Canada's Trade Stubbornness is Actually Hiding a Massive Economic Distortion

Why the strategic position of Canada doesn't work without becoming a resource powerhouse

Canada’s historical position generally acts as a sort of “conscientious counterparty” to that of the United States. Historically, this is a romantic perspective for many Canadians, mostly those in the Baby Boomer generation.

It has deeper roots in the history of Loyalist settlement following the American Civil War, the expansion westward and the building of the Great Canadian Railroad, as well as the long-held relations with the British Empire and the “mother country across the pond” which contributed to so much of Canada’s trade and immigration patterns up to the end of World War II.

The challenge today is now, 80 years on from that fateful conflict (the Saeculum in the Romanized fourth-turning sense), Canada is at a loss for meaning. One of the ways the Boomer generation sought to differentiate the country was environmentalism, and while Canada has definitively the cleanest energy and resource sector globally, the halting of development at all costs has now left it with an economy in decline.

The Boomer hypocrisy doesn’t stop there: Canada chose not to participate in America’s “Imperialist Wars” in Vietnam and Iraq, and yet continued to export resources south of the border. In the post-Cold War environment, it has completely given up on both its role as peacekeeper while also seeming to have given up on the idea of having a military at all, having been a laggard in NATO spending and furthermore struggling to define and differentiate its armed services in any meaningful respect, save for a relatively small Special Forces cohort, while the United States effectively subsidizes Canadian security through NORAD. Recently, when a plane flying out of Vancouver was thought to be hijacked, US F-15s were scrambled in response. Canadian CF-18s based in Cold Lake, Alberta, could not be mobilized as rapidly and with sufficient fuel to address the situation (a country second only to Russia in size possessing no long-range fixed-wing military aircraft)

And this holds a unique lesson for the strategic incongruity Canada holds in hand, both as a landmass and a population: Canada is entirely dependent on the United States for its economic position, and every effort to increase it’s economic contribution decreases its ability to maintain its independence - an independence that is already essentially “unsustained” from a financial, security and agro-industrial perspective. An important comparison below:

source: https://geopoliticalfutures.com/population-density-of-canada/

source: https://www.gov.mb.ca/agriculture/environment/soil-management/soil-management-guide/print,soils-information-for-planning-purposes.html

As can be noted by the two graphs above, Canada’s effective population distribution aligns with most of the agricultural land. This makes perfect sense in a traditional pattern of settlement: most people want to be near where food is produced. The exception here is that: there are already significant population centers in the prime areas of agricultural land, and further development imposes significant restrictions on the increased development of agricultural land, such that Canada could easily fall into a food deficit if such projects like the decades-delayed high-speed-rail corridor were established - a project that would effectively paper over a significant portion of the agricultural belt along the Saint Lawrence valley.

People have historically outgrown space with the passage of time, but the challenge in this context is that Canada historically was underpopulated, and while the majority of Canada’s territory is made up of marginal agricultural lands which lack deep soils and are cold for too much of the year to be substantially productive. The most prosperous lands were settled first and that settlement was accelerated by the arrival of Loyalists and subsequent waves of immigration in the 19th century, but today Canada has an emphasis on high-value-added industries in technology, finance and other functions which - in one respect - require a large population base to support a specialized workforce.

This subsequently accelerates the demand for immigrants, to feed into large complex industries, and immigrants now make up the largest share of Canada’s population in 150 years: a time when the country’s prime farmlands were effectively empty.

And yet, in this context, the popularly elected government has chosen to contradict the Trump administration’s attempts to improve the United States’ financial position through tariffs, while additionally imposing retaliatory tariffs as only one of two nations to do so globally, along with China.

Canada’s directional challenges are as follows:

• Rising cost of living due to limited land availability and housing, as well as increased immigration.

• Falling availability of food and goods due to increased trade restrictions and increased distance of travel to procure goods from elsewhere.

• Declining population base and institutional structure, both from in ability to integrate new immigrants as effectively as had been done in the past, and an increasing schism between the pre-existing working class and “bi-coastal elites” (sound familiar?).

• Limited capacity to expand its primary resource-extraction industries because of a discouragement of both development in itself, along with the development of engineering talent in lieu of high-tech industries where Canada did not necessarily have .

• Diminished aid from a neighbor who may no longer be willing to support their national defense and development. While military spending increases, that will ultimately impose economic tradeoffs in terms of long-beloved social benefits. If Canada renegs again on its defense commitments, its international reputation will only continue to decline.

To make a long story short: Canada was a jewel in the British Empire and developed as such, offering a bounty of resources and manufacturing base that was not necessarily always available on the home island, as well as colonial soldiers to maintain order in far off places. Even in that period, Canada’s exports still had significant share to the US, providing staples through the Great Lakes System to industrial centers like Chicago and Detroit. These historic relationships remain, but many Canadians - who don’t work in manual labor and may have never built anything with their hands - would rather believe that these relationships never existing.

Many Americans, however, remember this fondly and are grateful for a Canada that remains a separate, equal, reliable trading partner with a distinct culture. But the animosity runs deep. From whence do we think it came? Observances of civil unrest in the United States historically gave many Canadians a feeling of moral superiority, but Canada never had to deal with the same social problems that the United States has, and not nearly at that scale either.

And to return to trade, the contentions over the Auto Pact, which drives much of the current tariffs around car manufacturing, opened a new export market for finished vehicles from the United States to Canada, while increasing the complexity and efficiency of the parts and assembly supply chain that exists on that same Great Lakes System. These are long-run historical relationships with deeply entangled causes and effects, but when one partner is essentially bankrupt, the other must help sustain them - not act like they’ve received nothing but ingratitude.

Even if Canada wanted to drive more agricultural productivity off marginal lands, such an enterprise - like the Soviet days of old - would require more inputs… something that so many Canadians have so long viewed as unacceptable to begin with!

And so, there lies the ultimate contradiction: in order to grow on its own, Canada must do things its own sacred, pristine, prevailing ideology does not believe rational, OR, engage in greater economic integration with the United States, and ultimately bury deeper its functional independence with even less of a chance of ever recovering it in the future. This is simply how the strategic cards have been played, people may not like it, but its true.