Waterloo professor says Canada may yet thrive in Donald Trump’s world trade war
U.S. President Donald Trump has launched an unprecedented tariff war against more than 180 countries – what I call “World War Trade” (WWT). I argue that from a competitive dynamics perspective, it’s a strategy that has some merit – for Canada.
Competitive dynamics is a rich field of research that examines how firms engage in competitive actions, and how those actions shape rivals’ responses and overall performance. It provides a robust, evidence-based lens with significant explanatory and predictive power for understanding competitive interactions.
The research shows that firms that initiate aggressive moves often secure a decisive advantage, particularly when competitors hesitate or fail to respond promptly. For instance, airlines launching price wars typically outperform those that remain passive. Another key insight is that the likelihood of competitors retaliating depends heavily on critical factors, such as the relative power between the aggressor and the targeted firms, the extent of multilateral competition among targeted rivals and the degree of familiarity between the aggressor and its targets.
Applying competitive dynamics logic to global trade, it allows some bold predictions to be made about the trajectory of WWT: Mr. Trump’s tactics will work, to an extent, as most countries will likely not retaliate. But China’s determined retaliation might cleverly turn threats into strategic advantages, undermining the intended impact of WWT. And as the U.S. and China deepen their rivalry, significant opportunities are emerging for Canada to claim its economic sovereignty.
The global reorder
The U.S. is imposing different tariffs on different countries, creating an uneven playing field – and uneven advantages – for some over others. Consider an analogy from the airline industry: instead of lowering ticket prices across the board, the U.S. selectively cuts fares for certain airlines but not others, forcing them all into a fierce price war. That’s precisely what’s happening now. With varied tariffs in place, exporters aren’t simply contending with U.S. duties – they’re competing fiercely against each other for access to the world’s largest and most coveted consumer market.
Indeed, initial reactions from top exporters to the U.S. – including Japan, Vietnam, South Korea, India and the U.K. – haven’t been retaliatory. Instead, they’ve chosen to negotiate directly with Washington, clearly underscoring the strength of America’s bargaining position.
Second, the structure of global value chains significantly reinforces U.S. leverage, as most countries depend far more on the U.S. market than vice versa. Major exporters are deeply embedded in American supply chains, with business models specifically tailored to serve U.S. consumers. Such dependency isn’t undone overnight. When you depend heavily on a giant, you don’t throw stones, you renegotiate.
Dr. Victor Cui, professor at the University of Waterloo's Conrad School of Entrepreneurship and Business.
In short, Mr. Trump has transformed a traditional bilateral trade conflict into a multilateral competition, which, as competitive dynamics research suggests, positions the U.S. to exploit the rivalry among its trade partners. Think of this not just as a WWT, but as Survivor: Global Export Edition.
China, of course, is in a category of its own. As primary strategic rivals, the U.S. and China share a deeper mutual interdependence than any other bilateral relationship. This intense interdependence grants China significant leverage to retaliate effectively.
The repeated tit-for-tat exchanges that defined the U.S.-China trade war beginning in 2018 have locked both nations into a cycle of ongoing strategic engagement. In competitive dynamics research, this is known as the Red Queen effect, where each side must continually match or surpass the other’s moves simply to hold its position.
But China’s retaliation isn’t just about responding in kind; it can strategically position China to gain a competitive advantage in global trade. By specifically imposing higher tariffs on all American goods, China indirectly grants exporters from other countries a relative advantage in accessing its market – the world’s second-largest consumer base. As these countries face increasingly tough barriers to the U.S., China’s strategy could make them more inclined to strengthen trade ties with Beijing over Washington. In doing so, China not only reinforces its role in global value chains but also helps sustain an economic order that many countries have long depended on and are reluctant to see fundamentally changed.
The Canadian power play
Closer to home, Canada’s retaliation against the U.S. has been smart, grounded in our deep understanding of American vulnerabilities. But such measures can only serve as a short-term tactic. With 20 per cent of our GDP tied to U.S. exports, what we truly need now is a bold, long-term national strategy to claim our economic sovereignty, one that shields us from the whims of any single trading partner.
The competitive dynamics research suggests that ultimate success in competition lies in a firm’s unique and irreplaceable competitive advantages. Our economic sovereignty must be built on such strengths – resilient, diversified and future-ready. In today’s global arena, sustainable competitiveness is no longer defined by who controls the most oil or lumber. Instead, it hinges on who leads in talent and breakthrough technologies, such as artificial intelligence, quantum science, energy storage and advanced robotics.
Canada now faces an unprecedented chance to build our strengths as the two superpowers reshape the global economic order, unlocking prospects that could work in our favour. For instance, as rising geopolitical tensions create barriers to the free flow of top talent, we can reform our immigration policies to position Canada as the most attractive destination for the world’s brightest minds.
Similarly, as political forces increasingly hamper investment into these countries, we can revolutionize our investment strategies by channelling capital into scaling Canadian ventures, reversing the talent drain to Silicon Valley and transforming Canada into a global magnet for innovation and a launch pad for world-changing ideas. Moreover, we must leverage the rivalry between superpowers by diversifying our trade partnerships and reducing our reliance on any single market. Measures like these could anchor Canada at the top of global value chains.
Mr. Trump may very well win WWT – or at least declare victory – not because his strategy is fair or elegant, but because it leverages America’s dominant position and the world’s structural dependencies. Canada must take this pivotal opportunity to reshape its own positioning and long-term strategy, by shifting lines, changing its approach and taking control of the play. We did it on the ice; now let’s seize the moment and claim our economic sovereignty.
Dr. Victor Cui is a professor of entrepreneurship, innovation and global strategy and the Conrad Research Excellence Chair at the Faculty of Engineering’s Conrad School of Entrepreneurship and Business. This opinion piece recently appeared in the Globe and Mail.
Watch How Canada can survive Trump's world trade war, Dr. Victor Cui's interview on BNN Bloomberg, to find out more.
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