Hardball stance with Trump sets Canada apart from all the trading partners that acquiesced

Open this photo in gallery:Prime Minister Mark Carney speaks about the trade dispute with the U.S. at the Davie Shipyard in Levis, Quebec. To some who have dealt with the Trump administration, the Prime Minister seems to have recognized that readily giving in leads to more demands.ANDREJ IVANOV/AFP/Getty ImagesIn retaliating against Donald Trump’s tariffs after walking away from the bargaining table, Prime Minister Mark Carney set Canada apart from most of the U.S.’s other trading partners, who hastily agreed to lopsided deals in a bid to appease the mercurial President.He also returned to the hardball strategy Ottawa employed during Mr. Trump’s first term – hitting back at U.S. levies and holding out for a better deal, which ultimately proved successful.Now, that approach faces its ultimate test: whether it proves a turning point in Mr. Trump’s global trade war by showing that even a mid-size economy such as Canada’s can defy him – or leaves Ottawa to absorb escalating economic pain while other countries make deals to mitigate their own damage.To some who have dealt with the Trump administration in the past, Mr. Carney seems to have recognized a central reality of negotiating with the President: that readily giving in doesn’t necessarily result in better treatment but rather locks in concessions and leads to demands for more.“Canada has to be confident in walking away from a bad deal,” said Brian Clow, who served as U.S.-Canada relations adviser to former prime minister Justin Trudeau during Mr. Trump’s previous term. “If you let them push you around, if you just roll over to their demands, that’s not going to work for the country, not going to work for the economy, and the Canadian public doesn’t want that.”At least part of the gap between Canada’s defiance and the decision by some much larger economies to rush into punitive deals is the question of economic integration. Because Canada’s economy is so tightly tied to the U.S.’s, the stakes are much higher, as are the potential consequences of a bad deal.Carney pays tribute to 9/11 victims, says ‘our grief has not faded’For the European Union to accept U.S. tariffs on autos, for example, is economically difficult but ultimately survivable, said Nicolas Lamp, a German-Canadian former World Trade Organization official. For Canada, it could mean the eventual destruction of the industry.“It’s just much more existential in Canada’s case,” said Prof. Lamp, director of the Institute on Trade Policy at Queen’s University. “By keeping the trade relationship unsettled, Canada is accepting more short-term pain, but the benefit is not resigning itself to a longer-term death of its car industry.”Broadly, the deals agreed to last year by the EU, Japan, Britain and many others oblige these countries to accept higher U.S. trade barriers to their exports while lowering their own barriers for American imports.In some cases, countries agreed to let the U.S. set their trade policies. The deal with Malaysia, for instance, requires that Kuala Lumpur match U.S. tariffs on other countries and take action to stop other countries’ imports from out-competing American ones.While such sovereignty concerns weigh heavily on Canada, particularly after Mr. Trump’s “51st state” annexation rhetoric, other U.S. trading partners are driven by different imperatives.In Japan, for instance, the dominant concern is preserving the U.S.’s guarantee of military protection in a region with three nuclear-armed neighbours, said Tobias Harris, a Washington-based analyst who specializes in the country – even if it means accepting 15-per-cent tariffs on most America-bound exports.“There’s this engrained sense of ‘we are absolutely, 100-per-cent dependent on the U.S. for our security, so even if it’s uncomfortable, even if we have to swallow some things we’re not happy about, this is just the name of the game,’” he said.Open this photo in gallery:Donald Trump visits the U.S. Navy base in Yokosuka, Japan, last year.Evelyn Hockstein/ReutersIronically, however, Canada-U.S. economic integration also makes it easier for Ottawa to stand up to Mr. Trump. Imposing tariffs on Canada hurts consumers in the U.S., who rely heavily on their northern neighbours for petroleum and many other key goods.This helps explain why the President has so far exempted most Canadian and Mexican products covered by the U.S.-Mexico-Canada Agreement from his tariffs, said Kellie Meiman Hock, a Washington-based trade consultant. And his latest round of tariffs on Canada, announced this week, were relatively narrowly targeted. He even lifted earlier levies on some imports, such as cement.“Canada and Mexico are in a different position than other markets because of the USMCA carveout, because our markets are so integrated, and because the U.S. economy felt pain from the tariffs on them,” she said.Still, Mr. Carney’s method for handling Mr. Trump has careened between acquiescence and assertiveness.Over the past year-and-a-half, he made a string of concessions – on everything from the Digital Services Act to the Gordie Howe International Bridge – without receiving anything in exchange. But in trade talks, he spent months playing for time rather than scrambling to get a deal, and publicly criticized U.S. hegemony in his viral Davos speech earlier this year.Last month, he was prepared to accept an agreement that would have codified U.S. tariffs, and entailed more Canadian concessions on bilateral trade issues. But at the last minute, he pulled the plug after, he said, the U.S. abruptly made the deal harsher.So, for now, talks are frozen and both Mr. Trump’s tariffs and Mr. Carney’s retaliation remain in full force.Gus Carlson: Trump stumbles as flunkies around him give dumber and dumber adviceIt resembles the situation during the summer of 2018, during the talks that led to the USMCA, when Canada held out for a better deal and drew the ire of Mr. Trump and his subordinates. Ultimately, Ottawa emerged with an agreement that mostly left continental free trade intact.And it may be the other partner in that deal that will be the first counterpoint to Mr. Carney’s gambit. Mexico, which is still negotiating with the U.S., has taken a less confrontational tack. It has not retaliated against U.S. tariffs and its officials have been careful not to criticize Mr. Trump.“Mexico has chosen to play it more low-profile, but there still hasn’t been a resolution. So, it’s not clear which approach works better,” said Kenneth Smith Ramos, Mexico’s chief USMCA negotiator during Mr. Trump’s first term.Still, he said, Mexico can take a lesson from the Canada-U.S. negotiations: better not to make a quick agreement if it locks in bad terms. “If you give concessions up front, Trump is just going to pocket them and then ask for 10 times more.”