Canada faces mounting geopolitical and economic challenges as Trump’s protectionist policies threaten its trade relationship with the U.S., pushing the country to accelerate global diversification efforts.
Canada’s Global Position
Canada, as the world’s 9th largest economy with an annual GDP growth of 2.4%, has cemented its position among the most influential nations in the world. The country’s global influence is further enhanced through its membership in the G7, a group comprising seven of the world’s most advanced economies and is widely considered ‘the steering committee of the free world’’. With Canada now being the G7 president for 2025, it will host world leaders at the upcoming summit in Alberta this June. This position is strategically beneficial and will give Canada the power to shape global discourse. As a founding member of NATO and an active leader in the WTO, Canada remains committed to international cooperation and security. At the same time, it continues to build on its legacy of peacekeeping initiatives while advocating for progressive environmental policies.
Canada has an expansive network of Free Trade Agreements (FTAs) with over 51 countries to promote trade, and Foreign Investment Promotion and Protection Agreements (FIPAs) designed to secure international capital. The United States is Canada’s largest trading partner, with an economic relationship facilitating hundreds of billions in annual bilateral trade. But the political landscape, with President Trump back in office, has become increasingly unpredictable. Due to the President’s renewed protectionist rhetoric and remarks against Canada, the country will have to reduce reliance on America, and pursue avenues for new partnerships.
Canada-US Relations: Economic and Security Challenges
The trade between the US and Canada is governed by the United States-Mexico-Canada Agreement (USMCA), which was ratified in 2020. The two countries have the world’s most prosperous bilateral trading relationship. This economic partnership has been beneficial to Canada, with more than three-quarters of Canadian exports finding markets in the United States. However, the Trump administration’s threatened tariff of 25% on Canadian goods represents a fundamental shift in US-Canada relations and requires a reconsideration of Canada’s economic strategy. Despite the two countries sharing supply chains, deep cultural ties, and a history of co-operation, the political reality of Trump’s protectionist stance may force Canada to accelerate its strategy of trade diversification.
The two countries, sharing the world’s longest border, also enjoy security partnerships like NORAD – the North American Aerospace Defense Command, which is responsible for aerospace control and warning. This coordinated defense partnership, built on decades of mutual trust and shared security objectives is also now under assault because of Trump’s economic coercion via tariffs and inflammatory remarks about Canadian sovereignty. In addition to endangering free trade, the American President’s actions also pose an immediate threat to both countries’ national security. These tariffs could have devastating consequences for Canada’s export-reliant markets and, in turn, the country’s defense capabilities. A weakened Canadian economy would struggle to maintain its commitments to Arctic security initiatives and continental defense obligations.
Additionally, America turning against its closest ally will warn the world to consider economic dependence on the US as a liability and could fracture alliances that maintain American hegemony on the global scale. Adversaries like China, which have long sought to increase trade in Canada, will attempt to establish footholds in these regions, potentially undermining Western solidarity.
Diversification Strategy: The European Union and CETA
Canada has already been pursuing new avenues by deepening its partnership with the European Union through CETA (Comprehensive Economic and Trade Agreement). Since CETA began in 2017, the agreement has removed tariffs in most industries and has given Canada access to one of the world’s biggest markets. The outcomes have been impressive, with the EU becoming Canada’s third-largest trading partner. Two-way trade has increased by over 50%, and Canadian small and medium enterprises (SMEs) have seen notable export growth in previously untapped European markets. Canada and the EU are using CETA to co-operate on important international issues including economic security, climate change, and digital innovation. This framework demonstrates Canada’s commitment to reducing reliance on any single economic partner.
Canada’s Indo-Pacific Strategy
Beyond Europe, Canada has been strengthening its economic ties with the Indo-Pacific region through its 2022 Indo-Pacific Strategy. ASEAN is currently Canada’s fourth-largest trading partner, and is a key component of the IPS strategy. By pursuing partnerships with more ASEAN members, the IPS plan seeks to diversify trade alliances while strengthening economic resilience. Canada’s increasing influence in the region is demonstrated by the recent breakthrough in trade negotiations with Indonesia, the largest economy in Southeast Asia. However, due to the threat of Trump’s tariffs and increased U.S. trade protectionism, Canada must expedite the implementation of its Indo-Pacific Strategy and prioritize finalization of the ASEAN-Canada Free Trade Agreement before the end of 2025.
Conclusion: Canada’s Future in a Shifting Global Order
As the global system undergoes a significant transition towards multipolarity, Canada finds itself at an important turning point. With Trump’s second term, Canada’s long-standing alliance with the United States is facing unprecedented uncertainty, prompting the country to pursue new international partnerships. Realigning the economic priorities of resource-rich provinces with federal climate commitments is another problem Canada might face. These internal conflicts are further complicated by the intensifying regional conflicts in the South China Sea and the Arctic – areas where Canadian national and economic security is directly at stake. Nevertheless, despite all challenges, Canada still has the capacity to become a powerful influence in establishing a more just, sustainable, and collaborative international system.
Aleena Im – is an independent researcher and writer and is interested in international relations, current affairs
