Speeches by heads of government are seldom worth a read, but Canadian Prime Minister Mark Carney’s address at the Council on Foreign Relations on Sept. 22 is an exception to this rule. Carney makes a no nonsense diagnosis: For an open, democratic economy such as Canada, the end of the rules-based global order and the trade challenges stemming from both the United States and China are existential threats. Not all is lost, though. As Carney puts it, countries can still “get on with what we can control.”
Focusing on areas where Canada retains some agency is exactly the point of many of the reforms that Ottawa has lately been adopting. For other open, developed economies—such as the European Union—these policies provide a blueprint for a sensible response to current economic challenges. They include supporting exporters through a deepening of the domestic market, doubling down on new free trade agreements, and leveraging existing assets to become a supplier of critical goods to like-minded allies.
With U.S. tariff salvos capturing the headlines, the first priority for developed economies is to help those exporters that look set to lose U.S. market share. Taking an inward look is often a good first step. If doing business abroad is getting trickier, then perhaps beefing up domestic sales could help.
Two statistics illustrate how such a plan could be important for Canada. First, just 27 percent of Canadian firms sold goods or services outside their home province between June 2023 and October 2024, highlighting how the country has some room to go to deepen its internal market. Second, Canada’s exports abroad are worth twice as much as trade across provinces.
Canadian businesses keen to grow in the domestic market face three types of barriers. The first are geographical: long distances and harsh winters. Second, there are prohibitions on interprovincial trade—for instance, in many cases, wine made in one province cannot be directly sold in others. The third kind of barrier has to do with regulatory discrepancies across provinces—for example, many jurisdictions have their own set of energy efficiency rules for dishwashers.
Impediments to interprovincial sales come with a hefty price tag; the International Monetary Fund (IMF) reckons that in 2015, excluding geography, such barriers were equivalent to a 21 percent tariff—about six times Canada’s average tariff for foreign imports. In other words, it is often easier to buy goods from abroad than from another province.
For a long time, discussions on Canada’s interprovincial trade barriers were confined to academic circles. U.S. President Donald Trump’s tariffs, however, made the topic mainstream and fostered the speedy adoption of the One Canadian Economy Act in June. The law aims at removing regulatory and technical barriers for intra-Canadian trade, with one basic principle: If any one province (say, Ontario) gives regulatory approval for a product, this suffices for the federal government and other provinces signing a bilateral accord with Ontario. Provinces have the most authority in this area, but the federal government is not sitting idle; in June, Ottawa removed all 53 federal exceptions to the Canadian Free Trade Agreement, eliminating a long list of barriers to free trade between provinces.
Debates regarding the exact impact of removing interprovincial trade barriers are heated, and it’s clear that these measures are no magic bullet. Some provincesare also proving cautious; Québec, for instance, has yet to pass a provincial bill or sign a bilateral agreement with another province. The process will undoubtedly take time, and claims that the reforms could increase the size of the Canadian economy by up to 7 percent of its GDP appear to be overoptimistic. Yet the measures are not to be dismissed; according to the IMF, lifting all nongeographic barriers to domestic trade could boost Canada’s GDP per capita by 3.8 percent or nearly $1,500. The gains could reach more than 16 percent in some remote Atlantic provinces.
Canada’s bid to remove domestic barriers to trade resonates with recent calls for the EU to deepen its internal market. Just like Canada’s, the EU’s “single market” is anything but; the IMF reckons that the coexistence of 27 sets of national regulations, customs rules, and tax laws places the equivalent of a 44 percent tariff on the intra-EU goods trade.
As the bloc tries to come up with a response to Trump’s trade attacks, looking across the Atlantic to what’s happening on the northern side of the 49th parallel could be a wise move for Brussels. With intra-EU shipments in 2024 worth eight times more than exports to the United States, a small 1.25 percent rise in intra-EU exchanges could offset a worst-case scenario of a 10 percent decline in EU exports to the United States.
The signing of free trade deals forms the second plank of Ottawa’s efforts to support exporters. In August, the conclusion of a Canada-Indonesia free trade pact provided the first hint of this plan. On paper, the agreement hardly makes sense; the boost to Canada’s GDP will be minimal, and the deal could harm nickel miners, since Indonesia is the world’s largest producer. Yet the deal is only a first step: Canada hopes to clinch a broader trade agreement with the Association of Southeast Asian Nations (ASEAN), of which Indonesia is the largest member. In late October, Carney will attend the ASEAN summit in Malaysia in hopes of finalizing such a deal, which has been in the making since 2018.
Just one day after the announcement of the conclusion of the Canada-Indonesia free trade agreement, Ottawa revived negotiations that had been stalled since 2021 with South American trade bloc Mercosur. U.S. tariffs provided the impetus for the move: Canada’s shipments to Mercosur countries are mostly made up of machinery, a sector that relies on exports to the United States.
The road toward a Canada-Mercosur free trade pact will be long. Firms from Canada and Mercosur countries are direct competitors in a number of sectors, including agricultural commodities, minerals, and aircraft. Yet again, the deal illustrates Canada’s long-term plan to advance free trade with all the major trading blocs. The EU, which has yet to overcome French opposition to a free trade deal with Mercosur, may want to take note.
Reading between the lines of Carney’s speech, Ottawa’s strategy goes even further. Carney hinted that Canada could position itself as a bridge between the EU and Asia’s Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade pact—two blocs that Canada has free trade agreements with. The idea is not entirely far-fetched. With transport through Russia and the Suez Canal less viable these days, Canada sees itself as a future route between Europe and Asia. The pledge is certainly bold—not least because it would require huge investments to logistically connect both ends of Canada—but it is intriguing enough for EU policymakers to ponder.
The third plank of Canada’s blueprint has to do with economic security—a popular buzzword among policymakers, especially regarding access to the critical minerals that are key to making virtually all digital gadgets, defense gear, solar panels, and the like. The critical raw material conundrum is well-known. China is the global hegemon in the field, controlling 60 percent to 90 percent of the global refining capacity for a number of key materials such as lithium, cobalt, graphite, and rare earths. The issue is that Beijing likes to use critical minerals to coerce; since April, the country has been ramping up export restrictions for products that include Chinese-made minerals or rare earths.
With global firms growing increasingly nervous about China’s export restrictions, Canada may have an ace to play in the critical raw mineral area. Looking at reserves, the country is in the global top 10 for deposits of some critical minerals, including cobalt, lithium, and graphite. Canada is also a significant producer of a number of other minerals that are key for the green energy transition. It is the second-largest producer of niobium (used for nuclear reactors), third-largest of palladium (for cars’ catalytic converters), fourth-largest of tellurium (for solar panels), and fifth-largest of nickel (for electric vehicle batteries).
For Ottawa, the point is not really to open new mines—a long, complex process that has a huge environmental price tag—but to make the best of existing assets and put Canada at the center of the global debate. In June, Carney tested the waters at the Group of Seven summit in Kananaskis, Alberta, where he pushed for the creation of a G-7 buyer’s club for critical raw minerals that would give Canada a central role in the group.
It is a safe bet that the topic will be on the agenda of France’s G-7 presidency in 2026. Ottawa has its eyes on the EU’s vast market, where the bloc has made little progress toward its pledge to refine 40 percent of its critical mineral consumption by 2030. In August, Carney traveled to Berlin to ink an agreement for the supply of critical minerals to Germany. While details on the deal are scarce, it could provide a template for other such accords in Europe.
Perennial Canadian modesty means that the many sensible policies coming out of Ottawa remain invisible outside the country’s borders. That is a shame, because Canada is providing a template for what developed countries can do to respond to the challenges stemming from the United States and China and the perceived necessity to boost economic security.
Above all, this applies to the EU, another democratic, open economy that likes to play by the rules. Instead of debating Trump’s every utterance, EU policymakers could be well advised to ask the Canadians for some policy memos.
The post Canada Shows How to Neutralize Trump’s Trade Attacks appeared first on Foreign Policy.
