Canada’s Trade Future: Balancing the U.S. Partnership with Global Diversification

By: Colin Fagnan

Canada’s economic prosperity has long been tied to the United States, our closest ally and largest trading partner. However, the threat of a 25% tariff on Canadian exports by U.S. President Donald Trump has exposed the risks of this over-reliance. While the U.S. remains essential, this moment demands a strategic shift: Canada must diversify its trade relationships, leveraging our abundant resources—particularly Alberta’s oil—with the European Union (EU) as a key partner, alongside other global opportunities.

The U.S.: A Vital Yet Uncertain Ally

Whether we like it or not, the Canada-U.S. trade relationship drives our economy. In 2023, over 75% of Canadian exports—valued at CAD $580 billion—went south, including 60% of U.S. crude oil imports (over 4 million barrels daily) and 90% of our steel and aluminum exports. Canada’s natural wealth, such as uranium (15% of global supply) and rare earth metals from Saskatchewan’s emerging industry, strengthens this bond, offering the U.S. a secure alternative to suppliers like China or Russia. Yet, whether we like it or not, the U.S.’s own increasing output—12.9 million barrels of oil daily in 2023, or 13% of global production—reduces its need for Canadian energy (though our heavy crude remains key to their refineries for the time being). The tariff threat, projected by the Canadian Chamber of Commerce to cut Canada’s GDP by 2.6% (CAD $78 billion), risks disrupting communities across the country where integrated supply chains fuel jobs and growth.

Canada’s resources are indeed a global asset, yet our trade has historically favoured proximity. In 2022, amid Russia’s invasion of Ukraine, German Chancellor Olaf Scholz and Japanese Prime Minister Fumio Kishida crossed oceans to seek Canadian energy to offset supply disruptions. Though talks occurred, the Canadian government prioritized domestic policy and climate considerations over immediate export deals, missing a chance to cement new lucrative partnerships. This hesitation underscores a broader truth: the world craves our oil, uranium, and rare earths among many other resources, yet we’ve tethered our economy to our southern neighbour. Trump’s tariff threat is therefore a wake-up call to recalibrate.

Canada’s Oil: A National Strength Underutilized

Alberta’s oil, a pillar of Canada’s wealth, exemplifies this untapped potential for international markets. The LNG Canada terminal in Kitimat, BC—Canada’s largest infrastructure project under construction and set to export 14 million tonnes annually by mid-2025—is a massive win, boosting jobs and global reach. Yet, Eastern Canada lags behind. The Energy East pipeline debate, alive online and in policy circles across the country, begs revisiting—shipping Alberta crude east could power domestic refineries and exports. Without it, Germany burns coal, and Japan, after Canada’s 2022 hesitation, signed a colossal February 2025 LNG deal with the U.S. under Trump. That investment could’ve fueled Canadian growth rather than our competitors’. Canada’s responsible oil is needed by international partners and failing to deliver will inevitably risk ceding ground to dirtier or unstable sources.

Overreliance on the US also leaves Canada exposed, this much is certain, and given our exporting limitations we are forced to sell our oil to the Americans at a reduced price. The imbalance in our trade relationship with the US is felt elsewhere. While U.S. trade accounts for just 24% of its GDP, it’s 67% of ours, amplifying the tariff’s sting. Retaliatory measures may pressure some U.S. states, but they won’t erase the asymmetry. The Asia-Pacific region, with half the world’s population and GDP, certainly offers potential, but geopolitical considerations and China’s increasing influence at odds with the west heighten risks. This reality tilts us toward the EU’s 448 million consumers and $25 trillion GDP. Furthermore, our trade network with the EU would fall under the security umbrella of NATO (while the latter persists of course).

The EU: Our new preferred trading partner?

Since CETA’s 2017 launch, EU exports hit $60 billion in 2024, reflecting the EU’s appetite for our energy, metals, and innovation—a demand reinforced by Foreign Minister Mélanie Joly’s February 2025 talks in Europe. We at the European-Canadian Centre for Innovation and Research (ECCIR) can offer a pivotal role, connecting Canadian firms to the Horizon Europe Fund—valued at €93.5 billion, the world’s largest innovation investment fund. Unlike Canada’s limited grants or venture capital (far less prevalent here than in the U.S.), this fund offers SMEs and researchers a transformative alternative. Companies can contact ECCIR directly to tap into this resource, bypassing traditional funding hurdles and accelerating market entry.

ECCIR President Britta Baron had this to say given Canada’s current business environment: “As with any crisis, we will need to tackle it with confidence and forward-thinking responses. Canada has great opportunities looking for new trade opportunities in Europe. There are also challenges and obstacles that will need to be overcome. Partners on both sides of the Atlantic will need to pull up their socks to help companies overcome those challenges. This is the moment to invest and think outside the box. Business as usual will no longer be an option.”

A Multi-Market Strategy

Though cutting U.S. ties is impractical, Trump’s tariffs will no doubt spark a trade war. The EU and the Asia-Pacific neighbourhood stand ready for Canadian trade, with Baron noting: “ECCIR can help at many levels with offering support for partnership building and matchmaking… Hannover Messe [the world’s largest tech summit this Spring] gives us encouraging evidence of Canada’s rapidly growing interest in reaching out to Europe. Never before, have we seen such numbers of Canadian exhibitors, close to 250, and delegates, circa 700.” Europe, having also been targeted with tariffs by the American President, needs us as much as we need them.

While we await this week for US President Trump’s final decision on tariffs going forward, Canada’s trade destiny teeters on the edge. We’ve long leaned on one partner, while our resources, from Alberta’s oil to rare earths, draw global eyes. Trump’s tariff talk forces the question: will we cling to the familiar, or seize this chance to broaden our horizon? The EU beckons, and with ECCIR unlocking €93.5 billion in innovation funding, Canadian ingenuity has a stage to shine—proving our future isn’t just in what we dig up, but also in the bold ideas we build.