Mark Carney and the Defence of Canadian Liberal Values: A 2025 Axworthy Test
Abstract
This article critically examines former Foreign Affairs Minister Lloyd Axworthy’s trenchant critique of Prime Minister Mark Carney’s 2025 foreign policy, focusing on Canada’s acquiescence to U.S. pressure under President Donald Trump. The analysis centers on two flashpoints: the June 2025 NATO commitment to a 5 % GDP defence target, and the abrupt repeal of Canada’s Digital Services Tax (DST) ahead of implementation. Grounded in latest developments to July 3 2025, the arguments assess implications for Canadian sovereignty, fiscal priorities, and normative foreign policy identity.
I. Introduction: A Diplomatic Test Under Trump 2.0
Lloyd Axworthy, Canada’s foreign affairs minister from 1996 to 2000, has emerged as a key critic of Prime Minister Carney’s strategy in dealing with the increasingly assertive U.S. under President Trump. In July 2025, Axworthy publicly rebuked Carney for what he described as a posture of “bootlicking”—a deference that, in his view, undermines Canadian liberal values and autonomy. This critique hinges on two recent developments:
- Canada’s endorsement of NATO’s new defence spending pledge—5 % of GDP by 2035, including 3.5 % for core military and 1.5 % for broader security infrastructure—a shift primarily driven by Trump’s demands.
- The withdrawal of Canada’s anticipated 3 % Digital Services Tax (DST) on revenues from U.S. tech firms, days before it took effect, following Trump’s threat to halt trade negotiations.
This article explores how these episodes encapsulate tensions between Carney’s realist pragmatism and Axworthy’s values-based internationalism, assessing structural, normative, and domestic ramifications.
II. NATO Defence Spending: Solidarity or Strategic Overreach?
A. The New NATO Benchmark
At the June 24–25 NATO Summit in The Hague, allied leaders agreed to raise defence spending from the established 2 % target to a new 5 % of GDP by 2035, segmented into 3.5 % for core military capabilities and 1.5 % for defense-related infrastructure (cybersecurity, logistics, resilience). This represents a ~150 % increase in annual defence burden and is projected to total $2.2 trillion across the alliance—carrying a roughly 70 % rise from 2024 levels.
B. Canada’s Position
Canada, currently ranked 27th among NATO countries in 2024 with defence spending at ~1.37 % of GDP—lowest among G7 allies—formally endorsed this staged escalation .
C. Economic and Policy Costs
The immediate concern is fiscal rebalancing. Assuming Canada maintains its GDP share, its defence bill could approach CAD 145 billion annually—potentially displacing investments in health, housing, climate adaptation, aid, and reconciliation initiatives . Budgetary crowding-out poses substantial questions about long-term social resilience and intergenerational equity.
D. Normative Critique
Axworthy frames the move as a capitulation to Trump’s coercive grandstanding—a triumph of militarized deterrence over multilateral, non-military leadership. He described the approval of the 5 % target, following a performance of deference wherein Dutch PM Rutte reportedly referred to Trump as “daddy,” as evidence of alliance submission rather than coalition confidence. To Axworthy, it signals a departure from liberal internationalist norms toward “unrestrained militarism.”
E. Counterarguments and Realist Defense
Carney’s defenders argue that under Trump’s tilt to transactional bilateralism, collective defence commitments are essential to prevent further underinvestment and maintain deterrence credibility—especially in Europe and Canada’s Arctic region. Economically, defence budgets can have multiplier effects via procurement and long-cycle employment in domestic chains. Critics of Axworthy respond that vision-driven diplomacy must be recalibrated for security crises where hard power remains indispensible.
III. Digital Services Tax: An Embattled Expression of Fiscal Autonomy
A. DST Origins and Design
Canada legislated a DST in 2020: a 3 % levy on revenues over CAD 20 million annually from digital services enjoyed by Canadian users. It aimed to rectify tax avoidance and generate ~CAD 7.2 billion over five years. Retroactive effect was set for January 1, 2022.
B. U.S. Backlash and Canada’s U-Turn
Upon Trump’s threat to halt talks, Canada scrapped the DST on June 30, 2025—hours before enforcement—announcing resumed negotiations and targeting a July 21 agreement. White House sources confirmed Ottawa had “caved”
C. Political and Economic Fallout
U.S. tech firms (Amazon, Google, Meta, Apple) saved ~$3 billion upfront; losses to Canada were estimated between CAD 7.2 billion over five years and annual losses up to $1–2 billion. Parliament wasn’t consulted, provoking questions about democratic legitimacy and accountability.
D. Normative and Strategic Considerations
Axworthy lamented the removal as evidence of being “pushed around”—a retreat from structural reform and a defeat for digital sovereignty. He emphasized the DST’s progressive rationality versus the neoliberal US position that taxes like these distort trade. Notably, allied countries like the U.K. (2 %) and France have retained similar measures despite domestic friction.
IV. Strategic Realism vs. Liberal Internationalism
A. Pragmatism in an Asymmetrical Order
Carney, with a background in central banking, understands Canada’s economic interdependence with its southern neighbor: U.S. imports account for more than 70 % of Canadian exports. He has defended the NATO and DST decisions as necessary to maintain economic stability and alignment within an increasingly aggressive U.S. posture .
B. Axworthy’s Normative Framework
Axworthy’s diplomacy is premised on multilateralism, normative leadership, and human security—evident in his signature achievements: the Ottawa Treaty (1997), Responsibility to Protect, and engagement on global norms. He insists that Canada should not merely react to American pressure, but reinforce its agency.
C. The Normative–Structural Tension
Critics of Axworthy argue that post-2014 geopolitical disorder—Russian aggression, democratic erosion, tech monopolies—necessitates realism. In their view, liberal aspiration must yield to structural conditions. Axworthy counters that such realism should not dissolve normative integrity: Canada’s strength lies in setting standards not just acquiescing to demands.
V. Democratic Legitimacy and Accountability
A. Parliamentary Marginalization
The DST repeal occurred without parliamentary debate, prompting a surge of criticism from constitutional scholars and opposition MPs. They warned that “secret trade talks” bypass democratic scrutiny and erode trust .
B. Domestic Policy Trade-offs
Projected military expenditure increases threaten funding for pressing domestic needs—affordability, healthcare, Indigenous reconciliation—which are now at a budgetary crossroads. The optics of spending heavily on defence while retreating on social security could exacerbate public polarization and fuel right-wing nationalisms.
VI. Canada’s Global Relationships and Institutions
A. Multilateral Cohesion
With minimal consultation, Canada now lags behind the EU coordinated Digital Services Tax (DST) approaches—jeopardizing allied solidarity on digital governance. Exiting prematurely sends unsettling signals to partners about Ottawa’s reliability .
B. Arctic and Environmental Leadership
A drift toward militarized diplomacy endangers Canada’s authority over Arctic environmental and Indigenous rights agendas. Nor can Canada leverage normative currency effectively while conceding under U.S. pressure on trade and digital policies.
C. Domestic Social Compact
Carney’s economic reliance on U.S. access may stabilize markets short-term, yet the risk to Canada’s social contract is profound: public services may be deferred, trust eroded, and social cohesion undermined.
VII. Alternatives: A Rebalanced Canadian Strategy
Axworthy proposes a layered approach:
Nordic-Style burden-sharing—emphasize non-military security investments (cyber resilience, aid, diplomacy).
Parliamentary engagement—ensure legislative scrutiny of trade/tax decisions.
Digital sovereignty initiatives—revive DST via multilateral frameworks (OCED), not unilateral retreats.
Diversified trade alliances—wean overreliance on U.S. markets through deeper Indo-Pacific, EU engagement.
Progressive alliance-building—mobilize G7 peers, Global South coalitions, and Indigenous networks on environmental and social standards.
VIII. Conclusion: Navigation, Not Capitulation
Axworthy’s challenge to Carney does not seek to dismantle protective realism but to insist on its balance with liberal values: autonomy, solidarity, democratic integrity. Canada faces a test: whether to act as a defensive appendage to U.S. strategic ambition, or to reassert a vision of multilateral, normative leadership rooted in a broader conception of national interest.
Whether Carney can reconcile economic security with normative coherence may define Canada's identity—and influence—well beyond the Trump-era turbulence.
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