By Jacob Shapiro (originally published at GoldSeek)

The United States has existed as an independent republic for 250 years—and for 164 of those years, its most serious geopolitical threat was Canada. The young republic launched the War of 1812 against British-controlled Canada in an attempt at conquest, and failed. As late as 1935, the US was still drafting war plans against its polite northern neighbor. War Plan Red is worth a read. Today, American anxieties center on China, Russia, and Iran, yet none of these rivals matches the seriousness of the threat that once sat across the longest international land border in the world.

The Situation

It is easy to forget that history, because for the past 86 years the US and Canada have been close allies bound together by deep economic integration.

In 2025, roughly $2.4 billion in goods and services crossed the border every day, supported by interlocking supply chains in energy, autos, and agriculture. Total two-way trade reached approximately $877 billion, making Canada the largest export market for the United States and its second-largest source of imports. Canada also supplies 64% of US crude oil imports, up from 41% a decade ago.

Measured as a share of each country's trade, the dependence is asymmetric. In 2025, 73% of Canadian exports went to the US, and 46% of its imports came from the US. Canada, by contrast, accounted for 15% of total US exports and 11% of US imports last year. That asymmetry matters, and we will return to it.

Trade agreements structure the relationship, but its real foundation is physical: pipelines, factories, farms, and logistics networks that straddle the border and cannot be cheaply replicated. In good times, these linkages deliver connectivity, efficiency, and security. In times of trade tension, they mostly hurt Canada.

As Louis Gave observed in his research note on the investment consequences of the trade spat, Canada's comparative advantage lies in extracting things from the ground—oil, natural gas, gold, wheat, potash—but geography forces its producers to sell at a discount to a single buyer. That dependence runs downstream, too: Canada is the world's largest potash producer, and US farmers rely heavily on Canadian supply for fertilizer, meaning disruptions in this trade would feed through to American agricultural input costs. Canada accepted that arrangement willingly, resting on the strength of the postwar relationship. That choice is now backfiring, as an aggressive US government rewrites the terms of trade in its own favor and asserts a de facto veto over Canadian trade with anyone else. That veto is reportedly among the sticking points behind the weekend's breakdown in negotiations.

Broken Forecast

At the start of the year, I predicted that the US-Canada trade soap opera would be loud and melodramatic but would end in a successful USMCA renegotiation. It is officially time to admit that forecast is broken. On July 1, the US declined to renew the USMCA in its current form, over Mexican and Canadian objections. That did not kill the agreement, but it opened it to annual review and permanent renegotiation.

Such uncertainty is chilling for trade and investment, and until this past weekend I treated it as negotiating posture. It still could be—Canadian retaliatory tariffs do not take effect until September 1, and the US government is mercurial enough to reverse course before you finish reading this. But Prime Minister Mark Carney's rhetoric and policies suggest Canada is now operating on a war footing. Carney has declared that US promises are "written in pencil" and that Canada has found reliable partners around the world "except in the US and Russia." Ottawa has also unveiled a $7.5 billion package to shield Canadian businesses and workers from the tariffs.

A True Break in US-Canada Relations

It has been a busy year: the capture and removal of Nicolás Maduro, the US/Israel-Iran war, the worst Ebola outbreak on record, a grinding war in Ukraine. Even so, a genuine break in US-Canada relations would be the most consequential geopolitical event of the year—and a major failure of the Trump administration's professed hemispheric policy, the updated Monroe Doctrine it promoted earlier this year as the "Trump Corollary."

Since 1940, the US has not had to worry about its northern border. Canadian troops fought alongside American troops in World War II, the Korean War, the First Gulf War, and Afghanistan. The North American Aerospace Defense Command (NORAD) blunted the Soviet threat to North America throughout the Cold War. There is no way to put a price on what it has meant for the US to be free of worry about the country that, for most of its history, posed the greatest threat.

These are all reasons to expect the spat to resolve itself eventually, as is the fact that some of the proposed tariffs make little sense. A 50% tariff on cars imported from Canada—which carry substantial US content—would impose major costs on the US economy and hand an opening to Korean, Japanese, and European automakers, currently tariffed at 15%.

Still, a good analyst must concede that strategic logic does not govern the actors involved. The Trump administration believes Canada discriminates against US commerce, reads the goods deficit as a sign of weakness, and assumes its overwhelming leverage should end with Canada accepting whatever the US demands. (Source: Pew Research)

Whose Threshold Is Higher?

To be frank, a plain reading of the asymmetry supports that assumption. But politics is about more than numbers. The key to what happens next is simple to name and hard to measure: pain tolerance.

Carney has played a weak hand masterfully, galvanizing Canadian patriotic sentiment in support of the extremely painful choices a true break requires. To be fair, President Trump is giving him plenty of material. For Canada, this is an existential issue: the US is attacking its sovereignty because it believes it can, and 76% of Canadians said in a recent poll that they supported ending negotiations without a deal.

By comparison, almost 60% of Americans oppose tariffs on Canada, and 80% hold a favorable view of their northern neighbor. Remember, too, that tariffs are a euphemism for taxes. Americans have record-low trust in their political institutions and contend daily with failing infrastructure and rising prices, even as data centers rise in their backyards and billionaires flip $10 billion sports franchises. Inflation is already trending upward, prices are set to rise further due to the intermittent closure of the Strait of Hormuz and El Niño, and tariffs on Canada will push consumer prices higher still.

Carney is making a high-stakes gamble. He is betting the house on Canadians rallying around him—not just in words, but in what they buy, where they spend, and what they build.

Ironically, the harder the US tries to bring Carney to heel, the more it strengthens his support at home. His wager is that Canada's tolerance for the pain of a prolonged trade dispute—and the damage will be significant—will outlast that of the median US voter, who will punish Trump and his allies at the ballot box and force a concession, all while Carney spends to reduce Canadian dependence on the US.

It is a bold attempt to defy Canada's constraints. But the US should know better than anyone that ideas outrun trade statistics; it owes its existence to one. It took 250 years, but perhaps the American Revolution has finally arrived in Ottawa.

Map/Chart of the Week: Blind Spot

A tip of the hat to the team at International Intrigue, whose daily newsletter is essential reading. They flagged a story I missed last week: Israel claimed responsibility for striking an abandoned Assad-era airbase near Aleppo. Israel says the strike responded to Syria's willingness to let Turkey deploy troops there, in violation of previous Israeli-Syrian understandings.

In recent decades Israel has focused myopically on Iran, a country too distant to pose an existential threat. So intent on dismantling Iran's proxies—Hamas, Hezbollah, the Assad regime—it failed to see who would fill the vacuum: Turkey.

Netanyahu built a career on that fear, casting himself as the only Israeli leader capable of stopping Iran. Naftali Bennett appears to have taken notes: even as the new US/Israel-Iran war was escalating, the former prime minister declared that "Turkey is the new Iran" and that Israel should concentrate on Turkish power in Syria and the region. Turkey condemned the strikes but—despite the 100-plus military outposts it already maintains across northern Syria—has declined to cross Israel's red line, for now.

The US criticized the Israeli attack as unnecessary. In the days since, Israel and Syria have moved to defuse tensions. The US has made a point of repairing ties with Syria; this week the Treasury Department delisted al-Nusrah, the al-Qaeda offshoot that later became HTS, as a terrorist organization. In other words, the US is slapping tariffs on Canada while legitimizing an al-Qaeda-derived group in the Middle East. These are strange times.

Make no mistake, though: Turkey is expanding into the vacuum left by Iran's weakness—and unlike Iran, which propped up minority Shiite groups in Sunni-dominated areas, Turkey is Sunni itself.

About the Author

Jacob Shapiro is an independent geopolitical analyst who helps investors and executive teams understand how a multipolar world is reshaping markets and strategy. He provides bespoke research, private briefings, and keynote presentations for clients ranging from investment firms to corporate leadership teams. He publishes his free newsletter, The World Isn't Ending, at Mauldin Economics and hosts The Jacob Shapiro Podcast, featuring long-form interviews on geopolitics, markets, and global risk. He lives in New Orleans with his wife and two daughters.