By Maria Cheng
OTTAWA, Aug 26 (Reuters) - Prime Minister Mark Carney has the support of most Canadians after breaking off trade talks with the U.S., but widespread approval of his pushback against U.S. President Donald Trump could disappear within months as the consequences of the trade war sink in.
Carney's negotiating position could also weaken if Republicans retain power in Congress after November U.S. midterm elections and reinforce American protectionism under Trump.
Carney is one of the few global
leaders to retaliate against U.S. tariffs, despite Canada's dependence on U.S. buyers for about 70% of its exports. On Tuesday, his government announced dollar-for-dollar counter-tariffs on $20 billion of U.S. goods, as well as a C$7.5 billion ($5.41 billion) package of economic support measures.
“Carney’s leverage will start to diminish if this escalating trade war starts to show up in palpable increases in unemployment, factory shutdowns and declining income,” said Julian Karaguesian, a former adviser at Canada’s Finance Ministry and economics professor at McGill University. “Canada cannot win an economic war of attrition with the U.S.”
The U.S. economy is 13 times larger than Canada's, a country with a population roughly the size of California's.
Carney's office did not respond to a request for comment.
The additional tariffs — from both sides of the border — along with Trump’s renewed threats to Canada’s sovereignty, mark one of the most acrimonious moments in modern Canada-U.S. relations. Trump’s actions have prompted an outpouring of support for Carney, who has urged middle-power nations to band together to form a new global order and pursued new trade and security alliances to disentangle Canada from its reliance on the U.S.
'WAR MENTALITY'
The U.S. introduced last-minute changes to its tentative trade deal with Canada, adjusting U.S. auto tariffs, curtailing French-language requirements and restricting Canada's ability to pursue trade agreements with other countries, Carney said on Saturday. Asked by CNN on Tuesday about making last-minute changes, Trump said, "That sounds like me."
Carney invoked military language to describe the trade dispute, saying Canada had been "attacked." An Angus Reid poll showed on Sunday 76% of Canadians approved of Carney's decision to suspend trade talks. But the same poll showed 40% of Canadians are worried their jobs are at risk.
Dan Arnold, a former research director for ex-Prime Minister Justin Trudeau, said Canadians are aligned with Carney’s approach toward Trump.
“It’s like any kind of war mentality where you see people are willing to make sacrifices to press back against the U.S.,” he said. “Politics is about storytelling and there is the greatest cartoon villain ever in the form of Trump,” said Arnold, who now works at the polling firm Pollara.
“Canadians are blaming Trump for the economic difficulties, not Carney,” Arnold said. Still, he estimated Canadians would continue to back Carney for at least the next six months. "Whether he can keep the public behind him for longer than that is an open question."
Americans favor the Democratic Party over Trump's Republicans on cost-of-living issues, a Reuters/Ipsos poll said on Monday.
Canada's economy has weathered Trump's tariffs on steel, aluminum, autos and lumber imports. Most of Canada's exports have previously been exempt from tariffs under the U.S.-Mexico-Canada trade agreement. Economists expect data later this week to show a sharp rebound in Canada's second-quarter economic growth, while its unemployment rate fell in July to 6.4%, a two-year low.
But while Trump's latest tariffs affect 5% of Canadian exports, they could eventually result in 90,000 lost jobs, said Trevor Tombe, an economics professor at the University of Calgary. A U.S. withdrawal from USMCA would likely tilt Canada into recession, according to Canada's central bank.
CLOCK RUNNING
McGill’s Karaguesian cautioned that even if Democrats do well in the midterms, Carney might continue to face pressure from Trump.
“Trump ignores the courts, he’s running a major war without the approval of Congress, and he’s started a trade war with the entire planet,” he said. “Even if the Democrats regain the House or the Senate, that is not going to stop Trump.”
A White House official said any suggestion that a Democratic midterm victory might temper Trump’s policies toward Canada was “a desperate pipe dream.” The official said Trump was leveraging his executive powers to impose tariffs on Canada for its unfair trade practices.
Trump has accused Canada in recent days of ripping off the United States for decades and threatened to change the name of Lake Ontario to Lake America.
Expected job losses, inflation and cost-of-living pressures will ultimately limit Carney’s ability to push back against the U.S., Karaguesian said. Canada has the highest rate of food inflation among all Group of 7 industrial countries and has been facing a housing affordability crisis for years.
“Canada can push out more exports to the rest of the world, but Carney’s clock is already running out,” he said. “At some point when more and more people are losing their jobs and visiting food banks, the public will say, ‘we know this is not your fault, but go make a deal with Trump.’”
($1 = 1.3875 Canadian dollars)
(Reporting by Maria Cheng; Editing by Caroline Stauffer and Rod Nickel)
