After U.S. President Donald Trump threatened a 25% tariff on Canadian goods and a 10% tariff on Canadian energy, Prime Minister Justin Trudeau promised a 25% targeted retaliatory tariff on U.S. goods. Although there’s been a 30-day ceasefire on the trade war, experts say it’s time we reconsider our reliance on U.S. trade.
“[The tariffs are] unfortunately are a wake-up call that the world’s most successful economy and our major trading partner for so many years is not a reliable trading partner,” said Elliot Tepper, an adjunct professor of political science at Carleton University.
“We are going to have to reinvigorate our search for that third option,” he said. Tepper referenced a 1972 paper by then-secretary of state for external affairs Mitchell Sharp, who favoured international trade diversification over the first two options available at the time: the nationalistic status quo or closer integration with the U.S.
Canada has existing free trade agreements with the European Union (EU), several commonwealth countries including the U.K. and is a founding member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
“The efforts are in place to diversify and the machinery to do so is in place,” Tepper said.
Europe’s high standards
Europe is open to Canadian trade, but we may have missed some opportunities, said Jacques Shore, a partner at law firm Gowling WLG who became a Member of the Order of Canada for his international trade work.
For example, we could’ve worked with Germany on additional energy projects, like exporting liquified natural gas, when German Chancellor Olaf Scholz came to Ontario in 2022 to pave the way for Volkswagen’s battery plant in St. Thomas, Ont., Shore said.
But there’s a snag: it’s not easy to align Canadian products with EU standards. The EU demands that its trade partners follow its regulations and agree to resolve disputes in European courts, said David Collins, a senior fellow at the Macdonald-Laurier Institute and the co-editor-in-chief of The International Trade Law and Regulation journal.
Because Canadian suppliers have found it difficult to meet EU standards, the Canada-European Union Comprehensive Economic and Trade Agreement is only “superficial” for Canada, Collins said.
Canada’s illiberal services sector
Outside of Europe, Canada can turn to the Asia-Pacific with the CPTPP, which has a comprehensive framework for the mutual recognition of goods with countries like Japan, Australia, New Zealand and the U.K., Collins said.
While manufacturing and commodities rely on geographical proximity, Canada can strengthen its services sector’s competitiveness with trade partners further afield, Collins said.
But our services sector isn’t entirely open to international competition, he said. Our communications, aviation and financial sectors remain closed to foreign firms.
“There’s definitely some merit in what President Trump has been saying about Canada,” Collins said, referring to Trump’s complaint about the illiberal Canadian banking sector.
Trade with the U.S., Mexico irreplicable
While Canada can look east or west to alleviate the impact of looming U.S. tariffs, it’ll be difficult to duplicate our level of integration with the U.S. and Mexico with any other trading partners.
“Some products go through all three countries multiple times before the final product is put on the market,” Tepper said. “We cannot easily replicate the kind of interoperability of the three economies anywhere else in the world.”
Canada and the U.S. share a Regulatory Cooperation Council that aligns the regulatory expectations and harmonizes administrative processes between the two countries, Shore said. “We’re pretty close to having regulations that are very much the same standards.”
Trump tarnished U.S. reputation
Although tariffs were suspended, Trump’s abrogation of the trade deal he designed during his previous administration will dent our relationship with the U.S., Tepper said.
Canadians would be justified in resenting the Americans and boycotting American goods, Collins said. But it would have no long-term consequence on business with the U.S. if the trade war were resolved within weeks.
“It’s going to be very difficult to recreate that kind of trust,” Tepper said. “[This] will finally perhaps give the spur to invigorating that third option in a way that we’ve not had until now.”