Trade Tensions – Why Can't We Be Friends?

We share the world's largest undefended border, have one of the most expansive trading relationships globally and deep historical ties. While the United States and Canada have had their fair share of trade-related tensions – from softwood lumber, digital taxation, dairy disputes and EV subsidies, these economic frictions raise a simple yet loaded question: Why can't we be friends?

Best Frenemies: A Trade Overview

It's worth noting that the U.S. and Canada are, in many ways, inseparable when it comes to trade. Canada was the largest trading partner of the United States in 2024, with two-way trade in goods and services hitting over $900 billion. Every day, goods worth over $2 billion cross our borders. Both nations simply rely on each other for agriculture, energy, manufacturing inputs and more.

So where do the tensions come from?

Tense Roots

1) Structural Industrial Differences

One recurring issue is how differently both countries manage key sectors of industry.

• Softwood Lumber: The USA has long argued that Canada unfairly subsidizes its lumber industry due to public ownership of forests and artificially low stumpage fees. Canada, however, denies this, citing a difference in market structures. The dispute has led to decades of tariffs, WTO complaints, and unresolved anger - essentially a Cold War of trade that shows no signs of thaw.

• Dairy, Eggs and Poultry Supply: Canada operates a highly controlled supply management system on these goods. It does so by utilizing quotas and high tariffs to protect domestic producers. U.S. exporters have repeatedly pushed for more access, arguing that Canadian protectionism suppresses free trade.

2) Protectionism, Populism and Politics

Unfortunately, politics often turn economic policy into a battleground – to which its citizens tend to suffer.

• In Canada, there's growing resistance to being pushed around by its big brother. Its political leaders often frame trade disputes as defending sovereignty, especially in sectors like agriculture, culture and environmental policy.

• In the USA, protectionism has increased in recent years, especially since the "America First" policies. This led to continuous tariffs on Canadian steel and aluminum in 2018, justified as 'National Security' - an argument that mystified many Canadians.

3) Green Economy and Industrial Policy Conflicts

The quick transition to a green economy has brought on new friction points.

• The United States Inflation Reduction Act (IRA), with its billions in subsidies for electric vehicles (EVs) and clean technologies predominantly tied to domestic production requirements - causing concern for Canada, which feared being left out of the supply chain and future investments.

• In response Canada has created its own clean-tech incentives, but there's growing anxiety over a subsidy race that could prove divisive and hinder cooperation.

Why These Disputes Persist

Trade relationships are like marriages - intensely intertwined and dependent on one another but occasionally frustrating. Our nations are economically entangled, but our respective interests, politics and industrial structures don't always align.

In other words, tensions are a symptom of how deeply intertwined the two economies are, not a sign of collapse.

So, Why Can't We Be Friends?

We can - but we'll fight like siblings.

Trade disputes between Canada and the USA are unlikely to ever disappear completely. As long as interests diverge, governments will continue to defend their industries, workers and voters. However, unlike trade conflicts between geopolitical rivals, our tensions will typically play out within a framework of legal norms, negotiation, and mutual respect.

Headlines may suggest a rocky relationship; however our fundamentals remain strong. But just like in any close relationship, disagreements are inevitable and often necessary to keep things balanced.