Beyond the (Necessary) Kissing of the Ring

No matter one’s opinion of Donald Trump, it’s hard to ignore a clear pattern: most of his adversaries eventually fall in line after defeat. From Ron DeSantis and Nikki Haley to liberal-leaning media figures and even world leaders scrambling to dial up Mar-a-Lago since November 6, checking your ego at the door and “kissing the ring” appears to be the strategy du jour.

Canada might as well just jump on the bandwagon. This critical juncture requires both diplomatic finesse and strategic economic planning. The response must be twofold: defending our vital economic partnership with the United States while simultaneously addressing domestic priorities to bolster resilience and competitiveness.

When it comes to positioning Canada, there’s no shortage of arguments. Moments like these have everyone appreciating the symbiotic nature of the Canada–US relationship that we typically take for granted. One of the most obvious examples is in the automotive industry, where parts manufactured in Auto Alley—which spans from southern Ontario, Michigan and Ohio to Tennessee and Alabama—cross the border as many as eight times before reaching final assembly.

This deep integration extends far beyond autos. Canadian aerospace companies, such as Bombardier and key defense contractors, play a critical role in the US industrial and military ecosystem. Some conservative estimates suggest that Canadian military exports to the US exceed $1 billion annually. Any move to impose tariffs on these sectors would not only disrupt vital supply chains, but also increase federal spending—an outcome that directly contradicts the Trump administration’s government efficiency ambitions.

But nowhere is the Canada–US interdependence more evident than in the energy sector, with nearly 4 million barrels per day of crude oil shipped to the US in 2023. US refineries in the Midwest and Gulf Coast are specifically designed to process Canadian heavy crude, while natural gas pipelines crisscrossing both countries form the backbone of energy security for northern and central US states. Imposing tariffs on crude oil imports would drive up gasoline prices—an outcome directly at odds with Trump’s promises. This therefore represents very low-hanging fruit for Canadian negotiators, especially given former Commerce Secretary Wilbur Ross’s recent remark that Canadian energy might be exempt from tariffs.

And while Donald Trump may not exactly be a climate activist, but the man has expressed a desire for cleaner air for Americans—an area where Canada can make a meaningful contribution. The upcoming Champlain Hudson Power Express transmission line, which will connect Quebec to New York State, is projected to supply approximately 20% of New York City’s electricity needs with Quebec's predominantly hydroelectric power. This supports both environmental goals and regional energy stability. Similarly, Canada's wealth of critical minerals in Ontario and Quebec offers the US a pathway to reduce its reliance on China (graph) for inputs crucial to clean technology and innovation.

So Canadian policymakers’ job is straightforward: position Canada as an indispensable partner and persuade the Trump administration that targeting Canadian industries risks triggering unintended consequences for the US economy. While these arguments may appear compelling enough, Canadian diplomats will still need to navigate this challenge with skill and creativity.

After all, they face a political movement with no shortage of unhinged "alternative facts" adherents who don’t shy away from prioritizing ideology over reason and for whom style carries as much weight as substance, if not more. At least we’re encouraged to see outside-the-box thinking already taking place in Canada. Perhaps the most entertaining idea we’ve heard is that Wayne Gretzky could serve as an effective envoy. Who knows? Maybe we’ll have 99 reasons to be hopeful.

But of course, hope is not a strategy. The more fundamental challenge is to strengthen Canada’s economic sovereignty vis-à-vis the US. While this is arguably the longer game, Canada needs to face up to the fact that Americans have voted for isolationism twice in the last decade. It should therefore be taken as a feature of today’s US political landscape rather than a bug. Building trade resilience requires action on three fronts.

First, Canada needs to accelerate export market diversification. Agreements like CETA with Europe and emerging partnerships in the Indo-Pacific offer significant opportunities. The latter region opens up a market covering 4 billion people and $47 trillion in economic activity. Diversified trade relationships not only mitigate the risks of US protectionism, but also spur innovation and competitiveness among Canadian businesses. As our own research External link. has shown, companies operating in multiple markets tend to drive productivity and contribute more robustly to economic growth. On that front, some provinces External link. like Manitoba and Saskatchewan are better positioned.

Second, it's time to tackle the paradox that many Canadian businesses find it easier to trade with the US than with neighbouring provinces. The IMF estimates that eliminating regulatory barriers and mismatches, as well as the administrative complexities hindering interprovincial trade, could boost GDP per capita by 4%. Removing these obstacles once and for all would enable Canada to both maximize domestic growth potential and better cushion against external trade shocks.

Finally, Canadian businesses must capitalize on this pivotal moment by investing in automation. According to data from the International Federation of Robotics, Canadian manufacturers deploy only 176 robots per 10,000 workers compared to 255 in the United States and over 800 in leading Asian economies. With the immigration slowdown likely to rekindle labour shortages at some point, and with the looming threat of new tariffs that would undermine competitiveness, automation presents an opportunity to still achieve significant gains in efficiency and productivity.

Policymakers can support this transition through targeted incentives: accelerated depreciation for automation equipment, enhanced R&D tax credits and deductions for specialized training in automation technologies. A coordinated and ambitious national automation strategy could prove useful at this stage. Some businesses might react to Trump’s return by scaling back investments, but the solution may in fact lie in doing the exact opposite. As a result, policymakers must send clear and unequivocal signals to encourage a proactive and dynamic response, enabling businesses to find the opportunities that often lie behind the threats.