US-Canada talks impasse acute reminder that Washington should review its policies: China Daily editorial

The break in the United States-Canada trade talks is more than another episode in Washington's ill-advised tariff drama. When US negotiators introduced last-minute demands that would have constrained Canada's ability to strike trade deals with third parties, Canadian Prime Minister Mark Carney walked away. The striking thing is not simply that the talks failed, but how revealingly they failed.

The US-Canada trade dispute is a miniature of a much larger problem: a US administration treating economic relations as a series of zero-sum contests while overlooking the costs its policies impose on the US' trading partners and the US itself.

Tariffs, technology restrictions, military escalation and an increasingly interventionist approach to currencies form a policy mix that risks aggravating the very inflationary, fiscal and financial pressures Washington claims to be fighting.

US importers pay tariffs at the border. Much of the cost is then passed on to businesses and consumers through higher prices and thinner margins, while retaliation hits US exporters. Modern manufacturing does not respect tariff boundaries. An auto part can cross the US-Canadian border several times before becoming a finished vehicle. Taxing each crossing does not make the final product more American, just more expensive.

The same logic applies to technology policy. Washington's expanding "entity lists" and restrictions on China may become self-defeating when US companies are forced to redesign supply chains around political considerations rather than productivity. The result is greater technological fragmentation and reduced access to markets in which US companies have long been competitive.

The US administration's "transshipment" report takes this logic to an almost comic extreme. Baselessly blaming China for the disappointing economics of an arbitrary tariff regime does not change the underlying arithmetic. Once Washington creates large tariff differentials, it should hardly be surprised that businesses seek alternative routes. The policy creates the incentive and then foreign countries are absurdly criticized for responding to it.

Military escalation in the Middle East adds another inflationary shock. Washington's pressure on other nations to align themselves with its so-called toughest-ever economic measures against Iran is a telling reflection of its own strategic passivity regarding the trouble of its own making. The longer this conflict drags on, the deeper the hole the US is digging for itself.

Energy-price volatility feeds into transport, manufacturing and household budgets, while making the Federal Reserve's task harder. Monetary policy can restrain demand; it cannot produce more oil or repair disrupted supply chains.

Then there is the number Washington cannot tariff away: the national debt. Annual deficits approaching $1.8 trillion and a debt burden above $40 trillion leave the US exposed to higher interest rates. Debt-service costs have climbed above $1 trillion a year, consuming resources that might otherwise finance infrastructure, education and social programs. Long-term Treasury yields remain elevated as investors demand compensation for inflation risks and the scale of future borrowing.

The weakening dollar adds another complication. A softer currency helps exporters, but also raises the domestic price of imports. In an economy already confronting tariff-induced inflation, further weakness of the dollar is hardly cost-free.

Against this backdrop, the surge in AI-related corporate borrowing deserves particular scrutiny as a potential trigger of a financial crisis. As of August, nine major US technology companies reportedly had nearly $3 trillion in off-balance-sheet commitments — almost double an estimate made only six weeks earlier. Roughly $1.9 trillion involves purchases of chips and servers and another $1.2 trillion future leases. More troubling is the potentially self-reinforcing financing cycle in which vendors finance customers who then use the funds to purchase their products.

If AI revenues disappoint or higher long-term rates puncture valuations, these commitments could surface abruptly, transforming an investment boom into a financial shock potentially far larger than the dot-com bust of 2000 to 2002. The damage could spread through credit markets and pension portfolios precisely when Washington has less fiscal room to respond.

According to a report, 57 senior US administration officials are worth at least $100 million, over four times the combined number serving under the three previous presidents. For this wealthy circle, tariffs, AI contracts, energy prices and market volatility represent speculative opportunities. Policies presented as defending workers are in effect deepening wealth concentration and shifting costs downward.

But the White House tries to explain away these contradictions by blaming the previous administration, China or other trading partners, including Canada and the European Union. The US-Canada trade dispute should be read as a warning about a self-reinforcing policy circle driven by vested interests in the US.

The outward symptoms? Too much international engagement is being viewed through a transactional, zero-sum lens, turning allies into bargaining targets and partners into economic suspects.

The US' architecture was originally designed to restrain individual impulses through checks and balances, independent institutions and predictable rules. Those guardrails, however, become meaningless if institutions evolve from constraining personal discretion to protecting it.