Canada, the world’s ninth-largest economy with a GDP of $2.117 trillion, is expected to elect Mark Carney as prime minister on Monday. But Carney’s success is impossible to understand absent the trade war initiated by U.S. President Donald Trump. Canada’s economy is tightly connected to the United States, and tensions between the two countries have rarely been higher. Carney has promised to push back on Trump and reconsider the relationship.

Has Trump’s trade war against Canada been effective? Why does Canada have trade barriers between its provinces? And how does Canada reconcile its fossil fuel economy with its commitment to climate policy?

Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt,

edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get

your podcasts. And check out Adam’s Substack newsletter.

Cameron Abadi: As a matter of U.S. policy, is Trump’s trade war with Canada working, by pushing Canada toward recession? Or are the politics actually working against the U.S., with Carney vowing to lead a fight against the United States?

Adam Tooze: The big issues in the election until Trump came on the scene were slow growth, cost of living, and cost of housing in particular. And now Trump emerges on the scene, and the risk really is of recession. Why? It’s simply because Canada’s economy is so heavily exposed to the U.S. So the U.S. share of Canadian GDP as measured by the share of exports to the U.S. is over 20 percent. That’s similar to Mexico’s exposure, and it’s seven times greater than China’s exposure to the U.S. So that’s the risk. And so if there was a severe blow to those exports, it would really, really hurt the Canadian economy. There are some economists predicting full-on recession by the second half of the year. And all it takes is for that kind of low-ebb lack of confidence to ripple through the Canadian economy and that by itself will damage Canada’s prospects. We could be in a full-blown recession by the end of the year or next year. That’s measured by economists in terms of GDP falling over a period of several quarters, so for more than six months.

Over the long run, which is perhaps even more ominous, a decoupling of the Canadian and the U.S. economies would probably reduce the Canadian growth rate from a modest, say, 1.9 percent—according to the Oxford Analytica outfit, which is one of the leading private-sector commentators on these kind of things—from 1.9 to like 1.1 percent per annum growth. So this would be really bad news. The thing is, though, that Canada actually has leverage. One of the weird scatter-shock aspects of Trump’s trade policy is that though Canada has a trade surplus with the U.S., and so therefore it’s on Trump’s shit list, once you strip energy out and oil is exported from Canada to the U.S. along the border, it’s actually the U.S. which has a trade surplus with Canada. So Canada actually has two different types of leverage over the U.S. One is that America clearly wants the oil, and Trump immediately started negotiating or just declaring exemptions for that. And on the other hand, on net America’s manufacturers and agriculture actually have a trade surplus with Canada.

And that’s really, as you were saying, what has pivoted Canadian politics, which is how are they going to use that leverage to strike back? And indeed, what this has produced is, on both sides of the political spectrum, a major pushback against the U.S. And this has flipped the prospects for the Canadian election from one in which the Liberal Party of former Prime Minister [Justin] Trudeau really was reckoned to have zero chance of prevailing to one in which Mark Carney, the former governor of the Bank of Canada and of the Bank of England, a leading global economic technocrat, has emerged as, in fact, the front-runner for the Liberal Party that were in the doldrums under Trudeau.

CA: So we shouldn’t think of Canada’s Liberal Party as having any kind of aversion to traditional nationalistic politics?

AT: On the contrary. I mean, in some senses, it is the party that made Canada, if you like. That’s too strong a statement; Canadian history is really complicated, as I’ve been learning fast. But for most of Canada’s history, the Liberal Party has been seen as the dominant party. And so it’s very closely associated with the Canadian national cause, if you like. Also with the deep problems of the relationship between the formerly English majority, British majority, and the French-Canadian minority, it has been the party that sculpted many of the absolutely key compromises out of which modern Canada has emerged since the 1860s. And so, yes, one should see it as very much a party that can wave the flag.

CA: Mark Carney declared upon taking office as prime minister that he would strengthen the Canadian economy by lowering trade barriers between Canadian provinces. And I thought that was interesting because I didn’t know that there were trade barriers between the provinces of Canada to begin with. How significant are these trade barriers within Canada—and what do those barriers reveal about the kind of state that Canada is?

AT: Yes, so Canada is a federation, a very loose federation. None of Canada’s constitutional documents actually specifies free trade as a requirement. The country is also, of course, characterized by its settler colonial demography and geography. Canada has one of the lowest population densities of the world, 4.2 people per square kilometer. That compares to 25 in Brazil, 98 in the U.S., 241 in Germany, right? So hugely different. I mean, there’s a lot of kind of [data] online which I’m a little cautious about quoting, but it said that 90 percent of Canada’s population lives essentially within 100 to 150 miles of the border with the United States, in six big urban clusters, right? So from Vancouver at the one end to Halifax on the other with Windsor, Quebec, as the key central node up against, you know, Michigan and so on. And so the result of this and the huge expanse of Canada is that, in fact, there is less interprovincial trade in Canada than there is trade between Canada and the United States. Which, again, it’s a fact so startling. The two-way trade with the U.S. is rated at a trillion dollars in 2023. The two-way trade of goods and services between these six clusters of Canadian population strung along the demarcation with the United States is only rated at $532 billion. So there is more north-south traffic than there is east-west traffic across the breadth of Canada. Really fascinating economic geography to get one’s head around.

So those interprovincial obstacles to trade are, in part, legislative. It’s largely to do with regulation. It is about licensing and things like this. It isn’t actual tariffs when we talk about this. It’s to do with regulations, whether you have the permit to do something in one province that you have in another province. And it’s also just simply the geographical obstacles of moving things and goods and services across this huge continental expanse, essentially along the thin line of settlement in the southern portion of this giant country. So it’s about state safety certification, regulatory and administrative difficulties.

But there is huge potential here. Estimates vary from 3 or 4 or 5 percent of GDP to something much larger, 20 percent of the GDP, I’ve seen, through the intensification of trade across Canada. That’s why it’s a topic. And it reflects this long history of state-making and the geopolitics, one has to say, right? The internal geopolitics of a settler colonial project, which is now, of course, also a globalized hub of global migration. Forty million people with a very large foreign-born share, 20 percent-plus now, across this territory that is still in the process, really, of consolidating into a nation-state.

CA: It sounds like you’re suggesting that the provinces of Canada are less economically integrated than the various countries of the European Union as a whole.

AT: Oh, significantly so—much, much less so. And however closely, as is the case with the countries of the European Union, quite closely integrated in some cases at the level of the supply chain with their neighboring manufacturing hubs in the United States. Often this goes back to World War II, when, in the World War II alliance, the supply chain was built very explicitly within the Anglo-American industrial complex or the Canadian-American industrial complex across those boundaries. I mean, what this is telling us is that proximity and economic intensity are the key drivers of trade. And when those two things come together, as in Europe, you get these astronomical levels of integration, extraordinary, you know, more than 100 percent of GDP going back and forth in terms of trade. Whereas when you have vast differences separating and relatively similar zones of economic activity, you don’t necessarily get those kind of densities of exchange. You know, again, Latin America comes to mind, or specifically South America comes to mind where, over the vast distances of the South American continent, there’s very remarkably little integration between Brazil and Argentina compared to, say, Brazil’s trading relationship with China. Or the same is true for the African continent, as well, where it’s incredibly difficult to move goods and people between countries on the African continent, but several of the African economies are quite densely connected with the global economy through exports. So yeah, trade and economic geography operate in fascinating ways.

CA: From an American perspective, we tend to think of Canada as a liberal country, broadly speaking, including a commitment to climate policy as reflected in international agreements. But how does that relate to its fossil fuel economy?

AT: I mean, looking in from the outside, Canada seems to be a sort of weird hybrid of a North American-style politics of climate and a European-style politics of climate, sort of sandwiched and combined in the same country.

Mark Carney himself exemplifies this because, you know, he’s perhaps the world’s leading green finance guru. I mean, it was Carney that in 2015 between the Sustainable Development Goals Summit in the U.N. and the Paris Accords and, you know, that dramatic fall of 2015 as governor of the Bank of England, at Lloyd’s, the big insurance market, he gave this famous speech called the tragedy of the horizon—I actually wrote a piece about it for Foreign Policy years ago—which was about the dilemmas posed for finance by climate change. And he really opened that entire debate about the role of the financial regulators, banks, insurers, central banks in dealing with the climate crisis.

So that is one side of Canada and the Liberal Party of Canada, and Carney really personifies that. And on the other hand, there are large parts of Canada which are North American. They’re part of the tar sands, some of the dirtiest oil in the world. I mean, it’s overblown as part of the Canadian economy. It’s only 5 percent altogether, natural resource rents as a share of the Canadian economy. The oil and gas components closer to like 3 percent. So this is not a dominant sector, but we know the way in which, in the political imagination, a sector like this, as we’re experiencing in manufacturing and steel in the U.S., can become emblematic of what Canada is.

And if you look at Canadian politics and polling, you’re really seeing a division along lines which are so familiar from the other side of the border, right? So among the liberal voters, there is absolutely solid, hegemonic support for climate as a key concern. Looking at Quebec, 84 percent of people polled there think climate is a big issue. You go to Alberta, and you’re down at 55 percent. If you ask in the current moment who supports carbon taxes, it’s 70 percent-plus of liberals and 13 percent of conservatives in Canada right now. Is climate a big issue? For 20 percent of Canadian voters, it is. These are kind of European-style numbers, right? Whereas 60 percent of Canadian voters consider the cost of living crisis the absolute priority.