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Prime Minister Mark Carney greets U.S. President Donald Trump during an arrival ceremony at the G7 Summit at the Pomeroy Kananaskis Mountain Lodge in Kananaskis, Alta., on June 16, 2025. Brendan Smialowski/AFP
7/3/2025|Updated: 7/4/2025
News Analysis
The Trump administration has had a significant global impact, particularly in disrupting the status quo in international trade. But its northern neighbour—with whom the United States shares deep economic and historical ties—has experienced transformative changes on multiple fronts as a result of Trump’s presidency, including shifts in domestic policy.
It is something Prime Minister Mark Carney has recognized, calling Trump “transformational” when the two met at the White House in early May.
During the term of former President Joe Biden, border security and combatting fentanyl were not high on the agenda in Ottawa. Talk of slashing regulations to boost the economy was the purview of the Conservative Opposition and not government, and reaching NATO’s defence spending guideline was a goal set for 2032.
Much of this changed after Trump won the presidential election on Nov. 5, 2024, starting with the threat of tariffs related to border issues. Since then, it’s been a continuing saga, from Trump’s declarations about wanting to see Canada become the 51st U.S. state to the back and forth on trade.
The ways in which Trump has influenced Canada, even before beginning his second term, have been multifaceted. In many cases the Liberal government, at odds ideologically with Republicans in general and Trump in particular, has presented the resulting changes as necessary for Canada to grow economically or to assert its sovereignty.
Dropping DST
In other cases, Ottawa has been essentially compelled into overturning policies it was defending only a short while ago. The latest example is the decision to abolish the Digital Services Tax (DST) on June 29, two days after Trump said he was cancelling all trade talks with Canada over the issue.
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The DST, which applies to foreign and domestic businesses earning online revenues from services offered to Canadians like marketplaces and social media, came into force last year and applied retroactively to 2022. The payment deadline was June 30 of this year.
The White House, under different administrations, viewed the DST as a trade irritant and unfair targeting of U.S. businesses. Trump called it a “direct and blatant” attack on his country when he cancelled trade talks on June 27. Ottawa has been informed that the DST would stand in the way of trade talks. Trump’s top economic adviser Kevin Hassett said the president had requested the DST’s removal when he met with Carney at the G7 Summit in Alberta on June 16.
Three days after that meeting, Finance Minister François-Philippe Champagne said the DST was being broached as part of “broader discussions” on trade, while adding the DST is “enforced and it’s going to be applied.”
Canadian and American flags are pictured at the Peace Arch Historical State Park at the Canada-U.S. border in Blaine, Washington, on Aug. 9, 2021. Jason Redmond/AFP via Getty Images
On June 29, Champagne announced the DST would be rescinded by way of legislation, in order to allow negotiations with the United States to make “vital progress.”
On June 30, Carney said the pull back was “expected” as the two parties work on a final trade deal.
Border Protection, Drugs Enforcement
Carney and Trump have been holding direct talks on trade, with the objective of reaching a deal by July 21. Since Trump took office in January, Canada has faced multiple sets of U.S. tariffs on metals and automobiles, some carrying free trade exemptions.
Canada and Mexico have been specifically targeted by tariffs related to Trump’s concerns about border security around drug trafficking and illegal immigration.
Trump’s threat of tariffs in late November 2024 was his first act to kick Ottawa into high gear and bring changes to its security architecture.
Hoping to avoid the punitive tariffs, the Liberal government produced a $1.3 billion border plan, promising increased surveillance and enforcement along the world’s longest non-militarized boundary.
Tariffs were still imposed after Trump acceded to the White House, leading to Ottawa taking more steps to placate the president in February, including the appointment of a “fentanyl czar” to coordinate the fight against the deadly synthetic opioid, as requested by Washington. Canadian officials also started using the terms “illegal migration” when attempting to show the Trump administration that Canada was taking action on the issue, whereas before Ottawa’s de facto official terminology appeared to be “irregular migration.”
Perhaps more impactful was Canada’s following the U.S. lead in adding seven transnational criminal organizations, including Mexican drug cartels, to its list of terrorist entities. The decision expanded security agencies’ tools to counter drug trafficking affecting both sides of the border.
Firearms and illicit drugs seized at a superlab in Falkland, B.C., are displayed as David Teboul, assistant commissioner with the RCMP’s Pacific region (C), holds a press conference in Surrey, B.C., on Oct. 31, 2024. The Canadian Press/Darryl Dyck
Yet the measures were still not enough to persuade Trump to pull back on the tariffs, which are said to be related to border security concerns.
As a means to bolster its border plan and give increased powers to security agencies, the Liberal government tabled its Strong Borders Act this spring. Bill C-2’s full title is “An Act respecting certain measures relating to the security of the border between Canada and the United States and respecting other related security measures.”
The omnibus bill would amend multiple acts of Parliament to counter drug trafficking and tighten immigration rules, including making it easier to add precursor chemicals used in narcotics manufacturing to the controlled substance list. The bill would also make it harder to claim asylum in Canada.
The bill has met early pushback from Opposition parties and advocacy groups for going beyond stricter border and criminal enforcement, including provisions to facilitate security agencies’ access to internet subscriber data. The bill would also remove current mail protections and allow Canada Post to search letters.
It’s unlikely that Ottawa would have gone ahead with such moves had a Democrat been in the White House. The Biden administration did not prioritize border enforcement, nor did it widely use tariffs as a tool of foreign policy.
NATO Secretary General Mark Rutte speaks during a press conference in Brussels, Belgium, on June 4, 2025. Bob Reijnders /Middle East Images via AFP via Getty Images
Upping Defence
One area where Ottawa was being pressured before Trump’s second term is defence spending. Former Prime Minister Justin Trudeau arrived at the NATO Summit in Washington last year with no stated plan for reaching the military alliance’s defence spending guideline of 2 percent of GDP.
A few months earlier in April 2024, the Trudeau government had released a defence policy update, aiming to spend 1.76 of GDP on defence by 2029–30. After the summit, Trudeau said the NATO target would be reached by 2032.
Then came Trump. The president had long criticized NATO allies who did not meet the spending target. After he took office, NATO members responded by committing to increase spending to meet the alliance’s 2 percent target, including lower spenders like Belgium and Portugal.
On June 9, Carney committed to meeting the 2 percent benchmark by the end of March 2026. The announcement came days before Canada hosted world leaders in Alberta for the G7 Summit, and before the NATO Summit in The Hague in late June. There, Canada and its allies agreed to increase defence spending to 5 percent of GDP by 2035.
NATO Secretary-General Mark Rutte attributed the increased spending commitments to Trump’s influence.
“I want to state here, without President Trump, this would not have happened,” Rutte said on June 25.
Carney said meeting the new 5 percent target is not about pleasing NATO but rather defending Canadians and the country’s sovereignty.
“We’re focused on the outcome, the result, protecting Canadians. We’re driven by that, not by—with all due respect sitting in the NATO building—by NATO accountants,” he said on June 25.
The increased spending makes defence one of the largest items in the federal budget. The Parliamentary Budget Officer estimates defence spending will exceed $62 billion in 2025–26. Health transfers to the provinces are projected at $54.7 billion over the same period.
Some of Canada’s new defence spending could eventually be geared toward joining Trump’s plan for a “Golden Dome,” a new air defence system to protect against sophisticated missile threats. Ottawa has been in discussion with Washington on the issue.
CN rail trains are shown at the CN MacMillan Yard in Vaughan, Ont., on June 20, 2022. The Canadian Press/Nathan Denette
Internal Trade Barriers, Economy, and Election
Carney ran an election campaign mainly focused on standing up to the Trump administration, with the Liberals presenting Carney as the best candidate with the relevant experience to handle the “crisis.”
A combination of the unpopularity of the Trudeau government—which led to his caucus seeking his ouster—declining economic indicators, and the new U.S. administration led to the Liberals campaigning on several policies that went against what the Trudeau Liberals had championed for years.
The result has been a change in Canada’s course, particularly from the likelihood in late 2024 that the Conservatives would sail to victory, according to months of favourable polling.
The Liberals and Conservatives fought a campaign based on who would better respond to Trump, with both parties committing to growing Canada’s economy, whether by removing internal trade barriers, finding new export markets, or speeding up launching major projects by cutting red tape.
Before the House of Commons went on summer break, the Liberal government managed to pass promised tax cuts along with Bill C-5, removing federal barriers to interprovincial trade.
The legislation also speeds up development of major projects deemed to be in the national interest. While these have yet to be chosen, some of the propositions on the table could have a major economic impact for Canada. It remains to be seen whether they will include new pipelines, but had Trump not been there, the urgency to reduce Canada’s dependency on the United States for its oil trade would not likely have become an issue for national debate.
Nor would celebrating Canada’s national identity have likely returned to the forefront after years of government-promoted messaging that criticized Canada’s past. Trudeau started his mandate in 2015 by declaring that Canada was a post-national state with no core identity. Trudeau later said in 2019 that Canada’s historical actions around the treatment of indigenous women and girls amounted to “genocide.”
While a focus on protecting indigenous rights has remained in Liberal Party messaging, the party stayed away from strongly criticizing the nation’s past during the election campaign. The Liberal Party said that in this “time of crisis, protecting our culture and identity is a critical part of keeping Canada strong.”
In a statement for Canada Day this year, Carney called the country the “greatest nation on earth
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