The United States has been grappling with a complex trade landscape with Canada, marked by a US$45 billion trade deficit anticipated for 2024. Despite being one of the smallest deficits among all countries, tensions have escalated, leading to significant policy actions. President Donald Trump has leveraged tariffs, a measure described by the White House as a "powerful, proven source of leverage," to address these trade imbalances and bolster national security. Recent developments have included a $1.3-billion upgrade to border security and monitoring, prompted by a rise in border apprehensions and the ongoing challenge of illicit drug trafficking.
Canada remains the largest export market for the U.S., underscoring the importance of their economic relationship. The U.S. even enjoyed a trade surplus with Canada, reaching $100 billion in 2023. However, border security concerns have intensified, with the U.S. seizing over 21,000 pounds of fentanyl at its borders in the last fiscal year. Although the amount intercepted at the U.S.-Canada border is modest compared to the U.S.-Mexico border, it remains a point of contention. The White House fact sheet emphasized that "President Trump is using the tools at hand and taking decisive action that puts Americans' safety and our national security first."
The number of individuals apprehended by the U.S. Border Patrol along the northern border surged to 23,721 in 2024, reflecting a tenfold increase since 2022. This uptick in encounters has prompted a reevaluation of border policies. In response to Trump's tariff threats, Canada proposed forming a North American "joint strike force" aimed at dismantling organized crime groups operating across borders. The U.S., meanwhile, has imposed tariffs on goods from Canada, Mexico, and China as part of its strategy to safeguard national interests.
"Tariffs are a powerful, proven source of leverage for protecting the national interest," – White House (Feb. 1 fact sheet)
While tariffs serve as a tool for economic leverage, they do not equate to subsidies, as explained in a TD analysis: "In any event, a trade deficit is not a subsidy." The analysis further clarified that Americans receive value in goods and services for their spending with Canadian companies.
"That would ring true, if for example, the U.S. government transferred US$45 billion annually to Canadian companies out of goodwill, but Americans are receiving value for the dollars spent in the form of goods and services." – TD analysis
The issue of illicit drug trafficking remains a significant concern for both nations. A January Fintrac alert highlighted increased production and distribution of fentanyl and other synthetic opioids across North America, including Canada. President Trump noted in an executive order that "gang members, smugglers, human traffickers, and illicit drugs of all kinds have poured across our borders and into our communities." He also criticized Canada's efforts, stating that "Canada has played a central role in these challenges" by not adequately coordinating with U.S. law enforcement.
"Gang members, smugglers, human traffickers, and illicit drugs of all kinds have poured across our borders and into our communities," – U.S. President Donald Trump (executive order)
"Canada has played a central role in these challenges, including by failing to devote sufficient attention and resources or meaningfully co-ordinate with United States law enforcement partners to effectively stem the tide of illicit drugs." – U.S. President Donald Trump (executive order)
Despite these criticisms, Public Safety Minister David McGuinty noted in a December briefing that there is little evidence suggesting Canadian-produced fentanyl poses an increasing threat to the U.S. He highlighted successful efforts by the Royal Canadian Mounted Police (RCMP) and local police services in dismantling 44 clandestine drug labs since 2018.
"Despite evidence of domestic production occurring in Canada, there is little to no evidence from either Canadian or U.S. law enforcement that Canadian-produced fentanyl is an increasing threat to the United States," – Public Safety Minister David McGuinty (Dec. 10, 2024 briefing note)
"As a result, 44 clandestine drug labs have been dismantled by the RCMP and local police services since 2018, protecting Canadians from millions of potentially harmful doses of drugs," – Public Safety briefing note
The North American Drug Dialogue serves as a platform for Canada, the U.S., and Mexico to coordinate policies and share information on drug trends. This collaboration aims to address cross-border challenges effectively.
