Canada Lays the Groundwork to Pivot Away From the United States

This piece is part of a joint CFR analysis assessing the geopolitical effect of the Trump administration’s tariffs policy on traditional U.S. allies, including Canada as well as the European Union, Japan, and Australia and New Zealand. 

Edward Alden is senior fellow at the Council on Fore­­­ign Relations (CFR), specializing in U.S. economic competitiveness, trade, and immigration policy. 

For the past seventy-five years, the United States and Canada have pursued ever closer economic and military cooperation, celebrated “the world’s longest undefended border,” and built a friendship that was among the deepest between any two countries in the world. That all ended on March 26, 2025, when U.S. President Donald Trump announced he would impose 25 percent tariffs on auto imports, including its largest suppliers Canada and Mexico which had long been guaranteed tariff-free trade under ratified agreements with the United States.

The fallout has forced Canada to develop a new plan to face down an antagonistic United States. It is built on three pillars: unifying its economy domestically, bolstering military spending, and seeking deeper ties with European allies. Each involves a radical break with the past.

This pivot essentially began when Canada’s new Liberal prime minister, Mark Carney—who would go on to win an upset election victory in April—delivered the eulogy for the U.S.-Canada relationship in a televised address to forty-one million Canadians the day after the tariffs were announced. “The old relationship we had with the United States, based on deepening integration of our economies and tight security and military cooperation,” Carney proclaimed, “is over.” From here on, he told Canadians, the country would need to “fundamentally reimagine” its economy and ensure that Canada could “succeed in a drastically different world.”

While Trump’s tariffs and “America First” unilateralism are reshaping relationships around the world, nowhere has the effect been more profound than in Canada. The country’s response so far has been energetic and ambitious. But as U.S. tariffs start to bite—Canada’s economy shrunk by 1.6 percent in the second quarter of 2025 largely due to falling exports, and its unemployment rate ticked above 7 percent in August—it is clear the hurdles are daunting.

Canada measures almost 3,500 miles from west to east, but most of the population lives in a narrow corridor along its southern border. Trade and travel naturally run north-south rather than east-west. Despite efforts throughout its history to resist the economic pull of its southern neighbor, Canada took what it called “a leap of faith” by entering into a free trade deal with the United States in 1989. By the early 2000s, some 85 percent of Canadian exports were headed south and internal trade had languished.

Now, Carney is working furiously to remove artificial barriers to inter-provincial trade. This includes addressing licensing and product standard restrictions that economists say could provide a small boost to Canada’s gross domestic product (GDP), and new investments are being made to build out national infrastructure to diversify trade. Removing regulatory hurdles will be the easier part. Ontario, Canada’s largest province, announced this month that it would open its doors to regulated professionals, such as engineers and electricians from other provinces, and initiatives are moving ahead in other provinces as well.

Building infrastructure will be harder. The Trans-Canada Highway is still a two-lane road in much of the country. Meanwhile, pipelines move most of Alberta’s oil, its most valuable commodity, south to Gulf Coast refineries rather than east to Ontario and Quebec or west to British Columbia and markets in Asia. Carney has promised to bolster trade opportunities with the rest of the world by expanding ports, building liquefied natural gas terminals, and opening access to new resources for export. On September 5, he announced a sweeping “Buy Canadian” policy that will require the government to purchase from Canadian companies for all taxpayer-funded projects.

Canada’s defense policy has similarly been built along a north-south axis. The formation of the North American Aerospace Defense Command in 1958 made Canada a critical part of the U.S. early warning system against Soviet air and missile attacks. Otherwise, Canada’s armed forces have remained small, used mostly for supporting NATO-led missions in Europe, Afghanistan, and elsewhere.

Carney has promised to boost defense spending from 1.4 percent of GDP to 2 percent by March 2026, years ahead of previous plans. Canada is also trying to reduce its overreliance on U.S. military equipment, signaling that its next big purchase of fighter jets will be from European rather than U.S. suppliers.

Indeed, Carney has spent much of his time in office shoring up relations with Europe on both defense and trade. Since taking office, he has made five multi-day trips to Europe and only one brief visit to Washington. Carney’s enthusiastic support for Ukraine’s fight against Russia has distanced him further from Trump. Canada also signed a “Security and Defence Partnership” with Europe in June that could eventually lead to much deeper integration in European security arrangements.

Tougher decisions lie ahead. As part of the U.S.-Mexico-Canada Agreement (USMCA), Canada had increasingly aligned its China policy with the United States. This includes emulating the United States’ 100 percent tariffs on Chinese-made electric vehicles. China has retaliated with prohibitive tariffs on Canadian canola, one of the country’s most valuable agricultural exports. At some point soon, Canada will need to decide [PDF] whether to continue embracing the U.S. hard line on China or soften its approach to help fill the void left by the United States.

Despite these moves, Carney has still made concessions to Trump. He removed a tax on digital services on companies like Meta and Google that faced bipartisan criticism in Washington. On September 1, he lifted most of the retaliatory tariffs levied by Canada, leaving only those on aluminum and steel. While Canada has not reached a new trade agreement with the Trump administration, it is trying hard to leave room for negotiation, perhaps with an eye toward the 2026 review of the USMCA.

But Carney’s balanced approach could run up against fierce anti-Americanism in Canada. Canadians, it seems, were willing to forgive Americans once for electing Donald Trump—but not a second time. Travel to the United States has plummeted, and many Canadians have been boycotting American products.

Canada’s strategic realignment will require time to gradually reduce its economic and military dependence on the United States and foster new relationships in Europe and Asia. Slower economic growth is likely for several years at least. Carney has so far had strong public support in his efforts to deal with what he called last week “not a transition [but] a rupture” in Canada’s relationship with the United States—but he may not get all the time he needs.

This work represents the views and opinions solely of the author. The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher, and takes no institutional positions on matters of policy.