Rude lessons: On the U.S.-Canada trade dispute, lessons for India

The U.S.-Canada trade dispute has a few sharp lessons for India. The two economies have been deeply economically integrated since at least 1965, when they established free trade in automobiles and their parts. This then widened into a full-fledged free trade agreement in 1989, which was expanded into the North American Free Trade Agreement (NAFTA) about five years later. The economic integration between the U.S. and Canada has steadily continued and, by all accounts, has worked well for both economies. The target for the much smaller Canadian economy was to achieve economies of scale by producing vast amounts of a few products. According to Nobel laureate Paul Krugman, Canada accounts for 70% of the oil refined in the American Midwest, and supplies 60% of the nation’s aluminium. It also supplies nearly all the types of lumber used in U.S. residential construction. Yet, despite this long and fruitful trade partnership, their economic relationship has fallen to a new low. Canada pulled out of negotiations over a new tariff deal citing last-minute insertions by the U.S. side. The U.S. has made a similar allegation against Canada. Canada recently levied reciprocal tariffs on the U.S. of up to 50% as a reaction to the 50% tariffs that the U.S. has imposed on imports from Canada. From September 29, the U.S. will outright ban certain Canadian alcoholic spirits, some dairy goods, and motorcycles. Statements by U.S. President Donald Trump are hardly conciliatory in nature.

The first lesson for India lies here: if this is how the U.S. treats a next-door neighbour, alliance member, and long-standing trade partner, India should not take for granted any favourable treatment that it might receive from the U.S. The second lesson is that barrelling ahead with trade deals might not always be the best plan. Before Canada, Malaysia also backed out of a deal it had signed with the U.S. It argued that once the U.S.’s reciprocal tariff system was deemed illegal, the benefit from a trade deal no longer outweighed the costs of opening up to the U.S. Despite the success of its recent trade pacts, India should weigh the same pros and cons when it comes to the U.S., especially since a deal might not be the end of the tariff pressure. India has faced this before. Despite the February 2026 agreement of 18% tariffs on imports from India, the U.S. has forged ahead with its forced labour and excess capacity investigations that could see tariff levels exceed that limit. India has done well to insist that a deal will not be struck until its advantage over its competitors is clear. The third lesson is that this advantage can vanish even after a deal is struck.