often reflect capital flows, comparative advantage, and consumption dynamics in specific countries. Further, “breaking even” implies a “surplus,” so it’s odd that Trump juxtaposed the two.
When considering Trump’s recent statements, the challenges of negotiating a new trade deal with the United States in this kind of environment become more apparent. Consider a Canadian example that illustrates the challenges posed by this approach. Logically, we know the United States benefits from getting Canadian oil and gas at a significant discount. They can refine the Canadian energy they import, generating added value. Yet, because of the volume of Canadian oil and gas exports, the United States runs a goods trade deficit with Canada. Trump thus views this as a loss, though he notably avoids mentioning the U.S. services trade surplus with Canada.
Canada could easily fix this ‘loss’ by selling less oil & gas to the United States, but that would leave both nations poorer. Unfortunately, this kind of deliberately induced poverty is what Trump is bringing about. While some may view this interpretation as alarmist, the pattern of decisions warrants serious concern. Donald Trump’s tariff agenda – regardless of the myriad of shifting explanations his political aides are employing – is heavily focused on lowering the overall volume of trade, something that leaves trade participants worse off.
Further, Trump is openly demanding that other nations willingly accept what he sees as a ‘loss.’ He views trade deficits as losses and wants to run surpluses with every nation, meaning he is demanding that the world accept a loss to, in his mind, enrich America. Unsurprisingly, that is not a popular notion around the world, particularly in democracies where political leaders have a tough time selling unilateral surrender to their electorates.
Why is retaliation needed?
Some argue – understandably – that countries like Canada should avoid retaliating to U.S. tariffs. Generally, the argument is based on two key points:
First, that retaliation hurts the citizens of the country imposing the retaliation, since it drives up costs.
Second, that retaliation antagonizes the United States and invites further tariffs and thus deepens the trade conflict.
There is truth to both arguments. Retaliation does indeed raise costs for consumers here in Canada and in every country retaliating against U.S. tariffs. And retaliation does indeed antagonize the United States and invite possible further trade actions.
With that in mind, retaliation remains essential for three main reasons:
First, retaliation shows resolve. As irrational as it may be, we have to consider the psychological factor here. When a country enacts coercive trade policies as the United States currently is, it is important to hit back. Hitting back demonstrates that there will always be a consequence, even if that consequence hurts the country responding. This can dissuade further aggression.
Second, retaliation gives confidence to other nations considering retaliation. Donald Trump is looking to pick off countries one by one, by imposing tariffs on everyone and then waiting for individual nations to offer him unilateral concessions on trade issues. The more countries retaliate instead of capitulating, the more it gives confidence to other nations facing that choice, and can tip more countries into the retaliatory camp.
Third, retaliation deepens market losses and exposes the irrationality of Trump’s trade agenda. The more countries retaliate, the further and faster markets will drop. The Trump team is trying to counter this in the media by claiming ’50 countries’ are seeking to make deals. If that effort at spin fails, and if the markets continue to crumble, the political pressure on the Trump Administration will result in Trump being stripped of much of his political capital. That will significantly reduce his power and raise the likelihood of these detrimental tariffs being repealed.
Given the destructive scope of U.S. protectionism under the Trump Administration, traditional diplomatic appeals to mutual benefit appear unlikely to succeed. Instead, coordinated retaliation – targeted at politically sensitive industries and regions – represents a more viable path to restoring a semblance of balance. Canada, alongside other impacted nations, should impose strategic countermeasures that apply pressure where it matters most: swing states and Republican strongholds key to the 2026 midterm elections. Such a response can help hasten the end of these escalated trade tensions and demonstrate our commitment to the defence of Canadian sovereignty.
Spencer Fernando
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