With no will for political union, Canada should consider economic union with the U.S.

According to an announcement on Friday by White House press secretary Karoline Leavitt, President Dondald Trump will implement a 25 per cent tariff on Canada and Mexico (and a 10 per cent tariff on China) beginning Saturday, Feb. 1.

Over the last few weeks, Canadian policymakers have been rather naïve in responding to Trump’s tariffs threats. They seem not to have figured out what Trump really wants (although perhaps no one knows what he really wants). But the Canadian side has focused on retaliatory measures, lobbying to ensure certain industries are exempt, and an advertising campaign to get consumers to prefer Canadian products—a “Made in Canada” preference.

It’s also been proposed that by lowering trade barriers between provinces, the Canadian economy can offset a trade war with the United States. But this raises the question—why hasn’t this already been done if it leads to such great benefit?

It’s clear that Canadians don’t want to be part of the U.S. However, given Canada’s dependency on the U.S. economy, Canada’s lagging productivity, the inefficiency of separate currencies, and the effect of changes in the Canadian-U.S. exchange rate on prices in Canada, it’s surprising that some kind of economic union with the U.S. is not being considered or even discussed. Or at least it does not appear to be something that politicians north of the border consider.

The post-war European enterprise can serve as a model for how Canada might approach the U.S. In Europe, the Germans remain German, the French remain French and the Dutch remain Dutch. This, despite the fact that the European enterprise has gone well beyond that of economic union. The Maastricht Treaty (1992) created the European Union (EU) by combining the three European Communities—the European Atomic Energy Community, the European Coal and Steel Community and the European Economic Community—into a single entity. While it set the stage for a single currency (the Euro), the Treaty was seen as a first step toward an eventual political union. While the EU has taken large steps toward political union, the enterprise is not going as well as envisioned. The United Kingdom left the EU principally because it did not want to take orders from Brussels. The U.K. was interested in an economic union, but not political union.

The lesson for Canada is clear—we do not want political union, but should be open to economic union with the U.S. This would essentially mean two things. First, eliminating the border with respect to trade in goods and services, and free movement of investment capital. Whether this would include labour would need to be addressed, although economists would argue that, from an efficiency point of view, it should. As a blueprint, one might begin with what’s referred to in Europe as the Schengen Area, which is a group of EU countries that have eliminated all internal border controls and established common entry and exist requirements. This would require that the effective border protects both Canada and the U.S. simultaneously—the northern U.S. border moves to the Pacific, Arctic and Atlantic oceans. If a person qualifies to come to Canada, they automatically qualify to come into the U.S. and vice versa.

Second, monetary union under those circumstances makes a lot of sense. It would be simple to implement. For example, we might say that one Canadian dollar is on par with one U.S. dollar, or that it’s equal to US0.85 or 0.90. The exact value is less important as wages and other costs will adjust with increases in Canadian productivity that will then lead to increases in wages.

Finally, Trump insists that Canada commit 2 per cent of its GDP to defence. I would argue that, given a willingness to negotiate an economic union, and a commitment to increase defence spending to meet the 2 per cent target by 2030, would be sufficient to remove the Trumpian tariffs.

By agreeing to negotiate an economic union, Canada may convince the Trump administration to remove the tariffs. If an economic union were a threat to Canada’s viability, to our Dominion, then we do not deserve to be Canadian. I would venture that our national identity vis-à-vis the U.S. is strong enough to survive an economic union.

Cornelis “Kees” van Kooten

Professor of Economics, University of Victoria

Related Topics:#FraserInstitute CanadaUSEconomicUnion CornelisKeesVanKooten TrumpTariffs

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Tariffs by Tuesday: Trump Says There Is ‘No Room Left’ For Any Negotiations On Postponing Tariffs On Mexico, Canada

Published on March 3, 2025

Todayville

From the Daily Caller News Foundation

By Nicole Silverio

President Donald Trump said Monday that there is “no room left” for any negotiations on postponing tariffs on Mexico, Canada or China in response to their handling of the immigration and fentanyl crisis.

Trump initially planned to impose 25% tariffs on Mexico and Canada and a 10% tariff on China over its role in allowing illegal immigration and fentanyl to pour into the U.S. in record numbers. After postponing these tariffs for a month after Mexico and Canada caved to his requests, the president said he has fully made up his mind to officially impose these tariffs this upcoming Tuesday.

“No room left for Mexico or for Canada. No, the tariffs [are] all set, they go into effect tomorrow,” Trump said. “And just so you understand, vast amounts of fentanyl have poured into our country from Mexico and as you know, also from China where it goes to Mexico and goes to Canada and China also had an additional 10 [percent], so it’s 10 + 10, and it comes in from Canada and it comes in from Mexico and that’s a very important thing to say.”

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Trump postponed the tariffs on Feb. 3 after Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau caved to his requests by increasing their efforts to tackle illegal immigration and fentanyl. Sheinbaum deployed 10,000 National Guard soldiers to the U.S.-Mexico border while Trudeau invested $1.3 billion to crackdown on illegal migration and appointed a “Fentanyl Czar” to oversee a $200 million effort against the drug.

The president announced in a Feb. 27 Truth Social post that he planned to double the tariffs on China to 20% and move forward with the tariffs on Mexico and Canada over the “very high and unacceptable levels” of drugs pouring into the U.S.

“We cannot allow this scourge to continue to harm the USA, and therefore, until it stops, or is seriously limited, the proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled,” Trump said. “China will likewise be charged an additional 10% Tariff on that date. The April Second Reciprocal Tariff date will remain in full force and effect. Thank you for your attention to this matter. GOD BLESS AMERICA!”

These three countries are being slapped with tariffs as the U.S. suffers a fentanyl epidemic, with over 21,000 pounds of the deadly drug being seized at the southern border in the fiscal year 2024, according to Customs and Border Protection (CBP). Border agents have seized over 5,400 pounds in the 2025 fiscal year thus far.

At the U.S.-Canadian border, officials encountered over 11,000 pounds of drugs in the 2024 fiscal year and over 3,200 pounds have so far been seized in the 2025 fiscal year, according to CBP data. Over 60,000 pounds and 55,000 pounds of drugs were seized in the 2022 and 2023 fiscal years.

U.S. border officials also encountered over 8.5 million migrants at the southern border during the four fiscal years of former President Joe Biden’s administration. Border crossings at the northern border skyrocketed with over 198,000 encounters and nearly 19,000 arrests occurring in the 2024 fiscal year.

Economy

Here’s how First Nations can access a reliable source of revenue

Published on March 3, 2025

Todayville

From the Fraser Institute

By John Ibbitson

According to Pierre Poilievre, a Conservative government would permit First Nations to directly receive tax revenues from resource development on their ancestral territories. Political leaders of all parties should commit to such direct taxation. Because time is short.

Faced with the prospect of tariffs and other hostile American actions, Canada must build new energy infrastructure, mine critical minerals and diversify trade.

First Nations participation is critical to these plans. But too often, proposed infrastructure and resource projects on their territories become mired in lengthy negotiations that benefit only bureaucrats and lawyers. The First Nations Resource Charge (FNRC), a brainchild of the First Nations Tax Commission, could help cut through some of that red tape.

Currently, First Nations, the federal government and businesses negotiate agreements through a variety of mechanisms that establish the financial, environmental and cultural terms for a proposed development. As part of any agreement, Ottawa collects tax revenue from the project, then remits a portion of that revenue to the First Nation. The process is bureaucratic, time-consuming and paternalistic.

Under one version of the proposed charge, the First Nation would directly collect a portion of the federal corporate tax from the developer. The federal government, in turn, would issue the corporation an equivalent tax credit.

In effect, Ottawa would transfer tax points to First Nations.

“The Resource Charge doesn’t mean we won’t say no to bad projects where the costs to us are too high,” said Chief Darren Blaney of B.C’s Homalco First Nation, when the Conservatives first laid out the proposal last year. “It could mean, however, that good projects happen faster. This is what we all want.”

Poilievre referenced the proposed tax transfer in his Feb. 15 rally when he vowed to remove regulatory obstacles to fast-track resource development projects.

“We will incentivize Indigenous leaders to support these projects by letting companies pay a share of their federal corporate taxes to local First Nations,” he declared. “I want the First Nations people of Canada to be the richest people in the world.”

The First Nations Tax Commission first came up with the idea. Poilievre’s federal Conservatives are the first political party to embrace it. But there’s no reason why support for resource charges could not be bipartisan.

Mark Carney, the frontrunning candidate to succeed Justin Trudeau as Liberal Leader and prime minister, has vowed to use “all of the powers of the federal government… to accelerate the major projects that we need.” Supporting the FNRC would further that goal.

That said, resistance has already emerged.

“Most Indigenous leaders would see right through (what Poilievre said) because we’ve been around that corner a few times,” Dawn Martin-Hill, professor emeritus of Indigenous Studies at McMaster University, told the Canadian Press. “Selling your soul to have what other Canadians have, which is access to clean drinking water coming out of your tap, is highly problematic.”

But Prof. Martin-Hill inadvertently makes the case for the FNRC. Municipal governments raise funds by taxing the property of individuals and businesses and using the revenue to, among other things, provide clean drinking water. A First Nation that taxed a business operating on its territory, and used the revenue to provide clean drinking water for people on reserve, would simply be doing what governments are supposed to do.

Existing agreements, though cumbersome, have brought major new revenues to some reserves. The FNRC could increase revenues and First Nations autonomy.

Given the complexities of the tax code, and the limited administrative capacity of some First Nations, some agreements might see the federal government continuing to collect taxes and then remitting the First Nation’s portion to that government. The goal would be to ensure that revenues streams are transparent, predictable and support the greatest possible autonomy for each First Nation.

Any government committed to implementing the FNRC should convene a working group of First Nations leaders, private-sector executives and government officials to work out a framework agreement.

If the Conservatives win the next election, the working group could be part of a task force on tax reform that Poilievre said he intends to establish.

The FNRC would be voluntary. Communities could opt in or opt out. Provincial governments might also participate, sharing a portion of their taxes with First Nations.

If it works, a First Nations Resource Charge could speed the approval of lumber, mining, pipelines and other resource-related projects on the traditional lands of First Nations. It could provide reserves with stable and autonomous funding.

It’s an idea worth trying, regardless of which party forms the next government.