After President Trump imposed steep tariffs on Canada over trade imbalances, subsidies, and national security concerns, Ottawa refused to negotiate. Instead, it bet on forming a trade and security pact with Europe that excluded the U.S. But after Trump closed “the biggest deal in history” with the EU, Canada now finds itself isolated as Europe moves forward, this time, with America, not Canada.

In March 2025, newly appointed Canadian Prime Minister Mark Carney made Europe, not the U.S., his first foreign stop, meeting with leaders in France and the U.K. and declaring Canada “the most European of non-European countries.” Carney emphasized the need to “diversify” Canada’s trade and security ties, arguing the country had grown too reliant on the U.S.

In June, Canada and the EU signed a defense and trade partnership and launched talks on digital trade. Ottawa hoped this new alliance would offset U.S. pressure. But after President Trump secured a massive trade deal with the EU on July 27, leaving Canada out, those hopes collapsed.

Despite enjoying some exemptions under USMCA, Canada still faces steep U.S. tariffs, with more threatened in August. Isolated and sidelined, Canada now finds itself with neither Europe nor the U.S. firmly in its corner.

It is mathematically puzzling that Canada, China, or the EU could believe they can maintain export levels after losing access to the U.S. market. With a population of 340 million and an average annual income around $80,000, Americans are among the world’s most eager consumers.

There is no other market with comparable scale, purchasing power, or appetite for imported goods. Since these economies are already trading extensively with one another and the rest of the world, reshuffling trade between them cannot compensate for the loss of access to the U.S.

Canada is particularly vulnerable. Over three-quarters of its goods exports go to the U.S., and nearly half of its imports come from the U.S., revealing the asymmetric nature of the relationship. Provincial economies are deeply tied to this trade: U.S. exports account for 34% of Alberta’s GDP, 33% of New Brunswick’s, and 25% of Saskatchewan’s. Additionally, about 70% of Canadian goods exported to the U.S. are used in American manufacturing, reflecting tightly woven supply chains vulnerable to disruption.

Import dependency is also uneven across provinces. Saskatchewan imports 80% of its goods from the U.S., followed by Manitoba at 76% and Alberta at 63%. Jobs linked to U.S. trade are heavily concentrated in Ontario (42%), Quebec (21%), Alberta (15%), and British Columbia (11%), meaning that any shock to U.S.-Canada trade disproportionately harms key provinces and sectors.Bottom of Form

The trade war has already inflicted significant damage on Canada’s economy. According to Statistics Canada, Canada’s share of goods exports to the U.S. dropped to 68.3% in May, down from the 2024 monthly average of 75.9%. Exports to non-U.S. countries hit a record high in May, rising 5.7%, but this wasn’t enough to offset the overall decline. TradeImeX data shows that Canadian exports to the U.S. fell 15.7% in April alone.

Currency markets reacted sharply. The Canadian dollar, already weakened by 7.7% in 2024, fell below 70 U.S. cents by December and continued to hover around 69.5 cents through early 2025, according to Bank of Canada data.

Employment also suffered. Statistics Canada reported 1.6 million unemployed people in May 2025, a 13.8% year-on-year increase. The average job search duration rose to 21.8 weeks, up from 18.4 weeks the previous May. While the unemployment rate dipped slightly to 6.9% in June, broader labor conditions deteriorated.

Manufacturing was hit hard. Output declined by 1.3% year-on-year in February, and sales dropped 1.4% in March. TD Economics reported a 0.1% GDP contraction in April, falling short of Statistics Canada’s projections.

The EU has come to its senses and agreed to grant Americans a fair deal—something we’ve never had before. China is still in negotiations, and while the likely outcome is a tariff reduction, they will almost certainly violate the agreement again, just as they did with the Phase One deal during Trump’s first term. Canada, facing no viable alternatives and an overwhelmingly asymmetric dependence on the U.S., will have no choice but to negotiate—and ultimately accept U.S. terms. The past seven months of economic instability and rising prices in America are simply the short-term cost of securing better trade deals and higher incomes for years to come.

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