How the Canada–US trade war could reshape globalization

President Trump announced on September 7 that Bombardier would not be allowed to sell aircraft in the United States unless it built its planes there. What should Bombardier do now? The answer is not obvious, in part because US policies appear to fluctuate widely. But economist Mohamed A. El-Erian has argued that what appears to be a series of improvised tariff announcements is really consistent with an emerging doctrine.

Treasury Secretary Scott Bessent, in a June 2026 speech, said that the US will use its leverage to advance its economic and geopolitical objectives. The “Bessent doctrine” is based on the view that the postwar system gave other countries access to US markets on terms that were too generous.

The Bombardier case illustrates the Bessent doctrine in action. Bombardier cannot easily replace the US market, which accounts for about half of its sales. The US is using that leverage to pressure Bombardier (and, by extension, Canada) to comply with certain US administration priorities. There is, of course, a limit to US leverage. Blocking the company from the US market would hurt US suppliers and workers too. But the US administration seems to think Bombardier will blink first.

The Bessent doctrine is related to an economic problem called the “holdup.” A holdup problem arises when one party makes an investment whose value depends on a continued relationship with a partner. Once the investor commits to the relationship, its bargaining position weakens because walking away has become costly.

The specificity of the investment is what makes a party vulnerable to holdup. For Bombardier, the specific assets include everything Bombardier has invested to operate in the US market: obtaining and maintaining regulatory approvals, operating service and parts networks, and decades of relationships with US customers. Bombardier’s business depends on maintaining this ecosystem, which it cannot easily recreate elsewhere. A similar logic applies elsewhere, such as to Canadian auto manufacturers deeply integrated into the North American auto industry.

In using its market access as leverage, the US is taking a page from China’s playbook. Patrick McGee’s book Apple in China describes how Apple spent decades transferring process knowledge and investing in China, helping build a manufacturing system it eventually became dependent on. What began as an efficient production arrangement became difficult to replicate elsewhere. Under Xi Jinping, that dependence gave Beijing leverage, forcing Apple to accommodate Chinese demands on, for example, apps and censorship.

Does this mean that the current leverage held by the US and China leaves firms and countries with no option but to comply with their demands? Does their ability to hold up firms and countries that depend on them mean they will extract value from their trading partners at no cost?

Not necessarily, and this is where Bessent’s doctrine contains its own contradiction. Once the US shows it will use access to its market to extract concessions, Canada, Europe, and multinational companies have reason to ask: should we tie our fortunes to a country willing to use that relationship against us? The Bessent doctrine may therefore work in favour of the US today, while weakening the source of its power tomorrow. By successfully exercising its leverage, the US also raises the expected cost of dependence on it. Extracting concessions increases the value of investing in alternatives.

How will firms invest for the future? The longer US–China trade conflict offers a preview. China’s share of American imports fell from about 21 per cent in 2017 to roughly nine per cent by 2025. Firms have shifted some production to other Asian countries. But China still controls many of the inputs these countries use. The supply chain looks different, but China and China-based firms still maintain leverage.

Bombardier has also faced US pressure before. In 2017, Boeing’s trade complaint threatened Bombardier’s C Series program with duties approaching 300 per cent. Bombardier let Airbus acquire the program (rebranded as Airbus A220), and Airbus opened a second final-assembly line in Mobile, Alabama.

But while countries and firms may be forced to comply with US demands in the short run, they will direct future investments to hedge against US leverage. Governments like Canada's will spend more on trade relationships and supply chain infrastructure that are not focused on the US. Firms will comply with some US demands while also diversifying their markets and supply chains.

While these responses will take years to play out, the likely result is neither the end of globalization nor necessarily a US manufacturing renaissance. We are likely to see more fragmented global supply chains, where firms rely on more “just-in-case” investments rather than the previously highly efficient “just-in-time” systems. This will cost somewhat more to operate, and customers will pay a price, but we may end up with a system in which more governments and firms invest to retain control of their own destiny.