The latest salvo in US President Donald Trump's freewheeling trade war could have disastrous effects for Canadian business, but the new tariff threats may also open up trade opportunities elsewhere. With China and the European Union (EU) positioned to benefit, Canada is actively seeking to diversify its trading partners beyond its primary market, the United States.
Trade Diversification as a Strategy
Canada's Prime Minister, Mark Carney, has promised to take 'any measures necessary' to protect Canadian workers, farmers, and businesses. This includes moving away from over-reliance on a single major trading partner. The policy of trade diversification is not about decoupling with the US but reducing Canada's dependence on one market.
The Canadian-EU relationship has been strengthened significantly in recent years, largely thanks to the Comprehensive Economic and Trade Agreement (CETA), signed in 2016 and provisionally applied since 2017. This agreement removed nearly 98% of tariffs on trade between Canada and the EU, boosting trade by €130.8 billion in 2025 compared to 2016.
Key Areas for Future Trade
Machinery, pharmaceuticals, and minerals are among the major drivers of trade between Canada and the EU. The EU is seeking to reduce its reliance on China for rare earths while meeting environmental targets. This has been a key area of enhanced cooperation between the two parties, with bilateral engagement from countries like Germany and France.
However, there remain challenges. EU regulations on some goods continue to pose barriers for Canadian exporters, particularly in agriculture. Infrastructure is also an issue when it comes to energy exports. Canada recently signed a preliminary agreement with Germany for one million tonnes per year of liquefied natural gas (LNG), but the Ksi Lisims project has yet to receive approval.
Future Trade Prospects
While tariffs have all but gone, China could become the number one destination for increased Canadian exports due to its complementary economies. Canada's largest exports are energy and food products, with China as the second-largest buyer after the US. Other markets like India and Latin America are also in play.
Canada's foreign minister, Anita Anand, attended an ASEAN meeting this week and signalled plans for increased trade in that region through a free trade agreement (FTA). The deterioration in trade relations with the US has made Canada look further afield, offering significant growth opportunities for key sectors like agriculture. This could include forging closer relations with North Africa, the Middle East, and countries like Nigeria, which offer substantial market potential.
