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鈥⑩�淭he overriding issue to emerge from the Canadian-U.S. relationship for most Canadians today is that of economic independence.鈥�

These aren’t proposals from today鈥檚 Ottawa 鈥� they鈥檙e from John A. , John , and Pierre Trudeau鈥檚 . Canada has long tried to limit trade dependence on the United States, and the result has always been the same: Macdonald鈥檚 policy failed to bring prosperity. Canada was more reliant on American trade at the end of Diefenbaker鈥檚 run than at its origin. And the Pierre Trudeau-era 鈥淭hird Option鈥� attempts to diversify trade made us poorer while having no long-run effect on trade.

It's understandable to consider rerouting exports and imports when Donald Trump inexplicably discusses 鈥渢he 51st state鈥� and threatens new tariffs on a daily basis with little predictability. As we have seen, this goal is not new, and for a sensible reason. Canada is in fact highly reliant on trade with the United States: , close to 20 times the share that goes to China聽and 30 times the share bound for the United Kingdom, marking a level of concentration that has persisted for a century and a half.

Nonetheless, the most important piece of wisdom the new prime minister聽鈥� a聽fellow economist 鈥� must keep in mind is that this export share is source of prosperity. Trump-driven trade barriers will make Canada poorer. He really is causing us economic harm. But it is also true that the high levels of trade with the United States are hardly a burden to be avoided. Furthermore, the fact that trade is so centred around the U.S. has a fundamental economic cause, making it irreplaceable with other nations.

To understand why, consider what economists call the “gravity model.” and send over half of their exports to the EU, and less than 10 per cent to China. and , on the other hand, send about a third of their exports to China and less than 10 per cent to Europe. Why so different? Shipping costs, legal and contractual quirks, cultural distance, less-integrated supply chains (about half of all international trade is in intermediate goods used to make something else in the recipient country), and even simple dissimilar preferences limit trade at distance.

Neighbours, especially culturally similar ones, are much more likely to trade with each other than with distant countries. This is to Canada鈥檚 great benefit: the world鈥檚 largest economy since the year Canada became a country is next door. When loggers harvested lumber in Northern Quebec, factory workers made engines in southern Ontario, and resource workers headed into the Bakken oilfields in the Prairies, these jobs were more lucrative because of the U.S. export market.

Why not send the wood to Europe? Their houses use less wood; they grade it differently; it is expensive to ship. Why not build engines for Swedish Volvos? Well, it’s no coincidence that engines for Detroit鈥檚 car industry are made not just in Canada, but in the to those American factories. Engineers on both sides of the border travel back and forth frequently to diagnose problems, upgrade machinery, and investigate productivity issues. History is littered with nations trying to avoid gravity and failing, famously including London鈥檚 attempt to rely on Commonwealth rather than EU trade in the 1960s only to see its relative prosperity fall.

So what can be done? Three things. First, renormalization of trade with the U.S. must be the top priority of the new Carney government. The impulse to use heated rhetoric, and to retaliate by imposing tariffs on American exports, is only natural. Yet retaliation harms Canada, for the same reason that Trump鈥檚 tariffs harm America: Canadian companies use imported parts and Canadian consumers use imported products. The desire to build the whole car in Canadian factories, or to use only Canadian steel to build Canadian trains, suffers precisely the same flaw as Trump鈥檚 misunderstanding of comparative advantage. Specialization, particularly with a rich neighbour, creates efficient production.

In the short run, Canada can and should remove all barriers to trade from abroad, including for goods from the United States.聽Many trade limits are due to pressure from domestic industry, from restrictions on Chinese EVs and steel, to supply management in the dairy industry, to regulations like which led Anthropic’s and Google’s AI models to be unavailable in Canada for months after they were released overseas. The companies who would have grown and hired in the absence of these restrictions do not yet exist and hence are ignored in many political conversations.

Such an across-the-board embrace of trade聽would decrease the harm of Trump tariffs; imports, especially of intermediate goods used in our companies, are in Canada鈥檚 interest. In the long run, a return to bilateral free trade as quickly as possible is essential, allowing the reconstitution of critical border industries such as the auto sector. This won’t be an easy diplomatic task. But careful diplomacy for economic prosperity beats aggressive posturing for political points.

Second, if we want some diversification, transport links for goods and people across the country must be expanded. A few years ago, a single bridge failure made it literally impossible to send goods by truck from Western to Eastern Canada. Resources in the Prairies are often trapped with no direction to go but south. Interprovincial trade is stymied by transport infrastructure more focused on its home province than the nation as a whole.

Third, self-inflicted economic harms must be addressed. Canada’s tax treatment of entrepreneurs remains punitive compared to America鈥檚. The nationwide housing crisis is fundamentally a supply problem. Municipalities must be mandated to approve higher density development, building codes should be harmonized to generate economies of scale, and if population growth is going to proceed at late 19th-century rates, new cities should be platted out聽鈥� that is,聽streets and lots laid out at scale on virgin land聽鈥� like we did in that era. Trained doctors and teachers and electricians should find it trivial to move from one province to the next, depending on demand.聽That鈥檚 not always the case now, as people in those fields might bitterly tell you.

There will be a temptation to blame the past 10 years of economic stagnation on today鈥檚 tariff disputes, especially given continuity of the party in power. But the nearly 20- percentage-point difference in GDP per capita growth between the U.S. and Canada (19 per cent versus ) since 2015, and the dismal productivity growth in Canada during this period, is the fault of bad domestic policy, not foreign malfeasance.

The desire to reduce U.S. economic influence is politically understandable but fundamentally misguided. Canada is rich not in spite of American dependence, but because we are next to a giant, prosperous country, with which we can trade and co-produce economic value. A wiser path forward recognizes the prosperity that comes from our fortunate geography while focusing policy on maximizing the benefit of that relationship despite present policy disputes.

A cycle of tariff escalation alongside doomed-to-fail attempts to relive the 1970s (and 1950s, and 1870s) trade rebalancing efforts will make Canadians poorer. Given his background, our PM surely already knows this. Forget 鈥淓lbows Up,鈥� Prime Minister 鈥� 鈥淓lbow Grease鈥� from diplomats and policymakers is Canada鈥檚 path back to growth.

Kevin Bryan is an innovation economist at the University of Toronto鈥檚 Rotman School of Management, Chief Economist at Creative Destruction Lab Toronto, Co-Founder of the NBER Innovation PhD Boot Camp, and Co-Founder of AI edtech startup All Day TA.聽