Senator Yuen Pau Woo

Speech to the East Asia Institute, National University of Singapore

Good afternoon. I would like to thank the East Asia Institute for inviting me to speak to you about the cosmic mystery of our time: What is the meaning of Donald Trump’s assault on the international economic order and how should countries respond? I am sure you have already been studying this conundrum, so I am going to offer you a perspective from America’s northern neighbour that may help you unravel the mystery.

There is a conceit among Canadian diplomats and politicians that any country seeking to understand the United States should start by talking to Canada, which is not only deeply integrated with the US economy but also has a shared history and a common socio-cultural lexicon. Canadians understand Americans because we watch their shows, imbibe their beer, vacation at their resorts, crave their attention, and not least, trade with them – big time. In 2024, total trade was in the order of about US$800b. Half of Canada’s global FDI stock is in the United States and about half of the FDI stock in Canada is from the US.  Every day, about 400,000 people cross the border between Canada and the US. If you still have any doubt about how close Canada is to the US, and unlike the rest of the world, I would just point out that it is the FIFA World Cup of SOCCER that the two countries are jointly hosting in 2026, not of FOOTBALL, which in Canada and the US is a sport that is closer to the World Wrestling Federation than it is to the Premier League.

For a long time, there was much truth to the notion that Canadians know the US better than any other nationality and that Canadian diplomats were more skilled in working the US political system than their counterparts in other embassies. This was certainly true during the Biden administration, which in its re-shoring industrial policies that foreshadowed Trump – such as the Inflation Reduction Act and various Buy America policies – allowed exemptions for Canada that other US allies could only look at with envy.

Those were the days. With Trump 2.0, Canada seems to not only have lost its special pleading powers with Washington DC but has been singled out for special opprobrium. When President Trump launched his tariff war on 1 February 2025, Canada was named along with China and Mexico as the first set of targets. Canada’s offence was, according to Trump, an uncontrolled flow of illegal immigrants and fentanyl across the northern border into the US. In fact, Canada accounted for under two percent of the fentanyl intercepted at the US border and while there has been some illegal migration going south to the United States, the much bigger issue from a Canadian perspective is the flow of asylum seekers and illegal guns heading North. 

While fentanyl and illegal immigration have remained a theme in the ongoing tariff war, President Trump’s complaints about Canada have evolved to include the charge that the United States is subsidizing Canada to the tune of about US$200b a year. How he came to that figure is part of the cosmic mystery that we are struggling to understand. If he is talking about the US trade deficit with Canada, well, that is closer to US$45b – setting aside the more important point that a trade deficit is not the same thing as a subsidy. The trade deficit largely boils down to energy products, with Canada exporting crude oil to American refineries at a discount compared to world prices. Perhaps that is the subsidy President Trump is referring to, but if so, it is operating in the opposite direction.

The most problematic issue in the current bilateral trade conflict, however, is President Trump’s call for Canada to become the “51^st State” of America. I have lived in Canada for 37 years and one of the first things I learned about the Canadian psyche is that it is defined by how Canadians believe they are not like Americans. In fact, one of the first parlour games I learned after immigrating to Canada in 1988 – on the eve of the Canada-US Free Trade Agreement – was to name the ways in which Canada was unlike the United States.

Many commentators have offered the old American dream of “manifest destiny” and the Monroe doctrine to explain Trump’s actions, and I don’t disagree with them. But whereas manifest destiny and the Monroe doctrine of the early 19^th century and its 20^th century variants were about territorial expansion and influence commensurate with rising American power, in the current context it is about territorial consolidation as a rearguard action against multipolarity. In other words, contemporary expressions of manifest destiny are about the decline of American power relative to the rest of the world. It is the old order fighting to remain relevant and Canada (perhaps Greenland as well) is seen by Washington as essential to maintaining the continental remnant of that old order.  Here I am channeling Gramsci, who reminds us that when “the old is dying and the new cannot be born. . .  a great variety of morbid symptoms appear.” He gives as good an explanation as any of the cosmic mystery of Donald Trump when he observes that during this interregnum, “the terrain is open to both new ideological constructions and regressive, reactionary movements. In this phase, one sees the emergence of charismatic figures, demagogues, and attempts to restore authority through coercion rather than consent.”

Trump’s musings about absorbing Canada as the 51^st state ignited an upsurge of nationalist sentiment across Canada that in turn ushered in a government that was less aligned with his right-wing agenda than he probably would have liked. The new Prime Minister Mark Carney brought his party back from the brink of electoral oblivion to secure a minority government, largely by campaigning on a platform of economic nationalism and responding to American threats with “elbows up.”

The anatomical reference is from Canada’s national obsession of ice hockey and the often-scrappy encounters that ensue when the national team plays against Team USA.

A former varsity hockey player, Prime Minister Carney has indeed been scrappy, imposing penalties against the United States in retaliation against each fresh round of tariffs launched by President Trump. On the heels of the Feb 1 US tariffs, Canada announced two rounds of retaliation, targeting US exports of orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper.

There was a 30-day pause in the February US tariffs, ostensibly to give time for Canada to solve the fentanyl and illegal immigration problem. That pause ended on 4 March with 10 percent tariffs on imports of Canadian oil and energy products and 25 percent tariffs on the remainder of imports. Canada retaliated immediately by imposing 25 percent tariffs on C$155 billion worth of imported goods from the United States.

Two days later, the White House amended the March 4 tariffs to exempt imports from Canada satisfying USMCA rules of origin requirements and to lower the tariff on potash to 10 percent.

In the weeks following, Canada retaliated with tariffs on USMCA non-compliant vehicles and non-Canadian and non-Mexican content in USMCA compliant vehicles, as well as US steel and aluminum products, plus other US goods such as tools, computers and servers, display monitors, sports equipment, and cast-iron products.

On 31 July, the White House issued an executive order increasing the tariffs on imports from Canada to 35 percent for products that do not comply with the USMCA rules of origin, effective August 1, 2025.  This order was made under the authority of the International Emergency Economic Powers Act (IEEPA), which the US Court of International Trade later found to be ultra vires. The court ordered the tariffs to be removed but that order was stayed by the Federal Court of Appeal pending a hearing.

Now, all of this took place in what might be considered as the first period of the metaphorical hockey game (there are three periods in a full game). If your head is spinning at the twists and turns during that period, don’t worry – cosmic mysteries are meant to confuse and confound. Most of us following the game were looking at each other at the end of the period wondering what the score was and who was ahead.

If “elbows up” characterized the first period of the Canada-US trade conflict, the second period can be better described as “ragging the puck.” This is another quaint hockey expression referring to a defensive style of play that passes the puck around for the sake of keeping possession, with no intention of trying to score a goal. If anything, Canada offered a number of important concessions during this period, including the repeal of the Digital Services Tax. The White House had previously instructed the US Trade Representative to examine the digital services taxes (DSTs) of various trading partners under Section 301 of the Trade Act of 1974. Canada preempted the investigation by eliminating the DST. Also, just a few weeks ago, the government removed retaliatory tariffs against many US exports, presumably to try and advance the prospects for a deal, but likely also because the tariffs were hurting Canadian businesses.

Repeal of the DST was not strictly part of the “tariff war” but rather represents part of a broader suite of non-trade related actions that Canada has taken to curry favour with Washington DC. For example, Canada not only committed to meet the NATO target of 2 percent of GDP in military spending by 2026 but pledged to increase that target to 5 percent by 2035. For reference, the ratio in 2024 was around 1.4 percent, so that would mean a $14b increase in defense spending in 2025/26. It would have been difficult for Canada to not join other NATO members in pledging an immediate increase to 2% and Ottawa had to do so as much to avoid unwanted attention from Trump as to try and win brownie points from him. The 5% pledge, on the other hand, can best be understood as an attention seeking move, albeit with lots of nuance as to the underlying and longer-term motivations.

There are other instances of Canadian adjustment to US interests, including on the issue of border security to deal with the so-called problem of fentanyl and illegal migrants entering the United States. But it extends also to foreign affairs more generally, such as in the aversion to speak out against Israeli atrocities in Gaza for fear of attracting the ire of President Trump. When a Canadian judge at the International Criminal Court was sanctioned recently by the United States (for doing her job), the best the Minister of Foreign Affairs could say was that the government had “utmost confidence” in the judge, without any reference to the illegality of American sanctions. 

At the G7 Leaders Meeting in June of this year, Prime Minister Carney and President Trump set a deadline of 1 August to conclude a bilateral trade deal. With no deal reached by that date, the tariff on Canadian goods was increased from 25% to 35%. However, as with tariffs announced on Canadian goods in March 2025, goods qualifying for preferential tariff treatment under USMCA will be exempted from the broad-based 35% tariff. That amounts to the vast majority of Canadian goods imported into the US. However, steel and aluminum tariffs remain in place, as does a new 50% tariff on all imports of semi-finished copper products and increased tariffs on softwood lumber.

The passing of the 1 August deadline – with no deal – marked the start of what I consider to be the Third Period of the US-Canada tariff war. It is not clear if Team Canada is trying to score a goal or end the game on the current scoreline. After all, the exemption of most goods from US tariffs – because of USMCA – puts Canada in a much better position than most countries. Even so, the special tariffs on aluminum, steel, and softwood lumber are causing significant hardship in those sectors of the Canadian economy.  And the uncertainty around new tariffs and other forms of economic coercion are sapping business and consumer confidence.

Recent comments from PM Carney indicate that the government expects the current suite of US tariffs to remain, with no breakthrough in the offing. That suggests to me that the third period is effectively over and that both sides are preparing for a fresh match.

That fresh match would be the mandatory review of the USMCA that is scheduled for 2026. 

The way the review works is that each party must indicate at the end of each six-year anniversary if it wants to continue to be party to the agreement. The next anniversary is 1 July 2026. If all three countries agree, the agreement is in effect for another 16 years. If one or more party declines, a ten-year countdown to the termination of the agreement is set in motion. While there is an orderliness to this process, any triggering of the termination clause will have an impact well before ten years. In practice, the review mechanism is a way for the parties (chiefly the United States) to use each six-year interval as an opportunity to renegotiate the deal, using withdrawal as a threat. That is almost certainly the intention of President Trump in the 2026 review. But even in the absence of this review mechanism, the United States has not been reticent in circumventing the provisions of USMCA by invoking Section 232 of the Trade Expansion Act or the IEEPA and he could very well continue to do so under a renewed agreement. In just under a year, Mexico and Canada could find themselves in a situation where the benefits and protections of USMCA have been further eroded either through coercive renegotiation of or blatant disregard for the agreement.

And yet, there is an important strand in Canadian elite opinion that is advocating for even deeper North American integration as a response to the Trump tariff threat. Sometimes framed as a further evolution of NAFTA and at other times seen more narrowly as a Canada-US only project, this view has been described as “Fortress North America,” a “Grand Bargain” or an “Economic and Security Pact” that is designed to boost competitiveness and reduce dependence on China, especially for critical minerals. One prominent proponent of the Grand Bargain puts it this way: “Rather than engaging in another round of asymmetrical USMCA renegotiation, Canada could push for a Grand Bargain – a more ambitious, comprehensive negotiation that incorporates many unresolved bilateral issues and shared opportunities. Such an agreement could include areas like critical minerals and energy, border and continental security, defense spending, softwood lumber, food and water security, cross-border infrastructure, and regulatory alignment.”

Much of this thinking is premised on a United States that respects the comparative advantage of its neighbours and does not seek to induce or force manufacturing in those countries to relocate to the United States. It also presumes that a North American production platform is outward oriented and interested in being competitive in fast growing markets such as Asia and Africa, as opposed to being a largely closed continental market with the US at the center and Canada/Mexico on the periphery. Depending on the size of external tariffs and internal policies driven by the lead economy, a Fortress North America could be extremely competitive in global markets, or it could be moribund and sclerotic inside a protective economic bubble. On the current record, it seems fanciful to imagine that the United States would not seek to privilege its own interests above those of Canada and Mexico in any Grand Bargain or Fortress North America. It is perhaps precisely this kind of center-periphery economic dependency in North America that President Trump is seeking to cultivate. 

After all, what is Canada’s value as a 51^st state if it doesn’t provide net benefits to the 50 other states (or the favoured states among the 50)? If Canada can in fact be a source of critical minerals for North American supply chains, will it only supply the clean energy and raw materials that the US needs, or is there room for Canada to be involved in valued-added activity? And if North American tariffs are set at levels that stifle competition and inhibit innovation, which external markets will North American products be able to access competitively? The case of EVs is an excellent example, where Fortress North America proponents imagine developing a world-class EV supply chain behind high tariff walls and expect to produce vehicles that can compete with EVs from other countries (notably China) that are already years ahead of North American products. It is not that a Fortress North America will mean the end of trans-Pacific ties, but it will almost certainly mean a trans-Pacific relationship that is premised on US priorities.

An alternative vision would see Canada protect its access to the North American market to the extent that it can but actively seek new trading relationships in Europe, Asia, Africa, and Latin America. Canada is fortunate to have trade agreements with the EU and with many Asian countries through the CPTPP. Ottawa is also in the late stages of concluding a deal with ASEAN. This idea of economic diversification has been a long-standing staple of Canadian trade policy, with periodic bursts of political energy seeking to spur Canadian businesses to venture to markets beyond North America. We are currently in one of those periods and are witnessing what is arguably the most vigorous effort to pivot away from the United States since the Canada-US Free Trade Agreement. My trip to the region is a small part of that pivot, as I am on my way to Kuala Lumpur for meetings with parliamentarians from ASEAN countries. As an independent senator, I do not represent the Government of Canada and am not aligned with any of the political parties in Parliament, so I’d like to think that I can offer a dispassionate analysis of Canada’s efforts to engage more deeply with this part of the world.

And my dispassionate analysis is this:

For all the emphasis on not becoming the 51^st state, Canada’s response to the US tariff threat and its effort to diversify to other markets, especially in Asia, is premised on 51^st state thinking.  At the core of the plea that Canadian political and business leaders are making to Washington DC is the idea that we are still their most trusted friend and ally, and that if only they understood it and embraced Canada more closely, we would have a better and more sustainable economic relationship. It is the international relations equivalent of battered spouse syndrome. 

Despite the talk about diversification, Canada is fundamentally seeking to align even more closely with the United States by supporting its domestic and foreign policy objectives, especially when it comes to competition with China. Provincial premiers who were in Washington DC earlier this year told US interlocuters that Canada was ready to join the US in treating China as a “common enemy.” Canada certainly has differences with China that we need to work out bilaterally, but to volunteer for service as America’s henchman against the PRC is as self-defeating for our relationship with Washington as it is for our relationship with Beijing. 

And that is exactly what happened when Canada imposed a 100% tariff on Chinese EVs in lock step with the Americans, without any meaningful investigation of Chinese state subsidies and dumping. Ottawa did not get the reward it had hoped from the United States for taking this action but rather attracted the ire of the Chinese, which slapped retaliatory tariffs on Canadian canola, pork, and seafood products. It was the worst of both worlds.

Canada’s recent engagement in Asia has much the same quality. The so-called Indo-Pacific Strategy is premised on US primacy and priorities in the region, especially when it comes to China. Canada’s IPS is essentially an Asia minus China strategy, in that many programs under the strategy – for example, fellowships and exchanges – exclude participation of the PRC. It stems from the very framing of the IPS document, which goes out of its way to describe China as a “disruptive power.” This kind of language is not found even in the IPS documents of East Asian countries for which Chinese disruption is real and consequential. That Canada would feel the need to include this phrase in its IPS says a lot about US influence on Canadian strategic thinking. Insofar as “disruption” to the Canadian economy is concerned, it should be obvious that the threat is much closer to home, but to say as much in a public strategy document would be gratuitous and counterproductive. 

I have spent years calling on the Canadian government to put more focus on Asia and I applaud the stepped-up political and economic attention on the region that has come with Canada’s Indo-Pacific Strategy. The increase attention to ASEAN is especially noteworthy, including the recognition of ASEAN centrality and the opening of full diplomatic missions in Cambodia and Laos. The reasons for Canada to engage more deeply with India, Southeast Asia, Japan, and Korea should be based on the intrinsic qualities and potential of these markets rather than as an alternative to engaging with China or as a way of containing China’s economic rise.  To do the latter would be to align with US priorities, which is counterproductive for Canada’s ambitions in the region, given that most Asian countries are going in a fundamentally different direction from the United States. 

I am honoured to share my thoughts today with the East Asia Institute in Singapore, which I see as a center of clear-eyed research and analysis that is not only knowledgeable about the region but also committed to its success. I understand that Ottawa has just launched a review of its Indo Pacific Strategy, and I can only hope that Canadian senior officials will listen carefully to experts in the region, such as those of you in the room today, and not just to the echo chambers of North American and Atlanticist groups that are mostly interested in protecting the old order.

To end, let me return to the cosmic mystery that we are all trying to unravel by quoting the mystic himself, who often ends his letters and posts with a cryptic expression of gratitude, which I also offer to you today:

“Thank you for your attention to this matter.”