For decades, Canadian governments both Conservative and Liberal sought greater economic integration with the United States, the world’s spendiest buyer of imports, including Canadian energy, machinery, lumber and wheat.
But now, as President Donald Trump imposes new tariffs on Canadian products and threatens more, Ottawa is finding the relationship a liability. Canada in recent years sent roughly three-quarters of its exports to the United States, a dependence that has left it uniquely vulnerable to the administration’s pressure.
Prime Minister Mark Carney has traveled the world this year in search of new buyers for Canadian exports. Canada needs to diversify its trading partners, analysts say, but weaning the country off the U.S. market won’t be easy. Here’s why.
What is Canada doing?
Carney, who led the Bank of Canada through the Great Recession and the Bank of England through Brexit, was elected prime minister last year largely on the premise that he could manage Canada through a rupture with the United States.
Trump had imposed tariffs on Canadian goods during his first administration. He returned to office last year threatening more levies, railing against the United States-Mexico-Canada Agreement — a pact he negotiated and signed in 2020 — and needling Canadians with bluster about making the country the 51st state. Consequently, trade diversification has become a core tenet of Carney’s premiership.
Since succeeding Justin Trudeau in March 2025, he has visited more than two dozen countries, including the first trip by a prime minister to China since 2017 and the first to Saudi Arabia since 2000.
Canadian exports to non-U.S. markets grew last year by 11.1 percent, government figures show. Exports to the United States dropped by 3.7 percent.
Nearly a third of Canadian exports now go to non-U.S. markets, the largest amount in four decades, government figures show. Carney has set a goal of doubling non-U.S. exports by 2035.
Why is Canada so dependent on the U.S. market?
There’s an elegant model that predicts the amount of trade between two countries based on their sizes and the distance between them.
Canada, with 41 million people, and the United States, with 342 million, share a 5,525-mile border — along with the English language, democratic political systems and partnership in North American Aerospace Defense Command, NATO and the Five Eyes. Given their sizes and proximity, the gravity model predicts $720 billion in two-way trade. “And that’s what we do,” said economist Julian Karaguesian, a former special adviser to Canada’s finance ministry.
The countries nurtured that integration through decades of trade deals and cross-border supply chains. During the ’80s, ’90s and 2000s, Karaguesian said, “everything was on cruise control. … There was no hint that anything could go wrong.”
Karaguesian was working as a finance counselor at the Canadian Embassy in Berlin on Sept. 11, 2001. As the U.S. tightened border security, he thought, “Oh no, we should start thinking about this.”
Anti-free trade and anti-globalization sentiment during the Great Recession rang more alarms. And Trump’s election in 2016.
But the past eight months have been a true “wake-up call,” he said. “Finally, the rest of the Canadian establishment now realizes the full nightmare scenario.”
In Davos, Switzerland, this year, Carney warned of a “rupture in the world order” leading to a new era of “great power rivalry” in which “the strong can do what they can, and the weak must suffer what they must.” Canada, he told the World Economic Forum, was “amongst the first to hear the wake-up call.”
Middle powers such as Canada, he said, must let go of “comfortable assumptions” about geography and alliance memberships “automatically confer[ing] prosperity and security.”
“You cannot live within the lie of mutual benefit through integration,” he said, “when integration becomes the source of your subordination.”
What are the challenges to finding new export markets?
A key challenge for Canada, University of British Columbia global policy professor Kristen Hopewell said, is developing the infrastructure, including ports, rail and pipelines, to export goods beyond the U.S.
“There’s huge demand from other countries for what Canada produces,” Hopewell said. The country is seen as a “secure supplier” of oil, natural gas, minerals, fertilizers, lumber, food and other agricultural products. The wars in Ukraine and the Middle East, she said, have “made countries in Europe [and] Asia very eager to try to cement their trading relations with Canada.”
Canada had signed 12 trade and security deals on four continents, Carney said at Davos, naming China and Qatar, and engaged with India and Southeast Asia.
Can Canada do more business with China and India?
After the U.S., China is Canada’s second-largest trading partner, and the relationship is growing stronger. Still, exports to China accounted for only 4.5 percent of Canada’s total last year.
China is a natural trading partner for Canada, Karaguesian said. “This industrial behemoth needs energy. It needs minerals, it needs ores, and it needs food products,” he said.
Relations between the countries were strained by Canada’s 2018 arrest of a top Chinese technology executive wanted by the U.S. and China’s subsequent detention of two Canadians in apparent retaliation. Carney traveled to Beijing in January to “forge a new Canada-China partnership.” Carney and Chinese President Xi Jinping announced a deal in which Canada would admit 49,000 Chinese electric vehicles at a reduced tariff rate in exchange for improved access to Chinese markets for Canadian canola and other goods.
Canada has set a goal of increasing exports to China by 50 percent by 2030. The gravity model shows the countries “could be doing three times more” trade, Karaguesian said.
Canada’s Foreign Ministry has flagged “associated risks” of trade with China, including “market access barriers, opaque regulations,” “persistent intellectual property theft” and the risk that goods will be diverted for military applications.
Karaguesian said Canada should “be able to get past” these concerns. “Even the hawks will have to relent a bit because we’re talking about our economic survival here.”
India also presents export opportunities, he said. Its rapidly industrializing economy needs energy, and the world’s largest population needs food. “That is another just immense market potential for Canada,” he said. “And we barely trade with India.” Exports to India were $4 billion in 2025 — 0.5 percent of Canada’s total exports.
As with Beijing, Ottawa’s relations with New Delhi in recent years have been strained. Canada is home to the largest Sikh population outside India. Some members are active in the separatist Khalistan movement, which seeks a sovereign state in India’s Punjab region.
Trudeau suggested in 2023 that the Indian government was involved in the killing that year of Hardeep Singh Nijjar, a separatist leader and Canadian citizen, in Surrey, British Columbia. India’s Foreign Ministry responded by accusing Canada of providing a “safe haven” to anti-India “terrorists.” As tensions grew, the countries expelled each other’s diplomats.
But amid Trump’s tariff threats, Carney and Indian Prime Minister Narendra Modi last year announced negotiations for a comprehensive economic partnership agreement, or CETA. Carney visited Modi in New Delhi in March; after talks, they committed to completing a deal by the end of the year.
Hopewell said Trump’s weaponization of trade has “fundamentally changed the calculus” for Canadian policymakers and citizens alike, leading Ottawa to take a “more pragmatic” approach with both.
What about the European Union?
Europe, with its standard of development, shared values and bilingualism, might seem a good fit for Canada. Some commenters have suggested the country could join the European Union, though not under the bloc’s current rules.
“Europe seems to a lot of Canadian establishment policymakers” to be “low-hanging fruit [and] like-minded,” Karaguesian said. And the sides do some business. They haven’t fully ratified their own CETA, but it has been provisionally applied for nearly a decade. Trade between the two reached $178.6 billion last year.
The challenge, Karaguesian said, is neither much needs what the other is selling. “We’ve signed dozens and dozens of free trade agreements,” he said. “But it’s markets and businesses that decide the pattern of trade.” Europe already has sophisticated manufacturing, agribusiness, fisheries.
“They’re already saturated with all that stuff,” Karaguesian said. “So Europe seems great, but there’s not a whole lot of areas to expand there.”
And the United States?
Werner Antweiler, a professor of international trade policy chair at the University of British Columbia, said the trade war will only make things worse for both sides.
“Trump always likes to say, ‘You know, we don’t need anything from Canada; Canada relies on us,’ and we should be at his mercy and do his bidding,” Antweiler said.
“I’m sorry, no,” he said. “You have an integrated economy where both sides benefit. That’s the beauty of international trade. International trade is a win-win. Both sides specialize and gain.”
Trading with nearby countries minimizes transportation costs and avoids market and border frictions. With the “wake-up call,” Antweiler said, Canada is having “to shape up, and we’re doing it.” He cited investments in pipelines and export terminals to get oil to international markets.
“We’re spending, we’re spending big-time on all these things,” he said. “We’re building up Canada bit by bit,” he said.
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