What could 'economic force' to merge countries look like for Canadian businesses?

Economists, business leaders and politicians are reacting to U.S. president-elect Donald Trump's comments that he'd use "economic force" to acquire Canada as the 51st state.

While Trump's proposed tariffs are top of mind nearing his inauguration, economists say that power could take many forms.

"He can do damage; he can do serious damage," said Moshe Lander from the economics department at Concordia University.

"He can just keep ramping those (tariffs) up, 50 per cent, 100 per cent, 200 per cent. I mean, there's just no limit."

Trump claimed the U.S. has no need for Canadian goods and takes issue with the U.S. trade deficit with Canada.

According to Statistics Canada, the deficit with Canada has increased from around $81 billion in 2021 to nearly $109 billion in 2023, due in large part to Canadian oil and gas exports to the U.S.

Lander said if Trump wanted to ratchet up the pressure on Canada, he could pull out of the free trade agreement despite provisions that prevent the move, he could try and seize assets of Canadian companies operating in the U.S. and he could make it difficult for Canadians to travel south.

While he doesn't anticipate Canada will merge with the U.S. or create a partnership like the European Union, Lander said Trump's escalating rhetoric is damaging.

"When you create uncertainty, it's what sends businesses running. It is going to weaken the Canadian dollar; it's going to damage our economy; it's going to damage medium- to long-term investments because businesses are going to say, 'Whether it's true or not, until this uncertainty settles down, I'm not willing to stick a billion dollars into the economy building a factory or expanding my operations or hiring more workers,'" Lander said.

Trump's statements are dominating discussions among business leaders.

"The uncertainty is very troubling because we think in strategic terms as business owners. We think about what is our playbook going to look like for the next year, the next five years, the next decade, so when we have uncertainty, you’re trying to create scenarios that you really don't know what they might be," said Arlene Dickinson, the managing general partner at District Ventures Capital.

Dickinson said she's fearful of Trump's comments about Canada merging with the U.S.

"It creates huge uncertainty for business owners and it is very problematic," Dickinson said.

"When I think about losing our voice, our resources, our ability to make choices for ourselves. ... While that may seem extreme, what happens when you are no longer in control of your economic interests the way you need to be in order to build your country? You should be afraid.”

Dickinson outlined her concerns in a recent LinkedIn post, saying Canada needs to diversify trade, defend sovereignty, strengthen unity and build global alliances.

Many companies have begun to take strategic steps as Canada's relationship with its largest trading partner remains unclear.

Martha Harrison, an international trade, investment and regulatory lawyer with McCarthy Tétrault, said in recent weeks she has been working with clients to diversify their supply chain partnerships.

"One of the strategies we've talked about with these clients a lot is looking for newer sources internally within Canada," she said.

"But it also means the concept of friendshoring and embracing friendshoring as part of a supply strategy."

Harrison said friendshoring, which is the strategy of sourcing from allied geopolitical countries, usually involved the U.S. but now many companies are looking elsewhere, including Mexico.

“Particularly for more multinational enterprises, we’ve seen an increased motivation to expand operations or to expand contractual arrangements into Mexico and to use Mexico as a bit of a hub where it was primarily the U.S. before.

Premiers meet virtually

Canada's premiers met virtually Wednesday and plan to travel to Washington, D.C., next month to discuss the impacts of the potential levies.

Alberta Premier Danielle Smith also plans to attend Trump's inauguration in January.

"The U.S. is our largest trading partner and greatest ally. Albertans and Americans both rely on this mutually beneficial trade relationship—and it must be maintained and supported," she said in a statement to CTV following the premiers meeting.

"Alberta's government believes that the pathway to strengthening this relationship is to double our oil production and increase exports of crude oil to the U.S., enabling them to export even more light oil to the rest of the world. We took a first step in pursuit of this goal earlier this week when we partnered with Enbridge to expand their pipeline capacity."

Smith also plans to virtually attend a meeting of first ministers with outgoing Prime Minister Justin Trudeau on Jan. 15.

“It has never been more important to demonstrate stability and next week we will be meeting with the prime minister to express urgency to him in co-ordinating a strong and united response to these threats,” Smith said.