By Michael O’Neill

Canada and the US have been the best of friends since the Treaty of Ghent ended the War of 1812. At the time, the Americans were actually fighting the British, as Canada did not become a country until 1867. No one won—it ended in a stalemate.

That doesn’t mean there weren’t periods of tension. In the late 1960s and 1970s, President Richard Nixon had little time for Prime Minister Pierre Trudeau, as he was frustrated by Canada’s refusal to support the U.S. in Vietnam and its willingness to shelter American draft dodgers—part of Trudeau’s broader push for a more independent foreign policy.

Canada and the US have been at odds over softwood lumber since 1982. The US claims that Canada unfairly subsidizes softwood lumber, but World Trade Organization rulings and NAFTA Chapter 19 panels have gone against the Americans at least ten times.

In 2003, Prime Minister Jean Chrétien seriously annoyed George W. Bush when he refused to join in the US invasion of Iraq. His administration branded Canada as “unreliable.”

In 2018, President Trump took exception to Prime Minister Justin Trudeau saying “he wouldn’t be pushed around on tariffs.” Trump refused to sign the G-7 communiqué and called Trudeau “very dishonest and weak.”

It’s now 2025, Trump is back, Canada has a new Prime Minister, but the animosity remains.

The Enemy of Your Enemy is Your Friend
President Trump has managed to alienate much of the world—and nearly half of his own country. That’s not going to change. And he seems to have a special hate for Canada. He has gone out of his way to denigrate Canada, calling the country “a disaster, a laughingstock all over the world.” He claims that the US subsidizes the country to the tune of $200 billion/year, saying “if we don’t support them, they wouldn’t exist as a nation.” And despite that, he wants to make Canada the 51st state.

Trump often claims that the US doesn’t need anything from Canada. On February 2, 2025, he posted the following on his (un)TruthSocial account: “We don’t need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use.”

So, if the US doesn’t want what Canada has to offer, former Finance Minister Bill Morneau suggests bolstering trade with China. It is Canada’s second-largest trading partner, and it has an almost insatiable appetite for natural resources, minerals, agricultural products, and wood and pulp.

Previously, China was not considered in a favourable light due to human rights concerns, tariffs on Canadian canola and pork, and national security risks.

Arguably, the Trump administration poses the identical risks. Canada was hit with 25% tariffs on steel and aluminum, despite having a trade agreement signed by Trump. Human rights violations are rampant across America. Heavily armed Immigration and Customs Enforcement (ICE) officers are arresting and deporting immigrants, legal and otherwise, without due process.

Trump ordered the California National Guard and then active-duty marines to Los Angeles to quell protests against his heavy-handed actions, and his sycophantic Cabinet blesses every decision. He is no different from Xi Jinping, yet the Chinese President is considered a villain.

Equity Traders Wearing Blinders
The markets are rife with risk, but recent price action suggests otherwise. Trump’s “Liberation Day” tariffs were deemed illegal by the US Court of International Trade, but the ruling was put on hold pending further arguments in front of a Court of Appeals beginning July 31. That means the tariffs will continue to impact the global and US economy.

Equity traders do not appear perturbed. The S&P 500 index almost flirted with bear-market territory for a few moments on April 7, but the move was not sustained, so despite falling 20%, a bear market was avoided. The index has nearly recouped all the losses, but the issues that sparked the original sell-off have not gone away. Far from it. US inflation remains sticky. The May inflation numbers were a tad better than expected, but the data does not reflect the impact of tariffs, and many analysts expect higher numbers in future reports.

Tariffs, the 800-pound gorilla, are not going away, and that means higher prices for US consumers, slowing global growth, and weaker profits for corporations.

Geopolitical issues are another factor being ignored by traders. Russia and Ukraine have intensified hostilities, and there are rumours that Israel is preparing to bomb Iran’s nuclear facilities.

Greenback Trading Defensively
The US Dollar Index (DXY), down at 98.60, appears to have retreated due to improved risk sentiment stemming from the equity market rally. But there may be other factors at work. There is some speculation that rising US debt, which is nearing 100% of GDP, and animosity from tariffs has encouraged other countries to reduce US dollar holdings in favour of other currencies. The Canadian dollar is gaining in that environment, but the elevated risk of near-term cross-border trade disruptions with Canada’s most important trading partner suggests that any gains would not be sustainable.

It’s a mad, mad world when close friends become frenemies, a situation that is unlikely to change before November 7, 2028.