The ongoing trade war between Canada and the United States has conditioned many people to conceive of tariffs as inherently punitive. This obscures the fact that tariffs are just one tool that states can employ as part of their industrial policy. The gradual removal of tariffs and liberalization of trade in the 20th century was partly the result of lobbying from corporations which sought to reduce their labour costs by offshoring production to countries with low wages and fewer unions. This process negatively impacted Canadian industry and workers. The Trump administration’s use of tariffs is haphazard and destructive, but we should not let that foolishness turn us into evangelists for free trade, or convince us that all forms of tariffs and economic nationalism are inherently bad.

A tariff is simply an import tax that is levied by the government on certain products. When those products are imported, the importer must pay the government that tax. The result is generally that the price of the imported product is raised, discouraging consumption. Accordingly, protective tariffs are meant to promote domestic goods and industry by giving them a competitive advantage. The primary drawback of tariffs is that they increase prices for domestic consumers by decreasing foreign competition. As a tax, the collection of tariffs can also contribute to government revenues.

Canada’s earliest industrial policy was John A. Macdonald’s National Policy, which placed high tariffs on American products from 1878 until it was phased out around the Second World War. The point of the policy was to protect Canadian manufactures from American competition. While it benefitted eastern Canada’s manufacturing base, the policy was disliked in the west as it limited westerners’ access to foreign markets and caused them to pay more for goods from eastern Canada. The success of Macdonald’s National Policy supports the “infant industry argument” of Alexander Hamilton, who had argued that underdeveloped domestic industries require protection to grow.

When the Canada-US Free Trade Agreement was being debated in the 1980s, its opponents worried that it would damage Canada’s manufacturing base because companies would move their facilities to the US where they could employ cheaper, non-union labour. Once the agreement was ratified, this became the reality. Between 1988 and 1994, Canada lost 334,000 manufacturing jobs, 17 percent of its manufacturing sector. In the first decade under the agreement, Canada added half as many jobs as during the decade prior. Many of those jobs were also part-time or insecure positions with low pay and weak benefits, rather than the full-time positions that were eliminated.

The case of the Inglis factory in Toronto illustrates this phenomenon. In 1989, the 100 year-old factory was shut down when Whirlpool moved its production south of the border after the trade agreement was signed. Before the deal went through, union leader Mike Hersh observed: “Newspapers were saying that there would be jobs elsewhere, but people working 20 years in a factory with a grade nine education didn’t think they were going to get those jobs.” His prediction was correct, and the closure of the factory led to over 600 job losses. This story would be replicated across Canada, and the expansion of the agreement into NAFTA in 1994 led to further offshoring.

Thus, the strategic implementation of tariffs can be used to cultivate fledgling industries or protect existing ones. Additionally, protectionist measures can safeguard a nation state’s economic sovereignty. The integration of the Canadian economy into the larger American one makes Canada more susceptible to pressure from the US, and it limits the control that Canadians have over their own economy. In a democratic society, decisions about domestic economic and industrial policies should be made by the people through their elected representatives. That is economic sovereignty. If Canada has the policies that it adopts dictated to it by another country, it lacks that sovereignty.

Although there are some good reasons to implement tariffs as part of an industrial strategy or to protect a country’s economic sovereignty, this is not what the Trump administration is doing. Instead, it has deployed tariffs to pressure countries into adopting the policies that it prefers. During a recent interview on the Daily Show, conservative, pro-tariff economist Oren Cass voiced reasonable scepticism about whether unrestrained markets always produce the best outcomes. Yet, his economic nationalism was mixed with a heavy dose of incoherent jingoism. According to Cass, other countries have been “freeloading” by relying on the US for defence, or taking advantage of America by having a trade surplus with the country.

Of course, Cass’s claim is ahistorical: Washington purposely cultivated the geopolitical status quo for its own benefit. Nevertheless, he showcased the Trump administration’s rationale for punitive tariffs. It aims to economically coerce other countries into adopting its preferred policies. This has already been successful with respect to Canada. To break the Canada-US-Mexico Agreement (CUSMA) and impose tariffs the US invented a fictional emergency involving a flood of migrants and drugs across the Canada-US border. In response, Canada announced $1.3 billion in funds to reinforce the border with 10,000 personnel, helicopters, and AI technology. The integration of the Canadian and US economies handed the US the leverage to dictate what policies Canada adopts.

Like any tool, whether using tariffs is justified in any given instance depends on what the person wielding them intends to accomplish. If the US were implementing tariffs to protect its workers and their jobs that would be a sympathetic motivation, and Canada might be able to reach an agreement with them that could facilitate that goal while maintaining a strong trade relationship. However, the US is instead utilizing tariffs to compromise the economic sovereignty of its allies and strong-arm them into toeing their line. That’s not economic self-preservation, it’s imperialism.

Under these circumstances, what sort of industrial policy should Canada pursue? The existing deep integration of the Canadian and American economies cannot be easily or quickly reversed without it causing disruption and economic hardship—which is what has taken place during the trade war. That said, Canada could strategically assess, sector by sector, which industries would benefit from tariff protection in order to safeguard existing jobs or foster growth. This gradual disentanglement of our economies could shore up Canada’s economic sovereignty while minimizing the harm done.

In addition, Canada would benefit from an industrial policy that makes greater public investments in research, development, and education. Canada’s reliance on corporate tax breaks to encourage innovation has not produced results that justify the loss in revenues. Meanwhile, the underfunding of our colleges and universities has threatened their status as world-class institutions. By investing in the National Research Council, colleges, and universities, we can build productive capacity and cultivate an attractive climate for private investors. Given that the US is currently attacking its own universities, this is a perfect time for Canada to position itself as a leader in education and research.

Canada should also revisit its attempts to ensure domestic ownership of industry. For a developed country, the level of foreign ownership of industry in Canada is high, which has several drawbacks. Foremost, it undermines Canada’s capacity to regulate its financial, cultural, and other industries. Foreign firms also tend to transfer their profits out of the country before they can be taxed through tactics such as requiring subsidiaries to purchase goods from their parent companies at a high price. Likewise, a foreign parent company makes decisions regarding the opening and closing of plants, wages and dividends, and whether its subsidiaries can compete with their parent in export markets. The reintroduction of something like the Foreign Investment Review Agency, which was abolished in 1985 by the Mulroney government, would help ensure domestic control of Canadian industry.

In his speech on the eve of the 2025 federal election, Mark Carney declared that: “Our old relationship with the United States—a relationship based on steadily increasing integration—is over. The system of open global trade anchored by the United States […] is over.” To hear a Liberal prime minister speak so sceptically about free trade would have been unthinkable just months ago, but the trade war is an occasion for assessing what kind of industrial policy Canada should pursue. Greater economic nationalism benefitted Canada in the past. Maybe it’s time to chart a new course.

Eric Wilkinson is a postdoctoral fellow in the Department of Philosophy at the University of British Columbia.