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As Canada’s counter-tariffs take effect, economist Ian Lee is warning that patriotic rhetoric is colliding with a much less theatrical reality: businesses can lose customers quickly, workers can lose jobs even faster, and Ottawa cannot subsidize an entire export economy while waiting for the politics to improve.
For much of the past year, Canada’s confrontation with the United States has been narrated in the language of national resolve. “Elbows up” became an extraordinarily effective political slogan because it converted an enormously complicated dispute over tariffs, industrial policy and continental economic integration into something every Canadian immediately understood: we were being pushed around, and it was time to push back.
There was always an emotional logic to that response. President Donald Trump’s rhetoric toward Canada has frequently been provocative, while successive American tariff measures have disrupted industries that spent decades building their businesses around the assumption that the North American market would remain broadly integrated. Canada had every reason to defend itself, challenge measures it considered inconsistent with CUSMA and make clear that decisions affecting Canadian sovereignty would ultimately be made by Canadians.
The problem begins when emotional solidarity starts masquerading as economic strategy.
Canada’s latest retaliatory tariffs took effect on September 8, imposing duties ranging from 15 to 50 per cent on approximately $20 billion of American products after negotiations again failed to produce a settlement. The measures target politically sensitive sectors including steel, furniture and electronics, while roughly 80 per cent of Canadian exports continue to enter the United States duty-free under CUSMA.¹
That distinction matters because Canada is not presently facing a 50 per cent tariff on everything it sells to the United States. The danger is more concentrated and, in some communities, potentially more acute: businesses caught inside the affected sectors can experience an enormous shock even while much of the broader trading relationship continues normally.
That is the point Carleton University business professor Ian Lee has been making in unusually stark terms. His warning is that the argument has moved beyond national mood or political symbolism because when export sales disappear, companies eventually respond in the most ordinary way businesses respond to collapsing revenue: they cut costs, postpone investment and, eventually, lay off workers.
The official data suggest the scale of exposure is even greater than many Canadians appreciate.
This Is Not About Hurt Feelings. It Is About 2.5 Million Jobs
The most important number in the current trade debate may not be the tariff rate at all.
It is 2.5 million.
Statistics Canada estimates that in 2024, Canadian production associated with exports to the United States represented 15.9 per cent of national GDP and supported more than 2.5 million Canadian jobs.² Canadian exports overall generated approximately 3.9 million jobs, meaning U.S. demand alone was responsible, directly or indirectly, for an extraordinary portion of employment tied to Canada’s export economy.²
Manufacturing is particularly exposed. Statistics Canada found that between 2020 and 2024, total manufacturing employment increased by approximately 229,000 jobs, and roughly 139,000 of those net new jobs were attributable directly or indirectly to U.S. demand for Canadian exports.²
Those are not abstract trade statistics. They represent machinists in Southwestern Ontario, plant workers in Quebec, truck drivers crossing the Ambassador Bridge, forestry employees in Northern Ontario and British Columbia, food processors on the Prairies and thousands of businesses whose customers happen to be located a few kilometres—or a few hundred kilometres—south of the border.
The dependence is particularly concentrated among smaller exporters. Statistics Canada has found that the overwhelming majority of Canadian goods exporters sell to the United States, while a very large share sell nowhere else. That helps explain Lee’s shorthand warning that tens of thousands of Canadian firms depend directly upon American customers, with many having little or no meaningful alternative export market.
For those businesses, diversification is not a button Ottawa can press.
It is a multi-year commercial project.
Small Businesses Do Not Have Ottawa’s Balance Sheet
Large corporations often have options when trade barriers suddenly appear. A multinational manufacturer can reroute production among several plants, negotiate with suppliers, hedge currencies, draw on substantial credit facilities or absorb temporarily lower margins while management waits for political conditions to improve.
A family-owned manufacturer employing 43 people in Southwestern Ontario may have none of those luxuries.
Small and medium-sized enterprises employ almost 8 million Canadians, representing 63.6 per cent of the country’s private-sector workforce. Small businesses with fewer than 100 employees alone employ approximately 5.8 million people.³
Many of these companies operate with limited working capital, specialized equipment and a relatively narrow customer base. If an American customer responsible for 40 per cent of annual revenue suddenly tells a Canadian supplier that a new tariff has made its product uneconomic, the company’s expenses do not fall by 40 per cent the following morning. The mortgage on the building remains payable, equipment leases continue, insurance remains due, utilities keep running and skilled employees still expect their paycheques.
Management usually begins with the least visible reductions. Overtime disappears. Vacancies remain unfilled. Equipment purchases are postponed. Contractors receive less work. Expansion plans are shelved.
Then comes payroll.
That is why Lee’s warning about the short runway available to smaller companies should concern policymakers. Governments can announce liquidity programs, loan guarantees, wage supports and sector-specific assistance, but none can indefinitely replace lost private demand across an economy where millions of jobs are tied directly or indirectly to trade with the United States.
Ottawa cannot put every exporter on the federal payroll until Washington changes its mind.
The Warning Signs Were Already There
Canadian businesses were reporting the effects of the trade confrontation long before the present escalation.
The Bank of Canada’s fourth-quarter 2025 Business Outlook Survey found that firms experiencing strong exposure to U.S. trade policies reported weaker sales and weaker expectations for future growth, while trade uncertainty caused companies to postpone purchases and reduce spending.⁴
The Bank also found that American customers had become more hesitant to use Canadian suppliers because of uncertainty about future trade policy. Canadian exporters themselves were becoming more cautious about pursuing new American opportunities.⁴
Perhaps most important, the Bank reported that most exporters to the United States had not meaningfully diversified into non-U.S. markets. Firms cited the cost of transportation, specialized equipment requirements, regulatory differences and other barriers that make alternative markets difficult to develop quickly.⁴
A subsequent Bank of Canada assessment reached much the same conclusion. Canadian businesses were attempting to find new markets and suppliers, but diversification would take time, and exports in tariff-affected sectors had already fallen sharply. The Bank noted that even businesses outside directly tariffed industries were being hurt by uncertainty.⁵
This is the economic reality hidden behind the political phrase “diversify our trade.”
Diversification is absolutely necessary.
It is not an emergency substitute for an existing customer.
A manufacturer in Windsor that has spent 25 years making components for customers in Michigan cannot replace them next Tuesday by discovering France. A food processor supplying Buffalo or New York does not simply turn its trucks toward Tokyo. Overseas customers may require different certifications, different product specifications, different distribution networks, different labelling and entirely different logistics.
Canada should diversify aggressively.
But businesses have to survive long enough to get there.
Counter-Tariffs Are Not Free Punishment of Americans
This is where “elbows up” rhetoric becomes economically dangerous if taken too literally.
Canadian retaliatory tariffs are designed to create political pressure inside the United States by targeting industries and states whose companies may push Washington toward compromise. That is a conventional negotiating strategy and, in some circumstances, Canada may reasonably conclude that failing to retaliate would simply invite more unilateral American measures.
But a Canadian tariff on an American product is initially paid by the Canadian importer.
Some of that cost may be absorbed by American exporters through lower prices, some may be absorbed by Canadian businesses through reduced margins, and some may be passed to Canadian customers. The final burden depends on the product, competitive alternatives, contracts and market conditions.
This matters enormously for manufacturers.
A Canadian company can simultaneously face an American tariff that weakens demand for what it sells south of the border and a Canadian counter-tariff that raises the cost of machinery, components or materials it imports from the United States.
That firm has not meaningfully punished Donald Trump.
It has been squeezed from both directions.
Canada’s September countermeasures therefore need to be judged as instruments of negotiation rather than demonstrations of patriotic resolve.¹ Their purpose should be to help produce a better agreement, not simply to prove that Canada can impose pain in return.
Ian Lee’s Hardest Point Is Also the Simplest: Negotiate
Lee’s central prescription is strikingly unromantic.
Get back to the table.
His argument is not that Canada should accept whatever Washington demands. It is that refusing to negotiate is not a strategy when Canada has substantially more economic exposure to the breakdown.
That distinction is important because negotiation and capitulation are not the same thing.
Canada can negotiate while rejecting unacceptable conditions. It can make counterproposals, seek sector-specific exemptions, strengthen rules of origin, cooperate on genuine concerns about transshipment, challenge tariffs under trade agreements and simultaneously defend policies it considers essential to Canadian sovereignty.
There is also a practical reason not to romanticize stalemate.
Every week of uncertainty matters to businesses deciding whether to invest.
A company considering a $30-million expansion intended primarily to serve the American market does not need CUSMA to disappear before becoming cautious. It merely needs to believe there is a meaningful possibility that preferential access could deteriorate.
Uncertainty itself can become a form of tariff.
What Exactly Was the Sovereignty Demand?
This is one area where Canadians should insist on much greater transparency.
The government has framed parts of the dispute as matters touching Canadian sovereignty, while U.S. officials have publicly disputed aspects of that characterization. Without a detailed public record of the negotiating positions exchanged behind closed doors, Canadians cannot independently determine exactly where ordinary trade bargaining ended and unacceptable interference with Canadian decision-making began.
That distinction matters because “sovereignty” is an extraordinarily powerful political word.
If Canadians are being asked to accept lost exports, postponed investment and potentially significant job losses because Ottawa rejected a demand that crossed an unacceptable sovereign boundary, the public deserves to understand what that demand actually was.
There may be legitimate reasons not to publish every negotiating detail in real time.
But sovereignty should not become a rhetorical shield behind which the economic costs of a failed negotiation are insulated from scrutiny.
The Larger Failure Happened Long Before Trump
This is the part of Lee’s argument that deserves the greatest attention.
Canada should never have allowed itself to become this dependent upon a single customer.
The mistake was not trading extensively with the United States. Given geography, language, infrastructure, decades of integration and the extraordinary size of the American economy, doing so was enormously rational and generated immense prosperity.
The mistake was failing to use enough of that prosperity to build greater economic independence.
Canada could have developed more globally competitive Canadian-owned manufacturers, processed more resources domestically where economics justified it, invested more aggressively in machinery and technology, eliminated internal provincial trade barriers and cultivated more export markets while the American relationship was stable.
Instead, the country became extraordinarily comfortable with an economic architecture in which the United States served simultaneously as our largest customer, our principal industrial partner and, in many sectors, the organizing centre of the continental supply chain.
That worked brilliantly while the border remained predictable.
It becomes dangerous when access to that market becomes political leverage.
CUSMA Cannot Be Treated as Immortal
Approximately 80 per cent of Canadian exports are still moving tariff-free under CUSMA despite the latest escalation.¹ That is enormously important and explains why the economic relationship has not simply collapsed.
But Canadians should not confuse continued operation of the agreement with a guarantee that the existing framework will endure unchanged indefinitely.
The possibility of a serious deterioration in CUSMA may remain relatively remote, but businesses do not need certainty of disaster before modifying their behaviour. They price risk.
If a Canadian manufacturer believes there is even a meaningful probability that American market access could be substantially worse five years from now, the company may build its next factory differently, diversify earlier, delay expansion or simply decide against investing.
American companies make exactly the same calculations when considering Canadian facilities.
Trade agreements create stability partly because investors believe the rules will persist.
Once that belief weakens, the damage can begin before a single agreement is formally terminated.
Patriotism Does Not Pay a Laid-Off Worker’s Mortgage
There is something politically seductive about trade retaliation because the pain it promises to impose is foreign while the pride it generates is domestic.
The costs rarely arrive that neatly.
They arrive when a family business decides it cannot carry twenty employees through another six months of uncertainty. They arrive when an American customer quietly qualifies a supplier in Ohio. They arrive when an Ontario manufacturer chooses not to purchase another production line, when a Quebec business freezes hiring or when a rural employer removes an evening shift that once supported dozens of families.
These decisions rarely become national headlines individually.
Collectively, they become economic contractions.
That is the most important point behind Lee’s warning that this dispute is ultimately about human beings rather than political theatre.
There is a legitimate Canadian argument for refusing demands that genuinely compromise national sovereignty. There is a legitimate case for retaliatory tariffs when they create useful negotiating leverage. There is also an urgent need to diversify Canada’s economy so that no future American administration possesses this much leverage over Canadian employment.
None of those propositions makes negotiation weakness.
A serious government should be capable of defending Canadian sovereignty, preparing diversification for the next decade and protecting Canadian jobs this month.
The Wake-Up Call
“Elbows up” served a useful political purpose when Canadians wanted reassurance that their country would not simply surrender under pressure.
It becomes dangerous when the slogan starts answering questions it was never designed to answer.
How long can a small exporter survive after losing a major American customer? Which Canadian counter-tariffs impose more costs on domestic businesses than political pressure on Washington? Which U.S. demands genuinely cross a sovereignty threshold and which constitute ordinary trade bargaining? How much economic damage should Canada absorb before changing negotiating strategy? And what contingency plan exists if continental trade integration deteriorates further?
Those questions cannot be answered with a hockey metaphor.
Canada needs two strategies operating simultaneously. The long-term strategy must reduce the dependency that has left millions of jobs tied directly or indirectly to one foreign market. The immediate strategy must recognize that this dependence cannot be unwound while today’s businesses wait for new customers to materialize elsewhere.
Canada should diversify aggressively, rebuild domestic manufacturing, process more of its resources at home where it makes economic sense and make itself substantially less vulnerable to Washington.
But that is tomorrow’s project.
Today, more than 2.5 million Canadian jobs are connected to production destined for the United States, millions more Canadians work for small and medium-sized companies with limited financial cushions, and the Bank of Canada is telling us that trade diversification remains slow and difficult.² ³ ⁴
That is the wake-up call.
The patriotic response is not pretending those facts do not exist.
It is defending Canada’s sovereignty while doing everything reasonably possible to keep Canadians working.
Those objectives are not contradictory.
They are what competent trade policy is supposed to accomplish.
Footnotes
1. Reuters, “Canada’s retaliatory tariffs take effect as U.S. trade talks stall,” Sept. 8, 2026. Canada imposed retaliatory tariffs on approximately $20 billion of U.S. goods, with rates ranging from 15 to 50 per cent; Reuters reported that roughly 80 per cent of Canadian exports continued to enter the United States tariff-free under CUSMA.
2. Statistics Canada, Value added and job creation associated with Canadian manufacturing exports to the United States: An update from the 2024 value added in exports data, 2026. Statistics Canada estimates that U.S.-bound production represented 15.9 per cent of Canadian GDP and supported more than 2.5 million jobs in 2024. It also found that approximately 139,000 of the net increase in Canadian manufacturing jobs between 2020 and 2024 was attributable to U.S. demand.
3. Innovation, Science and Economic Development Canada, Key Small Business Statistics 2025. In 2024, Canadian SMEs employed approximately 7.97 million people, or 63.6 per cent of the private-sector workforce; small businesses alone employed approximately 5.84 million.
4. Bank of Canada, Business Outlook Survey—Fourth Quarter of 2025, Jan. 19, 2026. Businesses strongly affected by U.S. trade policies reported weaker sales and outlooks, while exporters cited hesitant U.S. customers, trade-policy uncertainty and substantial barriers to diversification outside the United States.
5. Bank of Canada, How Canadian Businesses Are Adapting to U.S. Tariffs, January 2026. The Bank reported that tariff-affected exports had fallen sharply, overall exports were approximately 4 per cent below pre-tariff levels in the third quarter of 2025, and diversification into non-U.S. markets was proceeding gradually because of regulatory, equipment and transportation barriers.