President-elect Donald Trump suggested Tuesday that Canada could become the 51st U.S. state as he criticized trade imbalances and subsidies, signaling a potential escalation in economic and political tensions with America's northern neighbor.

Speaking during a press conference at Mar-a-Lago, Trump leveled sharp criticism at Canada, accusing the country of exploiting U.S. generosity on trade and defense.

"We're spending hundreds of billions a year to protect Canada," Trump said, while also alleging the U.S. loses over $200 billion annually in trade deficits with the nation.

"Why should we have a $200 billion deficit and subsidize their defense?" Trump asked. “They should be a state.”

In 2022, the U.S. trade deficit with Canada for goods and services was $53.5 billion, according to the U.S. Trade Representative’s office.

Trump mentioned a conversation with outgoing Canadian Prime Minister Justin Trudeau, who, according to Trump, said that Canada would "dissolve" without the U.S.'s economic and security assistance.

"Canada wouldn't be able to function if we didn't take that 20% of our car market," Trump said, referring to the high volume of Canadian-made cars exported to the U.S.

When asked whether he would consider military force to annex and acquire Canada, Trump replied, “Economic force.”

Tariffs And Trade Deficits

Trump's remarks also hinted at the possibility of tariffs on Canadian goods if no resolution is reached.

"We don't need their cars, and we don't need their lumber," Trump said, arguing that U.S. industries could easily replace Canadian imports.

While Trump's mention of Canada becoming a U.S. state may have sounded speculative, his broader message will certainly grab the attention of the market.

"It's a tremendous amount of money, and why should we give it to them as a separate country? That's okay to have if you're a state," Trump said

Trump also framed the idea of erasing the "artificially drawn line" between the two countries as a move that would benefit both sides economically and in terms of national security.

The iShares MSCI Canada ETF (NYSE:EWW) dropped 0.4% following Trump's comments, reflecting investor concerns about the potential impact of trade barriers. The Invesco CurrencyShares Canadian Dollar Trust (NYSE:FXC) was 0.1% lower by 3 p.m. ET.

Mexico And The ‘Gulf Of America’

Mexico faces a similar threat from the incoming White House administration. Trump described the country as being "run by cartels" and criticized the ongoing flow of drugs and migrants across the southern border.

He raised the idea of "substantial tariffs" on Mexican imports as a way to offset the economic costs of illegal immigration and crime.

Energy policy took center stage as Trump vowed to overturn President Joe Biden's ban on offshore drilling on over 625 million acres of the ocean, calling it "a crime" against America's economic potential.

Trump promised to revoke the ban on his first day in office.

Trump also announced plans to rename the Gulf of Mexico to the "Gulf of America," a symbolic move underscoring his energy-first strategy.

"We have oil and gas reserves that no one else has," he said, estimating that offshore drilling could add $50 trillion in value to the U.S. economy.

Mexican stocks performed positively on Tuesday, with the iShares MSCI Mexico ETF (NYSE:EWW) up 1.4%, following a 1.6% surge a day earlier.

Read Next:

• 5 Stocks to Sell Before Trump’s Mexico Tariffs

Photo via Shutterstock.