Following Donald Trump’s return to the White House, the U.S. has chosen to pursue a protectionist trade policy, targeting what the Trump administration perceives as “unfair” trade deficits. This approach has not been limited to strategic rivals; many of Washington’s closest allies have subsequently been hit with large tariffs. The Canadian economy — whose export market is deeply integrated with the United States — has been left particularly vulnerable.
In 2024, 75% of all Canadian exports went to the U.S., while in certain sectors such as lumber, steel and aluminium, that figure stood at a striking 90%.
A Canadian Chamber of Commerce estimate suggests that a 25% tariff on Canadian goods will shrink the Canadian economy by 2.6%, costing households an average of CA$1,900 (approximately US$1,400) per year.
Amid a breakdown in Canada-U.S. trade talks, Canadian Prime Minister Mark Carney has positioned trade diversification at the centre of his premiership, with the stated aim of doubling non-U.S. exports over the next decade. Carney insists:
Canadians are always ready when someone drops the gloves […] in trade as in hockey, Canada will win.
But how far can Canada realistically diversify its trade relationships in a global economy still largely dominated by the United States?
One of the first and most immediate elements of this strategy has been the deepening of economic ties with its neighbor Mexico. Under the new Strategic Partnership announced in September 2025, the two countries aim to shore up supply chains and boost trade in key sectors such as energy, infrastructure, and critical minerals, amid uncertainty in U.S. trade policy.
Beyond North America, Canada has naturally intensified its alignment with its European partners, where diversification is as much about security as trade. Canada’s recent agreement to participate in the EU SAFE Initiative — becoming the first non-European country to do so — is a strong indicator that Canada is pivoting away from exclusively relying on U.S. centric defense arrangements.
Trade is expanding under the framework of the Canada-EU Comprehensive Economic and Trade Agreement (CETA), where Canada’s vast energy and natural resources are especially attractive for European importers.
Canada has also sought new investment and trade opportunities beyond the transatlantic. The Indo-Pacific — projected to comprise 50% of the world’s GDP by 2040 — is increasingly positioned at the heart of Canada’s export strategy. This autumn, Carney has conducted state visits to Singapore and South Korea, in addition to attending the ASEAN summit in Kuala Lumpur, Malaysia. Alongside this, his government has also signalled an intent to advance economic cooperation with India, following a period of diplomatic strain.
More recently, during a state visit to the United Arab Emirates (UAE), Carney welcomed a new framework under which the UAE plans to invest up to US$50 billion in Canada’s economy, spanning critical minerals, energy, and artificial intelligence. Both countries also launched negotiations toward a Comprehensive Economic Partnership Agreement (CEPA).
Taken together, Ottawa’s heightened engagement with Mexico, Europe, the Indo-Pacific, and the Gulf reflects the most serious attempt in years to rebalance Canada’s global trade relationships. Yet geographic reality, combined with extensive U.S.-Canadian economic integration, means that the U.S. will remain front and centre of Canadian international trade for the foreseeable future.
The question is not whether Canada can replace U.S. trade entirely, but whether it can ensure that it is not quite so vulnerable to the policy shifts of a single dominant partner. Carney’s global trade pivot suggests that, for Ottawa at least, the answer must increasingly be yes.
By Max Ulander
December 16, 2025
