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(Bloomberg) — It was -20C (-4F) in Ottawa on the night of Feb. 1, one of the most bitterly cold days in Canada’s winter of discontent. Shortly after 9 p.m., in a historic government building known as the West Block, Justin Trudeau walked to a lectern placed in front of four Canadian flags. Everyone had been waiting for hours to hear how he planned to respond to US President Donald Trump’s Mar-a-Lago broadside.

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Trudeau did something unusual. He began talking about war, and history. Saying that he wanted to speak to Americans directly, he quoted John F. Kennedy, reminded people that Canada helped try to free US hostages in Iran in 1979, and spoke of the Canadian soldiers who were left to bleed to their deaths in Afghanistan after 9/11. “From the beaches of Normandy to the mountains of the Korean Peninsula, from the fields of Flanders to the streets of Kandahar, we have fought and died alongside you,” he said.

But the prime minister’s main audience was not US television viewers. By invoking Canada’s military past, Trudeau was also trying to achieve something he has struggled to do as his political capital dwindled over the past few years. He was trying to stir patriotism and unity among Canadians, while stoking their outrage at Trump’s decision to break the countries’ trade arrangement. He wanted them to feel pride and anger at the same time.

Trudeau struck back at the US, saying that Canada would put its own 25% tariffs on thousands of US products — Harley Davidsons and Tropicana orange juice and yes, Elon Musk’s Teslas. Two days later, the countries declared a short-term truce after Trudeau agreed to extra measures to stamp out drug trafficking, Trump’s stated reason for putting tariffs against Canada and Mexico.

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The 30-day tariff delay does a lot to minimize the immediate damage to Canada’s economy. It does little to stem Canadians’ fury and bewilderment — because that part isn’t about trade, really.

In December, when it emerged that Trump had poked Trudeau over dinner in south Florida about Canada becoming the 51st state, Canadians mostly took it as a joke. When Trump kept going with social media posts mocking the longest-serving leader in the Group of Seven as “Governor” Trudeau, they saw it as punching down. By this point, the prime minister was a spent force, politically.

Trudeau announced his resignation on Jan. 6. The country was still vibrating from that news the following day when Trump gave a press conference about buying Greenland, taking the Panama Canal and using “economic force” to absorb Canada into the US.

In Canada, a switch was flipped on Jan. 7: Oh, he means it.

And as Trump has continued to throw the 51st state jab — accompanied by a carousel of grievances about the trade deficit, the border, and the fact that Canada manufactures cars — the relationship between two of the closest democratic allies of the postwar era has ruptured. No matter what happens with trade and tariffs, the damage may last for a generation, especially if Trump persists.

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“It’s not just because this is how he does business, this is how he negotiates,” said Lori Turnbull, a professor in the faculty of management at Dalhousie University in Halifax, Nova Scotia. “There’s every reason to think that he is looking at the resources Canada has — whether it’s energy, water — he’s looking at that and thinking, ‘Why do we have barriers to that at all?’”

Political Theater

It has been a dizzying month since that news conference. Canadian politics has been turned upside down. The contest to replace Trudeau as prime minister now turns on the question of who is best to manage the Trump Factor. The leading Liberal Party contenders — Mark Carney, the former central banker, and Chrystia Freeland, the former finance minister — take turns using ever more heated language to denounce Trump and to promise a strategy that will protect Canadian sovereignty.

Pierre Poilievre, a combative and social-media-savvy conservative, looked to be on a path to an easy win over the Liberals as long as Trudeau stuck around. He’s still the favorite to win the national election that may come as early as April, but some recent polls suggest there’s movement against him. 

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Poilievre, 45, is easily the most sure-footed Conservative Party politician since Stephen Harper, who governed for almost a decade before he was bested by Trudeau in 2015. He understands policy, speaks to economic issues that people care about, and is skilled at turning a tough question into his favorite talking points. He’s a patriotic Canadian who has been trying on “Canada First” as his new motto lately. If he has a problem, it’s that nobody has any idea how he would handle being bullied over dinner at Mar-a-Lago.

“The election is no longer about Trudeau, it’s no longer about a carbon tax. It is about a much more existential question, about what’s best for Canada and who is best to do that,” Turnbull said. “That could split all kinds of ways.”

Ontario Premier Doug Ford, who was caught on a hot mic saying that he was happy when Trump won in November, saw an opportunity in the trade crisis to call an early election. He’s now campaigning for a third term and is likely to win a huge majority by running against an opponent who’s not on the ballot — Trump.

“I love the Americans, I love the US,” Ford, a former businessman who had corporate interests in Chicago, said in an interview with Bloomberg shortly before Christmas. “I just look forward to a rewarding business relationship, back and forth across the border.”

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And there was Ford again on Monday, saying that he would bar all US companies, including Musk’s Starlink, from getting government contracts. “No matter if we’re building a hospital, if we’re building anything — we could be building a doghouse — I want to make sure that we’re using Ontario steel, Canadian products.” As he spoke, the managers of the government-controlled liquor distributor were readying to pull bottles of Jack Daniels and California pinot noir off the shelves — with the television cameras invited to record it.

Some of this is simply political theater. Trudeau, Ford and every economist understand how vulnerable Canada is in a trade war with its largest trading partner. Fully three-quarters of Canadian exports go to the US, with some of the biggest products being oil, gas and the Ontario-made auto parts and vehicles that Trump dislikes so much. Ontario’s worst-case projection for a trade war that hammers its auto sector is 500,000 lost jobs. That would be about 1 in every 16 working people in the province.

Canada was lulled into complacency by decades of relatively low-friction trade with the world’s largest economy and by an early-century oil boom — before the US shale revolution — that briefly gave Canadians the false impression that they were indispensable to American economic power. For years, the goal was to build more and bigger oil and gas pipelines going south.

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That old-economy bet doesn’t look so good today. The US technology sector is riding a wave, or perhaps a mania, of enthusiasm for artificial intelligence, led by trillion-dollar companies. Canada boasts some promising startups and excellent universities — the most recent Nobel Prize for physics went to a University of Toronto professor — but just one tech company worth more than $100 billion. As good as Canadians are at digging Earth’s treasures out of the ground, they’ve been even better at allowing foreigners to snap up their best companies, brightest talent, and most important research and intellectual property. 

“Is our economic structure too close to Russia’s? The shame of that is we have tremendous potential to be much, much more than that,” said Jim Balsillie, the former co-chief executive officer of BlackBerry Ltd., once the world’s most valuable smartphone company. “So, I don’t think we should consign ourselves to be a low-value-added petrostate, selling a few other resources and a bit of agriculture.”   

Balsillie said that while Canada was busy extolling the virtues of liberalized global trade and trying to expand commodity production, the US was focused on owning intellectual property, controlling data, and changing the rules to make “free trade” less free. Deals like the US-Mexico-Canada Agreement, which Trump signed in 2020, are less about promoting tariff-free exchange and more about exerting “strategic behavior” that strengthens US dominance.

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“I read agreements, and I know how Americans work,” Balsillie said.

Canada’s Identity

So, Canada has woken up. If the US won’t honor its treaties, the northern nation of more than 41 million people will have to rethink, well, just about every basic assumption they’ve held about economics and security since at least the 1980s. Robert Asselin, one of Trudeau’s former advisers, calls it a “Sputnik moment.” Promoting exports is out. Self-reliance is in.

In his view, Canada needs its own version of DARPA, the technology research agency launched by the US Defense Department after the Soviet Union launched the first satellite in the late 1950s. That means a concerted government push to bring more investment in Canadian-owned tech, defense, energy and AI.  

“You need a technology strategy,” said Asselin, now a policy adviser to the Business Council of Canada. “Other countries have done it, and there there’s no ingredients we don’t have to make it work.”

Ideas once left for dead are now getting another look. Energy East, an ambitious plan for a pipeline to pump crude oil from Alberta to Quebec, was shelved in 2017. Now it’s being talked about as a way to sell more western oil to other markets, including eastern Canada, which currently takes some of its energy via pipelines that come back into the country via the US. 

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But those are long-term answers. In the meantime, Canadians are figuring out small gestures: passing around guides on how to find Canadian products in stores, canceling US vacations, and lashing out as people do when hurt. Six years ago, the most heralded athlete in Canada was Kawhi Leonard, the American basketball star who led the Toronto Raptors to their only championship. On Sunday, Leonard’s current team, the Los Angeles Clippers, played in Toronto. Fans booed “The Star-Spangled Banner.”

Why does Trump’s 51st state notion offend people in Canada? Wouldn’t it make them richer, as the president says? Yes. And yet polls show that a large majority of Canadians are against the idea. “It’s demeaning to Canada to say, ‘Oh you’re just a country that we could absorb’ when in reality it’s a country that has its own sense of place in the world,” said Terri Givens, a political science professor who’s from Spokane, Washington, but now lives in Vancouver and teaches at the University of British Columbia.

That “sense of place” comes from the history that Trudeau alluded to in his Feb. 1 speech. In fact, Canada exists because of the fear of annexation. 

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By 1867, having witnessed the violence of the American Civil War and fearful of US aggression, the leaders of British North American colonies decided to link up and form the Dominion of Canada. It was still a relatively young nation when it sent its soldiers to the front lines in 1914, and when it declared war on Nazi Germany in September 1939, as the US hesitated.

Canadians understand this history. Each year, many of them visit the cemeteries and memorials of western Europe and look at the names. This is the problem for Trump’s 51st state project. You can buy oil and cars, or not. But you can’t buy a nation’s identity.

—With assistance from Thomas Seal.

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