When white smoke appears over the Vatican, it signals that a decision has been made by a conclave of cardinals locked inside the Sistine Chapel until a new pope is elected.
On May 7, the first day of the conclave following the death of Pope Francis, black smoke told the crowd waiting in St. Peter’s Square that disagreements had not been settled. There was also no white smoke floating over the White House a day earlier after Canadian Prime Minister Mark Carney and U.S. President Donald Trump concluded their first face-to-face meeting.
While there was some blowing of smoke in front of the media inside the Oval Office, nothing was decided in what had been billed as the highest-stakes-ever meeting between the leaders of Canada and the United States. Simply put, with the era of continental free trade appearing to be over, the stakes were indeed high when Carney left for Washington. And yet, how the neighbouring nations will mend their broken relationship remained unclear when he returned to Ottawa.
The Trump–Carney meeting has been analyzed to death. Mark Bowden, a body language expert interviewed by CTV, said the first handshake outside the White House clearly showed Trump had a decent impression of Carney. “Obviously, the risk always with a handshake with Trump is he’s going to pull you off balance. We see that happening time and time again,” Bowden said. “In this particular situation, he didn’t try and pull Carney off balance.” And that supposedly suggests Trump sees Carney as somebody worthy of respect.
After Trump told Carney that the Russian captain of the Washington Capitals was a great, tough, and talented Canadian hockey player, Carney’s body language, according to Globe and Mail columnist Shannon Proudfoot, showed he was doing his best to master the art of suffering fools.
Meanwhile, across the border, Stephen Miller, Trump’s Deputy Chief of Staff, told Fox News, “What I witnessed was like watching a grand master in chess perform. President Trump has opened up a completely new relationship with Canada because of his strength and because of his diplomacy.”
Many commentators, of course, simply saw—or claimed to see—what they wanted when the only real news was the lack of drama. As Eurasia Group founder Ian Bremmer noted on LinkedIn, the MAGA crowd saw Trump wipe the floor with Carney, while anti-Trump folks saw Carney play Trump like a fiddle, but in reality, the meeting was “not that exciting.”
Given the potential for conflict, former Ontario finance minister Janet Ecker gave Carney a gold star for holding his tongue in Washington. “He didn’t get Zelenskyed, and planted some really good messages,” Ecker noted in an online discussion on Canada’s future with former Bank of Canada governor Stephen Poloz, former federal finance minister Bill Morneau and Ivey Business School Dean Julian Birkinshaw.
And that, in a nut shell, can be considered enough of a win for any foreign leader visiting Trumplandia. However, being treated relatively well by Trump could ironically make political life more difficult for Canada’s freshly minted prime minister.
As Morneau pointed out during the Ivey webinar, Trump’s first 100 days in office—in which he repeatedly threatened Canada with tariff-driven economic destruction while claiming to be interested in forcing an annexation of our nation—created what could go down in history as Canada’s “Sputnik moment,” but only if the momentum for change it generated isn’t lost.
In 1957, the Soviet Union’s launch of the world’s first artificial satellite shocked the space-race complacency out of the United States, sparking a sense of urgency that led to big American investments in education and technology along with bold initiatives such as the creation of NASA.
Today, the chaos brought on by Trump’s return to the White House has been widely seen as an opportunity to finally address Canada’s complacency surrounding innovation, productivity, and overexposure to the U.S. market. But seizing this opportunity is easier said than done, especially with Trump now appearing to dial down his takeover talk while cutting back on his tariff ambitions.
On May 12, the United States essentially ended a trade embargo put in place as the main driver of Trump’s stated trade policy end game—a renaissance in American manufacturing—by slashing base tariffs of 144 per cent on most Chinese products to 30 per cent for 90 days. In return, Chinese levies imposed on U.S. products were dropped to 10 per cent from 125 per cent.
Markets soared after Trump told reporters, “We’re not looking to hurt China.” As The Wall Street Journal reported, the “surprise truce in an escalating trade fight with China, which was launched by the president with much fanfare just weeks ago, was the latest climb down from an administration that is trying to salvage Trump’s trade agenda without harming the U.S. economy.”
If Trump continues to play nice with Canada while lowering the tariff threat level, the willingness of provincial leaders and Canadian voters to support a nation-building agenda that requires some sacrifice could dissipate. And that’s why what really matters isn’t what happened in Washington with Trump—it’s what happens in Ottawa after Carney and his new cabinet get down to business.
The Carney–Trump Faceoff
Following Carney’s election victory, Trump invited Canada’s new prime minister to the White House to discuss the relationship issues that have arisen as a result of his tariff threats and takeover talk.
Prior to the meeting, Trump pushed buttons by claiming he had no idea what Carney was coming to talk about while issuing a social media post that repeated his previously stated questionable grievances with our nation. “Why is America subsidizing Canada by $200 Billion Dollars a year, in addition to giving them FREE Military Protection, and many other things?” Trump asked on his Truth Social platform, adding: “We don’t need their Cars, we don’t need their Energy, we don’t need their Lumber, we don’t need ANYTHING they have, other than their friendship.” Then during the meeting, after some more—albeit lighthearted—51st state talk, Trump said there was nothing Carney could say that would reduce tariffs on Canadian goods or change his desire to merge our nations.
As the BBC reported, Trump dominated the public part of the bilateral meeting with a lot of commentary “only tangentially related to Canada,” which left Carney “only able to interject occasionally as Trump held court.” But there was no “dust up” over disagreements, and Carney wasn’t abruptly shown the door when he did interject, using tact and humour to diplomatically make key points such as the fact that Canada wasn’t for sale.
Before leaving for Washington, Carney insisted our traditional relationship with the United States, one based on steadily increasing integration, is over. True or not, after months of acrimony with feelings of betrayal (real or imagined) being articulated by both sides, the task at hand when he met the mercurial U.S. president was cooling things down. For now, that appears to have been accomplished since Trump essentially agreed to disagree with Canadians on their desire to remain Canadian, noting “it takes two to tango.” He also showed Carney more respect than former prime minister Justin Trudeau by not calling him governor of America’s 51st state.
Nevertheless, the lack of hard news disappointed Alberta Premier Danielle Smith, who had hoped for an agreement to fast track a renegotiation of the trilateral North American trade deal that Trump celebrated as a NAFTA replacement during his first term. Instead, Carney left Washington with Trump suggesting a new agreement may not happen at all.
Carney also didn’t please Canadians looking for him to speak truth to power in undiplomatic ways. As one critic put it on social media, after campaigning on being tough with Trump, Carney’s attitude toward the U.S. president went from an aggressive “elbows up” to a submissive “thumbs up.”
According to National Post founder and columnist Conrad Black, Carney was elected by hyping unwarranted hysteria over an American takeover of Canada. Calling Trump’s comments about Canada being America’s 51st state “a nothing burger,” while insisting the U.S. president never once threatened Canada with annexation, Black recently wrote that Carney returned from Washington deserving “professional commendation for selling a fable and then harvesting the credit for helping to banish the threat that never existed.”
Black isn’t the only one who thinks the Liberals torqued the threat of annexation. But while Trump hasn’t directly used the “a” word when talking about Canada, he did say he would consider using economic force to make it happen when responding to a reporter’s question in January.
And whether he meant it or not, Canadians responded to Trump’s takeover talk and tariff threats by electing a prime minister promising to stand up for Canadian sovereignty while making big moves to improve our economy and de-risk our relationship with America.
Seizing Canada’s ‘Sputnik Moment’ Opportunities
Carney specifically advised Canadians not to expect “white smoke” out of his first trip to the U.S. capital as prime minister, noting discussions with the new America will be difficult and unpredictable. “I am not pretending those discussions will be easy. They won’t proceed in a straight line. There will be zigs and zags, ups and downs.” Indeed, given the nature of the second Trump administration, finding agreement on how to move forward will likely entail more plot twists than can be found in the 2024 Conclave movie starring Ralph Fiennes.
But back home, Carney has promised to make bold moves on the nation-building front, ones previous governments declined to even attempt, and he promised to do it “at a pace we never thought possible.”
More details about what he hopes to accomplish will come in the Throne Speech later this month. But as iPolitics notes, Carney’s currently stated priorities “largely mirror his main pledges from the spring election campaign.” And as The Globe and Mail editorial board recently argued:
“All that is known at this point is that his government has promised to lower income taxes, preserve benefits such as subsidized child care and dental care, protect agricultural supply management, spend billions of dollars more on defence, protect auto workers’ jobs, put more money into the CBC, and eliminate internal trade barriers erected by the federal government.
That is not a transformation vision of Canada. It is a garden-variety Canadian election platform filled with the usual goodies and pieties. It’s all spending and no sacrificing.
It doesn’t dare raise the question of whether the parts of the economy that rely on a wide-open U.S. border, such as the auto industry and its 125,000 manufacturing jobs, can survive untouched, with as many workers.”
The Liberal comeback victory was also met with increased talk of Western alienation. In fact, on the day Carney met with Trump, Alberta Premier Smith said she would support any citizen-led petition seeking to trigger a referendum on provincial separation, providing it gets the required number of signatures. Meanwhile, if the Parti Québécois manages to come to power next year, it plans to hold a third referendum on Quebec independence. And a potential constitutional crisis isn’t the only thing Carney has to worry about.
According to Poloz, Canada needs to be realistic about dramatically reducing dependence on U.S. trade. “I think the perception that our trade is not diversified is quite wrong,” he says, noting 25 per cent of exported goods and 50 per cent of exported services already go elsewhere. According to Poloz, improvements can be made—especially if we bring back Chrétien-era trade missions—but our current level of diversification is already remarkable given that the natural gravitational pull for Canadian exports is directly south.
Meanwhile, Canada’s economy faced strong headwinds even before the Trump administration’s erratic trade policy started sending shockwaves through the global economy. And after years of deficit spending by Liberal and Conservative politicians alike, Canada isn’t flush with surplus money to toss around.
That said, as Morneau put it during Ivey’s webinar on Canada’s future, when it comes to Canada’s federal debt, “the sky isn’t falling,” at least not relative to some other developed nations, so increasing spending is possible. Poloz agreed that Carney could increase spending. “Historically speaking, this is manageable,” he said, noting Canada’s fiscal situation has been in “much worse places before.” Meanwhile, if tariffs remain in place, Carney’s government will have a new source of revenue to help fund his agenda. And as Poloz noted, that could finance “a mini tax reform.”
But while it might make sense to spend on some nation-building and infrastructure projects while moving to remove internal trade barriers, improve productivity, and help Canadian companies lead the fourth industrial revolution, Canada can’t really afford to waste money on playing politics. As Poloz put it, new spending “will need to be choosy,” targeting initiatives and projects with clear business cases for investment without crowding out the private sector as the driver of the economy.
And that could be a problem. After all, as Birkinshaw pointed out, a divided Canadian electorate gave a record number of votes (over 40 per cent) to both the Liberal and Conservative parties (while limiting the New Democratic Party to a handful of seats and weakening the sovereigntist Bloc Québécois). That leaves Carney with a minority government that must “navigate serious headwinds, affordability pressures, strained relations with the U.S., and a sluggish economy. At the same time, business leaders are sounding the alarm, citing declining investment, productivity challenges, and competitiveness hurdles.”
And then there is the potential for new global chaos-generating policies coming out of Washington, where nobody seems willing or able to check Trump’s wilder impulses before they are put in play.
Meanwhile, as Poloz noted, even if Trump’s tariffs end up at 10 per cent, the Canadian economy would still be hit with “a huge number, a very disruptive number,” so nobody shouldn’t let announcements of temporary tariff reductions carry them away with relief.
So, what should top the government’s immediate to-do list? According to Ivey’s webinar on Canada’s future, seizing Canada’s Sputnik moment opportunities will demand policy clarity, cross-sector collaboration, and the courage to confront difficult trade-offs. But momentum for change must be maintained by securing some early wins related to eliminating internal trade barriers or tax and regulatory reforms.
As Ecker said, “We’ve been talking about interprovincial trade barriers since the 1980s, and we are still talking about them… if we actually make progress on this file, this time, in my lifetime, I think we should send Trump a thank you note.”
Like with making tax and regulatory reforms, eliminating internal trade barriers is something Canada can do on its own to boost the economy. But historically, as Poloz noted, when “the rubber hits the road” nothing gets done and about 4 per cent of Canada’s GDP is left “lying on the sidewalk” because provincial leaders won’t put sacred cows on the table to pick it up.
As a result, Carney’s challenge will be convincing the provinces to look beyond initial job losses to the greater job gains that will result. To do this, Poloz says the federal government should consider paying provinces upfront to take the leap of faith via increased transfer payments tied to trade barrier removals.
On the improving Canadian productivity front, Ecker says a priority should be placed on incentivising Canadian companies to invest more in R&D and technology, while Morneau said another focus should be on creating more investment opportunities, possibly through privatizations. Poloz, who chairs the advisory council at Ivey’s Lawrence National Centre for Policy and Management, noted there is plenty of low-hanging fruit to target, including fixing processes that delay things, shrinking the public sector’s share of the economy, and helping small growth companies get credit.
Looking Forward
On Day 2 of the recent papal conclave, the crowd waiting for an answer outside the Sistine Chapel erupted with a cheer as white plumes appeared in the sky. After just one day and 24 minutes of so-called conclave time, Chicago native Robert Francis Prevost was elected the 267th pontiff, not to mention the first American head of the Roman Catholic Church. He took the name Pope Leo XIV.
But nobody should expect similar speed when it comes to addressing Canada’s relationship woes with America—and not just because Carney and Trump haven’t been sequestered in the White House to find an immediate resolution to our issues.
Like picking a new pope when there is a lot of drama and unclear agendas in play, resetting the Canada–U.S. relationship with an official trade pact could take a long time. According to Bremmer at the Eurasia Group, so long as Trump gets away with using emergency powers to run American trade policy without congressional approval, a new North American deal might even take longer than the 13th century conclave that ran almost three years, leading to the idea of locking up cardinals until a new pope is selected.
Whatever happens, the big question is not if or when a new trade deal with America will be reached, but whether or not Canada’s Sputnik moment leads to a more resilient, productive, and diversified economy. To make real changes, the provinces and business community will need to cooperate, but as Birkinshaw put it, success or failure really all “comes down to Carney’s as yet unproven skills as a political leader.”
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