As trade tensions rise — particularly under the threat of new tariffs by former President Trump — it’s important to separate rhetoric from reality. The idea that Canada has taken advantage of the U.S. ignores facts about energy security, investment flows, industrial integration, and defence cooperation. In truth, Canada has consistently supported U.S. prosperity and resilience — not only as a major supplier of inputs, but as a trusted ally across domains.

(On LinkedIn: https://www.linkedin.com/pulse/canadaus-trade-myths-realities-role-energy-industrial-benoit-marcoux-zfrhe)

Here’s what the data actually tells us:

1. Canada Powers U.S. Industry—Literally

As Paul Krugman, the Nobel economist, aptly noted, “importing what you want — being able to get stuff from other countries — is the purpose of international trade. Exporting — sending stuff to other countries — is something we do so we can pay for imports.” This logic fits Canada’s hydroelectric power exports perfectly: a clean, reliable energy source that benefits U.S. consumers and industry alike.: a clean, reliable energy source that benefits U.S. consumers and industry alike.

Canada is the largest foreign supplier of energy to the United States. In 2024, Canadian exports of oil, gas, and electricity to the U.S. approached $124 billion USD. These are foundational inputs for U.S. industries and everyday life—heating homes, powering factories, and fueling transportation.

Notably, Canadian oil and gas are often sold at a discount compared to global benchmarks, primarily due to transportation bottlenecks and limited market access. This means U.S. buyers benefit not only from a secure and friendly source of energy, but also from lower prices—a direct economic advantage that supports American competitiveness and energy security.

But energy is just the beginning. Canada is also a top supplier of aluminum, exporting nearly 2.8 million tonnes annually to the U.S.—almost half of its aluminum imports. Aluminum is essential to sectors like construction, transportation, and defence. Replacing Canadian aluminum with domestic U.S. production would require an additional almost 40 TWh of electricity—roughly equivalent to the annual consumption of 3.6 million U.S. homes—at a time when the U.S. grid is already under stress.

2. Canada Exports Industrial Inputs—The U.S. Sells Finished Goods

Despite headlines about tariffs, the broader picture is clear: over 98% of goods traded between Canada and the U.S. are tariff-free under USMCA rules. According to Global Affairs Canada and the U.S. International Trade Commission, total tariffs collected by both countries account for less than 1.5% of the value of bilateral trade, or roughly $9 billion USD out of $620 billion USD annually. So, while specific sectors may face friction, the vast majority of trade remains open, stable, and mutually beneficial.

Beyond energy, Canada also supplies the U.S. with essential industrial inputs—aluminum, auto parts, forest products, and minerals—that are foundational to American manufacturing. These inputs are difficult or costly to replace, and tariffs on them risk undermining U.S. competitiveness by increasing costs and disrupting supply chains.

Canada’s modest goods trade surplus with the U.S. is largely due to these inputs. For example, in 2023, Canada assembled approximately 1.32 million vehicles for export to the United States. In the same year, the U.S. exported about 1.7 million vehicles to Canada. These flows illustrate the mutual dependency, but also the structural asymmetry: many Canadian exports are hard-to-replace industrial inputs into North American production systems, while many U.S. exports are finished consumer goods that Canada could more easily substitute.

A small portion of bilateral friction stems from Canada’s supply management system, which regulates dairy, poultry, and egg production through tariff-rate quotas. While over-quota tariffs can exceed 200%, they are rarely triggered in practice—meaning their impact on actual U.S. trade flows is limited. Conversely, the U.S. has long maintained punitive tariffs on Canadian softwood lumber, despite repeated rulings by international trade bodies against them. These tariffs have distorted prices, hurt Canadian producers, and increased costs for American homebuilders and consumers. Neither of these trade frictions, however, define the overall relationship. 

In contrast, the U.S. exports mainly finished goods—products, like vehicles, that are generally easier for Canada to replace with domestic production or by sourcing from Europe, Japan, South Korea, or even China. In a full-blown trade war, the U.S. risks losing access to critical Canadian inputs, while Canada would have more flexibility to adapt its supply chains—an asymmetry that could significantly hurt U.S. industry.

Moreover, on services, the U.S. maintains a strong position: in 2023, it ran a $31.7 billion USD surplus with Canada. With strengths in finance, digital platforms, software, business consulting, and tourism, U.S. firms currently enjoy high demand in Canada. But unlike industrial inputs, many services can be replaced over time through domestic development or alternate partnerships. Thus, while the U.S. currently benefits, it may also be more exposed in the long term if trade relations sour.

3. Capital Flows Favour the U.S.

Canadian companies invest heavily in the U.S., not just through mergers and acquisitions but also by building factories, expanding infrastructure, and financing innovation. These investments span sectors such as automotive, aerospace, advanced manufacturing, and clean technology—driving job creation, productivity gains, and long-term industrial capacity.

In 2023, the stock of Canadian direct investment in the United States exceeded $600 billion USD, placing Canada among the top foreign investors in the U.S. economy. This capital plays a dual role: it fuels private-sector growth and contributes to public financing through significant holdings of U.S. Treasury bonds, helping to finance the federal deficit and stabilize interest rates.

In contrast, U.S. direct investment in Canada is smaller in both scale and diversification. While Canada may register a modest surplus in goods trade, this is more than offset by a persistent capital account deficit—an imbalance that rarely gets the attention it deserves.

But this dynamic is not immutable. In a context of rising tariffs or trade hostilities, Canadian firms could reduce their exposure to the U.S. and redirect investments domestically or toward more predictable jurisdictions. Such a shift would not only reduce integration but would also risk slowing industrial and technological progress in the U.S.

In short, when evaluating the economic relationship, it’s not just about who exports more—it’s also about who invests more. And on that front, the United States has been the bigger beneficiary—though that advantage may not hold if trust erodes and capital starts flowing elsewhere.

4. Defence and Diplomacy

Claims that Canada underfunds its alliance obligations by spending less on defence overlook key facts. While Canada’s military spending is lower as a share of GDP (about 1.4% vs the NATO target of 2%), its strategic contributions are substantial and long-standing:

• Canada hosts radar installations in the Arctic, including as part of the jointly operated North Warning System, which supports continental surveillance.
• Canada co-leads NORAD, the North American Aerospace Defense Command—a binational organization headquartered in Colorado Springs. NORAD is responsible for aerospace warning, aerospace control, and maritime warning for North America. It is a pillar of joint defence, particularly in the Arctic, where monitoring airspace and maritime traffic has become more critical. And once a year, NORAD becomes a global household name for its Santa Claus tracking tradition.
• Canada participated in joint combat missions, including Afghanistan, where 158 Canadian soldiers lost their lives.
• Canada is a significant purchaser of U.S. military equipment, including fighter jets, helicopters, armoured vehicles, and surveillance systems.

Canada’s contributions extend beyond military deployments. In the aftermath of 9/11, Canada welcomed over 33,000 diverted air passengers in a remarkable humanitarian effort remembered around the world. Canada also played a crucial diplomatic role during the Iran hostage crisis, sheltering and helping exfiltrate six American diplomats. In Haiti, Canadian Forces have supported U.S.-led stabilization efforts, and Canadian naval forces have repeatedly patrolled alongside their U.S. counterparts in global missions.

These moments reflect a broader pattern of trust, solidarity, and cooperation. Canada’s contributions are strategic, enduring, and often made without fanfare—but they have consistently advanced shared security and humanitarian goals.

5. Social Spending: It’s About Efficiency

Some critics suggest Canada can afford social programs only because it doesn’t “pay its fair share” on defence or play fairly on trade. But a more plausible explanation lies in the efficiency of its public services, especially in healthcare.

The U.S. spends nearly 18% of GDP on healthcare; Canada, just over 12%. This translates into savings of more than $6,900 USD per capita, based on 2023 data from the Commonwealth Fund and the Canadian Institute for Health Information. U.S. per capita health spending was around $13,400 USD, compared to approximately $6,500 USD in Canada.

These savings are primarily driven by Canada’s universal coverage model, which allows for broad access at lower cost. Better health outcomes—such as longer life expectancy (82.6 years in Canada vs. 76.3 in the U.S.) and lower maternal mortality (11 vs. 33 per 100,000 births)—reinforce the value of this approach, though they do not directly account for the financial savings.

These efficiencies free up public resources for other priorities—notably, child care. Quebec’s low-fee universal program has led to some of the highest maternal workforce participation rates in Canada. Building on this model, the Canada-wide Early Learning and Child Care initiative launched in 2021 is extending affordable services across the country. This supports both families and the economy by enabling higher labour force participation.

Canada also invests in robust social protections, including:

• Paid parental leave to support family formation,
• Child benefits that help reduce child poverty,
• Income supports that enhance social and economic inclusion.

In short, Canada’s ability to sustain strong social programs stems not from under-contributing elsewhere, but from making strategic fiscal choices that deliver long-term value, resilience, and broad-based prosperity.

6. Fentanyl? Wrong Border

The U.S. fentanyl crisis is tragic—but blaming Canada is misguided. The DEA confirms the primary sources are China and Mexico, with smuggling routes concentrated at the southern border. Meanwhile, some illicit drugs, including synthetic opioids, also flow north from the U.S. into Canada. These flows are part of a broader set of two-way challenges that include illegal guns, human trafficking, and asylum-seeker flows—all of which point to shared security concerns that demand cooperation, not confrontation.

Canada has recently seen a sharp increase in asylum claims from people entering via the United States, with irregular crossings reported in multiple provinces. While many of these individuals are seeking protection, this trend highlights growing imbalances and instability in cross-border dynamics. Human trafficking and gun smuggling into Canada add complexity to the issue, reinforcing the need for a coherent and coordinated approach to migration, border security, and law enforcement.

And then there are the eggs. During recent price spikes in the U.S. caused by avian flu outbreaks, smugglers began sneaking eggs from Canada into the United States. With American shoppers facing soaring prices, U.S. customs officers reported a spike in egg seizures at the border. 

Apparently, where supply chains fail, the breakfast black market rises. Whether it’s illicit fentanyl or illicit frittatas, the border has seen it all.

7. Canada Keeps Its Word. The U.S.—Not Always

Canada has consistently honoured trade agreements. By contrast, Trump’s imposition—and abrupt reversal—of tariffs on Canadian aluminum and steel and cars was just one example in a broader pattern of erratic trade policy. His administration also imposed tariffs on softwood lumber, newsprint, and other Canadian exports such as fabricated structural steel, and repeatedly threatened auto tariffs. These measures were often introduced, lifted, or reintroduced without consistent rationale, undermining confidence in the reliability and predictability of U.S. trade commitments. His recent threats to withdraw from the USMCA show once again—despite having signed it into law on January 29, 2020and previously calling it “the fairest, most balanced, and beneficial trade agreement we have ever signed into law” that Canada cannot take the stability of U.S. policy for granted.

Conclusion: A Reliable Partner Deserves Respect

Canada has been a steadfast, constructive, and mutually beneficial partner to the U.S.—especially in energy, industrial supply chains, capital investment, and shared defence. Any serious assessment of the economic relationship must recognize:

• The deep interdependence of our economies,
• The structural advantage the U.S. gains from Canadian inputs and capital,
• And the importance of consistent, rules-based cooperation in uncertain times.

This isn’t about sentiment. It’s about strategy. Picking a trade war with Canada isn’t just unfair—it’s self-defeating.

Sources: Global Affairs Canada, U.S. International Trade Commission, Statistics Canada, DEA, NORAD, U.S. Customs and Border Protection, Commonwealth Fund, Paul Krugman (via Substack, 2024)