The United States Should Not Annex Canada

It's not in America's best interests

The proposed annexation of Canada is in the news.

I’m publishing this piece on 15 January 2025, which means the second inauguration of Donald Trump as President of the USA is less than a week away. He’s made many claims about what he wants to achieve with his administration. Regarding Canada, he’s made two big ones.

The first was that he will impose 25% tariffs on Canadian imports.

The second was that he will seek to annex Canada and incorporate it into the USA.

The tariffs are being taken very seriously in Canada, given the significant damage it would do to the Canadian economy (and, for that matter, the American economy too). But the second, as far as I can tell, is being met with bemusement.

To be clear, annexation will not happen. It’s hideously unpopular with Canadians. Some polls say 82% reject the idea; others 94%. Both the current and the future prime minister have rejected it; not incidentally, so has the premier of Quebec (about which more in a minute). But it’s also probably not what Trump wants either: the tell is that he explicitly ruled out the use of the military to achieve annexation, instead relying on “economic force”. At the same time, he pointedly did not rule out military action to acquire the Panama Canal or Greenland.

And that was the tell. What will happen with Greenland or the Canal I cannot forecast, but with Canada, I think Trump will be satisfied with merely inflicting economic punishment, and the annexation talk is just a way to shift the Overton window to make that punishment seem more reasonable. Certainly that is what the Prime Minister thinks, and I agree with him.

But even so, there are at least some people who think merger of the two countries would be a good idea, like Matt Yglesias, who wrote this week that he “absolutely favor[s] US-Canada amalgamation”, or Diane Francis, who wrote an entire book to promote the idea.¹ Or perhaps they’re just trolling? It’s so hard to tell these days.

But even though we’ve been explicitly cautioned not to do it with Trump, let’s take all these people seriously and literally, and consider the idea.

This isn’t a mobility-related matter, but that’s only one of our themes here at Changing Lanes. Another is progress, and specifically thinking about how technology and policy, applied wisely, can make the world a better place than it is now. In my last post of 2024, I suggested that on matters like these, we need to think big, and not immediately reject ideas that are audacious just because they would be difficult—otherwise, we’d lose our ability to take seriously any big idea. And indeed, that post did propose, seriously and literally, that Canada should get bigger. Joining the USA would certainly achieve that goal.

So I ask, would this be progress? Should Canada and the USA merge?

In a word: no.

Source: Donald Trump's Truth Social account, 1921h ET, 7 January 2025. I note that both Hawaii and Greenland are missing.

We can already see why: there’s no constituency for it in Canada, and for a merger to be successful, both parties need to support it. Otherwise, it’s not a merger but a hostile takeover, and those are out of bounds. I am all for keeping an open mind, but there are limits, and that is one.

But rather than merely declaring victory and going home, I’d like to explore the case a bit further, because I think we can establish, on the merits, that a merger is a Bad Idea, even only taking American interests into account. Meaning that, even if the USA was prepared to use force (economic or otherwise) to incorporate Canada into the United States, against Canadians’ wishes, it would still not make sense to do it.

That’s because the USA already has everything it needs from Canada: we freely trade goods, share resources, and work together on defense. The only things annexation would ‘gain’ America would be a sub-optimally organized economy, and an even-more-divided political system. Conversely, the way things work now, maintaining two friendly countries that work closely together while running their own affairs, is better for the United States on the merits.

The Economics Are Bad

Let's talk trade first. If the USA took over Canada, what would it gain?

It’s already the case that, every single day, the U.S. and Canada exchange about $3 billion USD worth of goods and services across the border. That figure is so large it defies the ability to think clearly about it. Cars built in Ontario use parts from Michigan, and vice-versa. Oil from Alberta is refined in Texas. Lumber from British Columbia builds houses in California. Our supply chains are completely intertwined.

"But wouldn't it be better if we controlled all this directly?" annexation supporters might ask. Why? Thanks to the USMCA trade deal, American companies already have almost completely open and tariff-free access to Canadian markets.² Yes, there are some regulations that make cross-border business more complicated, and some tariffs persist without good reasons: California would be building more homes if that British Columbian lumber wasn’t subject to unreasonable tariff. There is, and always will be, room for improvement. But American access to Canadian markets, to buy and sell, is already subject to as small amount of friction as exists between any two nations in the world.

But let’s stipulate that eliminating that quantum of difficulty was something the USA wanted to do. A new friction would emerge: the problem of running a single central bank for two different economies.

In 1961, Canadian economist Robert Mundell coined the term optimal currency area (OCA) to describe an area that would best be served by having its own currency. This wasn’t something that had really been thought about before, it just being taken for granted that a single political entity should have a single currency within it. But Mundell did think about it and argued that economies that were roughly similar—sharing a business cycle, mobility of capital and labour, and fiscal transfers to offset risk—would benefit from a single currency.

To my mind, the most useful way to deploy this idea is to think about areas that share a currency that are not an OCA. Older readers may remember the so-called ‘eurozone crisis’ of 2010 and subsequent years, which nearly led to the collapse of some European countries: the proximate cause was that to manage the terrible business cycle that began with the Global Financial Crisis of 2009, the less-wealthy European nations should have weakened their currencies, but because they shared the Euro with stronger economies like Germany and France, they could not, leading to massive unemployment and public debt. Ultimately German and French bailouts ended the crisis, in return for strong austerity programs for the recipients, a solution that caused massive ill will throughout the Eurozone.

A single US dollar for all North America would threaten just such an outcome for the USA.

It’s already the case, arguably, that neither the USA nor Canada is itself an OCA. To oversimplify: the USA has Silicon Valley tech, Wall Street finance, Midwestern manufacturing, and agricultural zones throughout. The former two do so well that they raise the value of the American dollar, making the exports of the latter two uncompetitive: one reason those regions struggle with relative poverty. Similarly, Canada's economy depends heavily on exports of Albertan oil and gas, and Ontarian manufactured goods. When oil prices spike, Alberta booms while Ontario struggles; when they crash, it’s the opposite. The fact that these different economies are obliged to use the same currency means it’s not possible for all regions within the country to flourish at the same time. But at least the country’s central bank can adjust its interest rates, and its government can arrange for fiscal transfers, to attempt to spread the pain around.

If Canada and the USA merge, the problem would get even bigger, and the tools to solve them less effective.

This isn’t merely a theoretical case. When oil prices crashed in 2015, Canada's economy took a much bigger hit than the American one. The Bank of Canada cut interest rates to help its resource sector recover, while the Federal Reserve raised rates because the U.S. economy, buoyed by cheap oil, was doing well. Both moves made sense in context. Had there been only one central bank, it would have had to pick winners and losers.

The very size and diversity that makes North America economically dynamic also make it politically complex to govern. Just as different regions require different monetary policies, they also demand different political approaches. And while Canada and the U.S. can currently manage these variations, merging the countries would exacerbate existing tensions, leading to a bad outcome for the enlarged USA.

The Politics Are Worse

Adding 40 million Canadians to the USA’s highly polarized politics would upset all the existing alignments in ways that many Americans would dislike.

Trump likes to jeer about Canada being the “51^st State”, so let’s take him at his word and assume all of Canada is admitted to the Union as a single entity. (Of course Canada has 13 subnational jurisdictions.) The admission would dramatically alter the character of the American government.

Politico has run the numbers, and finds that the result would be Canada would receive two new senators, and would after reapportionment from other states take 45 seats in the House of Representatives. This would make Canada the second-largest bloc in the House, just behind California’s 46. And rather like the average Californian, the average Canadian leans left relative to the national baseline. The status quo on issues like taxes, healthcare, and climate change would change dramatically.

This shift would be dramatic in presidential politics as well. With 47 electoral votes (as per Politico) and a strong Democratic lean, Canadian participation would tilt the electoral map. A Democratic presidential candidate would start with 253 electoral votes to Republicans' 202, needing only two swing states to secure victory while Republicans would need to win five.

Source: Politico, though as far as I can tell, this is just a regular presidential map with Canada added and shaded blue.

That doesn’t make a Republican victory impossible. If Canada had been able to vote in the 2024 election, Trump still would have won, given that he didn’t lose a single battleground state. But it’s hard to believe that one side in America’s endless struggle with itself would accept such a disadvantage, or that whatever solution that side proposed—territorial status?—would be acceptable to the other.

America's political system is already stressed. Adding an entire country's worth of voters, politicians, and political traditions would likely break it entirely.

The Question of Quebec

All this political analysis depends on the idea that Canadians are, more or less, similar to each other. But a moment’s thought reveals that it isn’t so. Out of 40 million Canadians, 8.5 million of them speak French; have a legal system distinct from both English Canada and the United States; and many of whom are unhappy with being part of the Canadian federation, much less being compelled to join the American one.

It's been a long and pained history, but for the past thirty years English Canada and Quebec have accommodated each other reasonably well. There’s a delicate balance where Quebec gets special powers to protect its French language and culture, while still staying part of Canada. Quebec has substantial autonomy over immigration into the province, controls its own cultural policy, and legally mandates that French is the primary language of business and government and education, even for English speakers. Immigrants to Quebec are expected to learn French, use it exclusively when dealing with the government, use it first when dealing with the public (the famous “bonjour-hi” of retail staff in Montreal), and have their children go to French-language schools.

The accommodations extend outside of the province. Nationally, the country’s government is bilingual. What’s more, there is an informal understanding that at least one in any two consecutive Prime Ministers shall be a Quebecker. Of the twelve postwar Prime Ministers, seven were elected from Quebec ridings. (And of the five who didn’t, two—Joe Clark and Kim Campbell—held power for only nine and five months respectively.)

There is just no way to accommodate these expectations into the U.S. system. America is firm that English is its only official language, as Puerto Ricans could tell you. Would the country make an exception for Quebec? If it did, other states would demand similar rights. If it didn't, there would be 8.5 million new Americans who’d be very unhappy.

And how long would they remain American? Quebec separatism has been quiescent since 1995, but there are signs it is poised for a comeback: ironically, it is only Trump’s threats of tariffs and annexation that may keep it at bay. If Quebec were to go from being one province out of ten (with special status) to being merely part of one state out of 51 (with no special status), separatism would be back with a vengeance.

Because I can’t see how the problem could start, I can’t see how it would resolve. Perhaps the USA would permit Quebec to go, or not require them to join. But then why annex Canada in the first place? Or force it to be part of the USA, irrespective of the consequences? Get Alex Garland on the phone.

Deepening Ties, Not Dissolving Borders

Even brief analysis reveals that annexation is impractical, a solution in search of a problem. Trump's own words suggest he knows this: his annexation rhetoric appears designed primarily to shift the Overton Window on U.S.-Canada relations, making his aggressive tariffs seem moderate by comparison.

Prediction of Trump is folly, but if I had to do so, I’d argue his real policy goals are to:

• Force Canada to increase its contribution to the common defense, which is a good idea

• Force Canada to harden its borders with the USA to prevent the flow of migrants and drugs, which is a bizarre idea, as the flow is negligible, and even if it wasn’t, it’s the receiving side that has the power to block them

• Exercise his mercantilist economic philosophy

And his non-policy goal is, as always, to aggrandize himself, while delighting his friends and upsetting his foes with his bravado. Given all this, there’s no need to consider the case any longer.

But rather than dismiss this moment as mere political theatre, we should seize it as an opportunity to think ambitiously about strengthening Canadian-American relations. Lost within the confusions here, there’s a real insight, which is that deeper integration could benefit both nations. The confusion stems from assuming that political union is the only path to achieve it.

Instead of trying to merge two nations that function better separately, we should build on what already works. The U.S. and Canada have achieved remarkable success in integrating their economies through USMCA (or CUSMA, as you prefer), permitting relatively-free movement of capital and goods across the border. Let’s go the next step, and make it easier for people to move too, such that Americans and Canadians can live and work in each other’s countries. Europe has its Schengen zone; Canada and the United States should have something similar.

This approach would capture the benefits that annexationists claim to seek, while avoiding its pitfalls. Tech workers could move seamlessly between Silicon Valley and Vancouver; financial professionals between Toronto and New York. Companies could deploy talent across the border as needed. Yet we'd preserve the crucial advantages of separate systems: two central banks that can each respond to their own economic needs, and two political systems that can address their own civil concerns, without reference to each other.

Canada would have to invest much more in port and border security, to maintain a border with the rest of the world as firm as the United States’ is. And we’d have to align our immigration policies more closely with the USA. These costs, I think, would be more than worth it.

The United States and Canada already have the world's most successful bilateral relationship. The right move is to deepen the relationship, rather than dissolve it.

1. To be clear: neither was arguing for annexation, but for accession: that both countries should want, and act to achieve, Canada’s admission to the United States.

2. Or CUSMA, as it’s known in Canada. It amuses me to no end that after Trump insisted that the USA’s name come first in the renegotiated NAFTA, the other parties just began putting their own countries’ name first when referring to it themselves.