Big Idea: "Project Sundog: To Protect against Trump Tariffs, Canada Should Put a Freeze on Defaults Through 2025
The US is counting on the promise of economic pain to pressure Canada. Here's one very big way to protect Canadians and the Canadian economy.

Newly elected President Donald Trump recently announced that Canada and Mexico could face 25% tariffs on imports to the U.S., and tied it to illegal immigration and illicit drugs coming over the border.
However, the threat and impact of the tariffs are real, and Canada’s economy is vulnerable, because we have a significant (and deflating) real estate bubble, propped up by excess debt, that makes the economy more fragile than it indicators would suggest. There are steps that the government could take to shield itself and reduce that fragility by suspending debt defaults while creating procedures and processes to restructure debt, which would shield Canadians from that economic pain.
It means recognizing and debunking myths about the border, economic history, and monetary sovereignty. We have the tools to address this and emerge stronger from it.
First: The Canadian Border is Not the Threat the US Thinks It Is
A very quick comment on the perception of terrorist threats from Canada to the U.S. After the attacks of 9/11 - where stranded Americans were welcomed by Canadians, especially in Newfoundland Labrador - the television show “The West Wing” ran a “very special episode” about the events, which falsely suggested that terrorists had entered the U.S. from Canada.
One of the reasons we can say for sure that the West Wing was wrong was that they said they crossed the Canadian border from Ontario to Vermont, and in real life, Ontario and Vermont do not share borders. They are separated by a distance of 692 km, which is 430 miles.
And while people prefer to focus on “culture clashes” the current political mood is all directly related to the economy, where people’s economic powerlessness being blamed on others.
Tariffs are not the end of the world, but the proposed tariffs don’t make sense
I do think that Canada and the U.S. both need industrial strategies to invest more in locally-owned and operated “real economy” industries in each country. There are times when tariffs can be used strategically, or defensively against a country dumping product into your market,
There is a long history of tariffs being used around the world, but the ones being imposed on Mexico and Canada seem self-defeating for the U.S. economy, since it will lead to significant inflation across both food and energy.
It should also be said that every wealthy country in the world today got wealthy through protectionism, including such examples as Japan, the UK, the US and South Korea. The U.S. actually had tariffs over 30% for over a century, right until the 1930s. The “Smoot Hawley Act” tariffs that people are blaming the Great Depression were on top of those existing tariffs. These were sometimes used to allow “infant industries” to develop that didn’t exist before. Great Britain blocked calico from India to build their own textile industry, Japan kicked American car companies out and supported Toyota.
What’s different about those examples is that aside from tariffs, there was also a national plan for industrial development where the government was also playing a role in investment.
It wasn’t just suddenly hiking tariffs from zero to 25% overnight and expecting it to have a positive economic impact, when it’s driving uncertainty.
The proposed list of tariffs, which promise to be profoundly disruptive, especially when the three countries are part of the USCMA (NAFTA as just renegotiated).
Canada and the U.S. have economies that are “deeply integrated” - and balanced, which is to say, Canada buys as much from the U.S. as the U.S. buys from Canada, with products that drive each others’ economies. Canada tends to sell more raw materials that then have “value added” to the U.S. Canada tends to buy more manufactured goods from the U.S. Canada and the U.S. maintained a cross-border exchange of goods which includes parts and assembly plants on either side of the border.
Those Canadian exports include lumber for housing, various metals and aluminum, and energy - oil and electricity. That heavier oil is refined, often in states in the midwest. There are a number of U.S. Canadian border communities that rely on Canadian natural gas for energy, and Canada’s Hydro Electric companies sell to the U.S. as well.
It’s actually a lot of oil Canada sells about 4-million barrels of oil a day to the U.S., almost all from Saskatchewan and Alberta. According to the U.S. Government “In 2022, U.S. total petroleum consumption averaged about 20.28 million barrels per day (b/d).” That oil tends to be heavier (and cheaper) and it is mixed with lighter (and more expensive) U.S. oil in U.S. refineries, most in the midwest. It may be consumed - or it may be exported back to Canada.
There is no question, that one way or another, there would be an immediate energy price shock in the U.S. It could add 25% to the cost of a new pick-up truck or bus from Canada where the entire engine was made in the U.S.
I’ve written elsewhere that the problem with the world generally is that we have an “everything” asset bubble, especially in real estate (and an AI bubble, all of it driven by obscene amounts of personal debt. So you have a stock mania giving people delusions, both grandeur and more delusions besides, largely due to the same misguided monetary policy blunders by central banks that is minting billionaires while bankrupting main street.
As a result, many economies are more fragile than they appear, because people have massively overpaid for assets using debt, expecting to be able to sell soon at a higher price, when the market dropped.
In Canada, 2-million Canadians will be renegotiating their mortgages in a market where house prices have been dropping and insolvencies have been growing.
Normally, when people talk about how to respond to tariffs, there are a variety of suggestions - retaliatory escalation, which is possible. Charm offensives, finding U.S. allies.
Politics being what it is, there is a certain bloody-minded attitude from people who oppose Trump that many of his supporters who voted hoping for a change in the economy are going to face a nasty shock if their natural gas, oil and electricity bills all go up 25% on January 20, 2025, and all the prices of car and truck parts and lumber do, too.
For Canadians, of course there will be shocks as well.
A Word of Reassurance
One of the first things I have to say is that we need to remind ourselves that Canada as a country has something incredibly important, which is monetary sovereignty.
For all that people complain about the Canadian dollar, having your own currency means that the central bank and the government of Canada can act as lenders or financers of last resort, guaranteed. The Government of Canada cannot default on debt in Canadian dollars. The capacity to create money is the Federal Government’s legal responsibility, as set out in the Canada’s 1867 constitution, the British North America Act, and it remains in our constitution today.
Canada did not have a central bank until 1935, and its preamble says that the Bank of Canada’s mandate really can include doing whatever it takes to fix the Canadian economy.
And to anyone who complains that we need to back to a time when currency was backed by something of real value, like gold, in its entire 150+ year history, Canada was only on the gold standard for about 18 months. It has had a floating currency for decades while the rest of world was still on the gold standard.
In fact, this is an incredibly important point to make both about mainstream neoclassical economics and libertarians, and people who keep saying we need a gold standard, or the entire economic model of cryptocurrency.
All of that economics is based on the way you would run an economy with a gold standard, when we don’t anymore. But people are existing we have to use economics as if we had a gold standard, when it imposes absolutely insane constraints on economies in ways that completely distort them.
The actual history and economy of Canada shows that money does not have to be “backed” by anything and you can have one of the wealthiest countries in the world. Because neoclassical economics and Austrian economics and Marxist economics are all wrong.
On top of that, the fact that Canada is a constitutional monarchy actually means that “the Crown” actually still has has some exceptional authority that can be used to protect and defend the economy. That includes supplying governments with funds required to pay employees and keep operating and investing, with monetized deficits.
If you’re wondering whether that would be inflationary, it wasn’t the last time the Bank of Canada did it, which helped get Canada out of the Depression and build our post-war economy. Josh Ryan Collins wrote about the Bank of Canada in “Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935-75” (Spoiler alert: it’s not.)
“The Bank of Canada commenced operations on March 11, 1935 and immediately began to help the Canadian economy out of depression via expansion of the money supply and the maintenance of low interest rates. The Bank pursued a cheap-money policy with Governor Graham Towers strongly rejecting inflationary warnings from monetary conservatives and adopting a stance that appears much closer to the “credit theory of money” discussed in earlier chapters:
“…in stimulating business activity the vital matter is not the amount of money in existence, it is the size of people’s income, in other words, the size of the national income. This can grow, and does grow, without any definite connection between such growth and a growth in bank deposits or note circulation. (Bank of Canada 1936, 12)
Expansion was initially achieved through direct central bank money creation via advances to the state: $4 million was advanced to the government in 1935 in four installments, all of which were eventually repaid. However, the vast bulk of financing was achieved through the Bank’s active participation and shaping of the Canadian government bond market….
In the prewar period between 1935 and 1939, the Bank played a major role in Canada’s recovery from the Great Depression, funding over two-thirds of government expenditure over these five years. Nominal gross national product (GNP) expanded by 77% in contrast to the 70% contraction in the previous five years, with a sharp increase in capital investment and private expenditure. Bank deposits expanded by a similar amount, while currency in circulation increased by 70%.29 Deflation was reversed but inflation remained stable despite the massive expansion in the money supply.”
I say all that as a word of reassurance to any and every Canadian. There is a saying about central banks of countries like Canada that have monetary sovereignty: you cannot run out of ammunition. And this is a good thing, and Canada’s own history shows that there is something wrong with conservative economics, because the historical evidence contradicts their theory. And theories that are contradicted by evidence should be re-examined.
The reason it’s a good thing that governments can create money, is because money and value can get destroyed, too. In a bubble, there’s a lot of private deals and a lot of shady deals. So you have a guy who borrows $100,000, and lends it to someone else to gamble with, who lends it to someone else to gamble with, who lends it to someone else, who gambles and loses it all. The $100,000 is gone, but they all still owe the money. Hundreds of thousands of dollars of debt remains, and we haven’t even started charging interest. This is happening right now with trilllions of dollars in value, globally. There are far more bets on the economy, right now than there is money in existence, right now - because the bets extend out into the future. The problem is - we all live in the present.
This is actually what is wrong with all of our economies, right now. This is why things are so crazy, and why people are acting so crazy and awful to one another. Because our money has gone into this, instead of into productive industry.
Again, the point here is to reassure Canadians - and in fact, the citizens of any country with monetary sovereignty (for example the US, the UK, Norway) that economic collapse is a policy choice. It is not inevitable. It is because economic conservatives have a superstitious taboo about the federal creation of money that is not based in evidence. In fact, it’s contradicted by the historical, empirical evidence.
I also believe that it is self-evident that inflation and higher interest rates are both caused by uncertainty and price-hikes reflecting anxiety on the part of sellers and lenders. Interest rates and inflation both go up when we’re less sure what is going to happen. That is why injecting money into the economy increases certainty, because people know they will get their bills paid. That should keep inflation and interest rates lower.
The Actual Big Idea: Suspending Defaults Between Now Through 2025, and Providing Canadians with Means to Restructure their Debt During That Time
In order to protect Canada against the impact of tariffs is to shield the Canadian economy and people from the economic shock by suspending debt defaults at least through the end of 2025, while setting up systems to help people reduce and restructure their debt to reduce the chance of default.
It is three-pronged strategy to protect and strengthen the Canadian economy against shocks
The goals:
Protecting the Canadian Economy and Canadian communities
Making sure businesses stay solvent, people stay in their homes and that farmers stay on the farm
Mitigating for unintended consequences.
The first step is mitigating downturns and contagion by:
1) Suspending debt defaults on existing, not new, business and personal debt at least until the end of 2025. You have 2-million people coming up for a mortgage renewal, and lots of other businesses and farmers struggling with interest rates and debt. are in trouble. This will take the immediate pressure off of people’s shoulders, while a second phase rolls out.
2) Immediately set up or provide access to credit counselling, and “debt compromise boards” that allow businesses and individuals to renegotiate the terms of their debt repayments BEFORE they default, between now and Dec 31, 2025.
This is not about protecting unprofitable businesses. There will still be businesses that will not be able to pay their creditors, but if a failure can be prevented, it should be.
3) AVOIDING MORAL HAZARD Introduce measures to ensure creditor stability to prevent abuse, moral hazard and unintended consequences.
For example: you don’t want people running out and taking on tons more debt, and you want to make sure that honest investors and creditors don’t go bankrupt either.
Taken together, these measures would shield Canadians and Canadian business from tariff-based shocks that will otherwise tip them into default.
The question is how this would be achieved. Banking and mortgages are a federal responsibility, while credit unions are provincial. There is also a wide range of provincial as well and federal corporations.
The Crown has very significant powers, including the power to unilaterally change / cancel contracts between third parties. For example, in Manitoba in 2020, the budget had clauses that unilaterally cancelled leases between a private landlord and an agency. When challenged in court, it was found to be valid.
However, the real question about whether people would support the plan is whether there is a commitment of funding support to get people over the “debt restructuring bridge.”
If the federal government commits to making sure the process works, it can happen. The idea here is to facilitate debt restructuring between two parties, not for the government to be stepping in, unless it’s required to keep the process from breaking down.
Economist William White has been warning for years not just that we are facing a financial crunch, but that we need much better structures to handle defaults in countries around the world.
One of the best ways to keep the process clean is to make the information transparent. Public money, public accountability.
#2) “DEBT COMPROMISE BOARDS”
These boards were in place from the to the 1930s-1950s in Western Canada, which was harder hit by the Depression of the 1930s than anywhere else in the world.
When there are “bubbles” those bubbles often include commodities - like wheat and grain - or oil. The price goes up. People go into debt to buy machines to bring in as much of that commodity as possible. All that capital spending makes the economy hotter. The price of the land goes up - then the bubble bursts and people can’t cover their debt costs with the money that’s coming in. Because the bubble in the commodity price has burst.
That’s the real story of every recession, and the real story of every financial crisis, where there’s a bubble - in housing, oil, wheat, potash, stocks - its the “debt overhang” that you’re left paying. That’s what turns recessions into Depressions.
During the Canadian Depression, the Canadian government prevented the Western Canadian prairie provinces from defaulting, and after the Second World War ended, the Depression-era debt of entire provinces, including Manitoba, Saskatchewan and Alberta, were written off, just as their oil economies were starting to take off. Unfortunately, the boom-bust pattern has continued until the present, without anyone ever changing tack.
By the 1950s, farm debt in Saskatchewan had been restructured by half.
If you have debt, these boards act as facilitators in helping people restructure their debt.
Federal Government, Bank of Canada, CMHC, Banks, Credit Unions, Credit Counselling could all be involved.
3) Avoiding MORAL HAZARD.
You want to avoid people taking advantage of the situation either by stiffing creditors when they can still pay, and you don’t want people going out and racking up debt because they think they can’t default.
One of the ways to make this apply is to have the defaults protection only apply to existing debt, not new debt.
You could also backdate some of the protection for defaults to offer protection to people leading up to this point.
The point here is that if the US is expecting to inflict pain on Canadians, this is a way of “raising our shields” in order to protect both business and the economy as a whole.
I think it can be argued that it is a truly Canadian solution - one that unites Canadians in the one thing we have all done at some point in our lives - and done it well: freeze.
Call it - “Project Sundog”?
30-
DFL
This proposal is in many ways a sort of “soft Jubilee” — which I endorse.
As for “hard currency economics” of the sort propagated by various groups of (unfortunately highly influential) loons, it stems from a fundamental misunderstanding of the nature, origins and operations of sovereign currencies. The only thing ANY currency is ultimately “backed” by is the sovereign’s capacity to successfully levy and collect taxes.
The Line is a fairly well-read online news source I believe, with some thoughtful followers and commentators. I'll share a link to this.