Canada Should Resist Trump Protectionism and Wait for New US Congress on Free Trade, Economist Argues

The Quick Take

• Economist William Watson argues Canada should not concede to Trump's protectionist trade demands
• A new US Congress may reassert free trade principles, offering Canada a stronger negotiating position
• Capitulating now risks entrenching permanent tariff barriers across auto, steel, and agriculture sectors

The debate over Canada's trade strategy amid US protectionism frames a critical choice in North American economic architecture. Watson's argument — that Canada should hold out rather than lock in unfavorable terms under Trump — reflects broader concern among Canadian economists that the CUSMA trade framework is under existential pressure from Washington's trade nationalism. The auto supply chain, softwood lumber, and agriculture sectors face ongoing tariff exposure that compounds quarterly for Canadian exporters.

Canadian exporters in the auto supply chain, softwood lumber, and agriculture (canola, beef) face ongoing tariff exposure if negotiations stall and tariffs are codified into a replacement framework. The Canadian dollar remains sensitive to US trade policy signals; prolonged uncertainty is broadly bearish for CAD and for equity sectors with significant US revenue exposure including Canadian banks, insurers, and manufacturers. However, holding out preserves optionality if the next Congress reverses the protectionist trajectory.

Watch November 2026 US midterm election outcomes and signals from Congressional trade committee leadership on tariff policy direction as the primary catalyst for Canada's trade calculus. Bank of Canada rate decisions will also reflect the trade policy uncertainty premium embedded in Canada's growth outlook. Any Canadian government statements on bilateral WTO dispute filings or counter-tariff implementation will signal whether patience is holding or the negotiating posture is shifting.

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