Canada’s Relations with the United States under Donald Trump

Amid the global trade war, the conflict between the once-closest of partners of the US and Canada reached a new peak in spring 2025 with mutual punitive tariffs and counter-tariffs. After taking office again in January, President Trump continued the protectionist policies of his first term. With threats of tariffs targeting the automotive and steel industries – and above all, with his demand that the US annex Canada as the “51st state of the US” – Trump reignited a long-dormant sense of Canadian patriotism. According to Canada expert Gerd Braune, Trump’s attacks triggered a feeling of nationalism in Canada on a scale never before seen, thereby profoundly altering relations between the two neighbours.¹ At the start of the election campaign, Prime Minister Mark Carney even spoke of irreparable damage: “The old relationship we had with the United States – built on deep economic integration and close security and military cooperation – is over.”²

Drawing on its experience of Trump’s first administration from 2017 to 2021, Canada now aims to “play to its strengths” by removing internal trade barriers between the provinces and rebalancing existing dependencies in the field of defence. Canada’s industry remains the largest investor in the US, but with new markets opening in both Europe and the Indo-Pacific, diversifying and strengthening the resilience of Canadian trade and industrial policy is more urgent than ever in light of US protectionism. As the chair country, Canada hosted the G7 summit in Kananaskis in mid-June. The agenda included decisions on migration, artificial intelligence, and quantum technologies as well as on critical raw materials: “The G7 aims to reduce dependence on authoritarian states such as China and secure its own supply chains for lithium, cobalt, and rare earths. It has also agreed to facilitate investment and strengthen partnerships with reliable countries.”³ A week later, on 24 June, Canada signed an agreement with the EU in Brussels to deepen security cooperation and to take part in the EU’s ReArm Europe initiative through the Security Action for Europe (SAFE) programme. Backed by around 800 billion euros, the European Commission’s ReArm Europe/Readiness 2030 plan seeks to enhance Europe’s defence capability. The SAFE programme will make 150 billion euros in credit available in order to strengthen interoperability among EU partners.⁴ While not a member of the EU but nevertheless a part of NATO, Canada may be able to participate along the lines of Norway or the United Kingdom, thereby reducing its heavy reliance on the US defence industry.⁵

Canada’s strategic reorientation towards Europe was once again viewed critically in the US. At the subsequent NATO summit in The Hague, however, Canada endorsed the US demand for all partners to meet the five per cent target – a move that may have temporarily appeased Washington. However, exactly how the country intends to achieve this goal remains to be seen. With this stance, Prime Minister Mark Carney has corrected the course set by the previous government and signalled to the US that Canada will not be intimidated but will nevertheless meet its responsibilities within the North American Aerospace Defence Command (NORAD), in the Arctic, and as part of the transatlantic alliance with Europe. As such, the provocations from the US have brought Canadians not only closer together, but also closer to their European allies through an agreement concluded in August 2025 between Canada and Germany on securing critical raw materials.⁶

Mark Carney and Donald Trump – Worlds apart

Canada experienced a brief and rather uneventful election campaign in the midst of its trade conflict with the US. The late surge in support for the Liberals under Mark Carney was unusually strong, driven above all by growing unease over the unpredictability of Donald Trump and his administration.⁷ After the volatile years under Justin Trudeau, the former central bank governor came to be viewed as a crisis-tested leader. Although the Conservatives under Pierre Poilievre achieved their greatest result since 1984, it was not enough to secure victory. Carney was able to form a minority government with a margin of just three votes. Even before the elections, Carney had made his intentions clear by travelling first to Paris and London – a pointed signal to Washington. It was not until later – in May 2025 – that the Canadian Prime Minister met President Trump in Washington, D.C. According to media reports, the talks were marked by mutual respect. Carney expressed dissatisfaction with the outcomes but made clear that Canada’s interests were not up for sale.⁸

The Carney government’s approach to the US appears outwardly firm and measured. Indeed, Carney himself avoids unnecessary confrontation. The government’s already-adopted Digital Services Tax Act had been withdrawn just before the first round of tariff negotiations with the US began at the end of June.⁹ Even so, Mark Carney did not go to US President Donald Trump with cap in hand. While Trump had previously referred to Justin Trudeau in late November as the “governor of the 51st state”,¹⁰ he did appear to accept Carney as a serious financial expert.

Carney’s foreign-policy performance as a mediator won him credit early in his term, but since autumn 2025, his government has been grappling with domestic challenges that directly affect relations with the US. These challenges include expanding pipeline infrastructure, accelerating housing construction, and supporting firms hit by the tariff dispute in the industrial belt spanning both countries. The automotive and raw-materials sectors of the two economies are tightly interwoven. With industrial output stagnating, unemployment is rising rapidly on both sides of the border. To mitigate the fallout, the Strategic Response Fund – approved in August 2025 with a volume of five billion Canadian dollars – is to support the steel and automotive industries and to prevent the loss of up to 30,000 jobs amid the ongoing tariff conflict with the US.¹¹ The persistently high unemployment rate risks fuelling conflict with more than just the opposition: Indeed, the rise in everyday living costs in recent years worries many Canadians. In October, the Conservatives tabled a motion calling for lower taxes on food.¹²

In the wake of the “elbows-up” stance, are we now seeing a rhetorical de-escalation in favour of addressing domestic challenges? A renewed softening towards the US – an “elbows-down” moment – may indeed seem more useful to Carney than continued confrontation.

At a press conference on 22 August 2025, Carney clearly conveyed that despite recent tensions, Canada was still enjoying the most favourable trading conditions with the US. To preserve this advantage, the government intends to expand the provisions of the Canada–United States–Mexico Agreement (CUSMA) and to abolish all remaining tariffs on US goods – a step that aims to largely restore free trade between the two countries from 1 September 2025.¹³

Canada and the United States – A relationship of ups and downs

Relations between Canada and the US have never been free of conflict. The premiership of Pierre Trudeau (1968–1979 and 1980–1984) – father of recently resigned Justin Trudeau – was a particularly tense period. Even more difficult were the years of the Great Depression from 1930 onwards, when the Smoot–Hawley Tariff Act in the US sparked a trade war with Canada and Britain: “Thus, Ottawa’s economic and trade policy over the past forty years has oscillated between a drive for deeper North American integration and efforts to reduce dependence on its powerful neighbour.”¹⁴

Canada–Trump I

Bilateral cooperation between Canada and the US has come under heavy strain since Donald Trump’s first term under his “America First” agenda. As early as in 2018, Trump imposed punitive tariffs on Canadian steel and aluminium, thereby deliberately burdening the economic interdependence of the two nations – a move that was controversial even within the US. Shortly after taking office, the Trump administration also withdrew from multilateral agreements, such as the Trans-Pacific Partnership (TPP). At the same time, Trump openly questioned US NATO membership, arguing that the burden-sharing was unfair and that European states were not contributing enough to their own security. At that time, Canada was falling short of the alliance’s two per cent target, projecting only 1.76 per cent of GDP by 2029/2030 as being attainable.¹⁵

Relations between the US and Canada eased only briefly under President Joe Biden. However, despite a different tone and a far more cooperative approach, Biden also pursued an “America First” policy in substance. Some priorities were new, however, and would have been unthinkable under Trump – notably the emphasis on environmental and climate policy and the promotion of social justice.¹⁶ Prime Minister Justin Trudeau likewise focused on multilateral cooperation: Canada remained committed to the Paris Agreement and – with the 2021 Net Zero Emissions Accountability Act¹⁷ – set a goal of achieving climate neutrality by 2050 – a target that remains socially contentious, with the carbon tax being a particular focal point of Conservative criticism.

At the same time, the trade war between the US and China hit the Canadian economy hard, especially in the steel and automotive industries. The US government also pushed for a renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. This pressure led in 2018 to the conclusion of the United States–Mexico–Canada Agreement (USMCA), which is known in Canada as the Canada–United States–Mexico Agreement (CUSMA). The new deal was intended to offset disadvantages, to strengthen US production, and to consolidate America’s position through closer energy cooperation with Canada.

Canada–Trump II

With Donald Trump’s second inauguration in January 2025, bilateral relations between Canada and the US fell to a historic low. While the US continued its confrontational stance towards China, its dealings with long-standing allies such as Canada and Europe became increasingly abrasive. Priorities were unilaterally redefined from the outset. It soon became evident that Trump’s second term was following the blueprint of the Project 2025 – Mandate for Leadership plan,¹⁸ which was developed by the Heritage Foundation and has since been implemented in areas ranging from administrative restructuring to military deployments in American cities.¹⁹ The threats issued by the Trump II administration against Canada, Greenland, and Europe appear to have been made to deliberately inflict damage to the rules-based international order. At one point, Trump even floated the idea of a military occupation of self-governing Greenland, which is part of NATO member Denmark. The Project 2025 agenda explicitly highlights Greenland’s strategic importance in countering China.²⁰ This year, Trump also announced his intention to terminate the USMCA but quickly recognised that such a move would also severely harm the US economy; therefore, he abandoned the idea. Instead, his administration leveraged the existing trilateral trade agreement, under which around 85 per cent of Canadian exports to the US are tariff-free – an advantage for Canada in Trump’s view.²¹

Beyond this free-trade framework, Canada has in recent years deepened its cooperation with Indo-Pacific partners. Collaboration with Australia, New Zealand, Japan, and South Korea has become strategically significant as part of efforts to counter China’s growing influence.

Economic interdependence between Canada and the United States

Canada and the US differ significantly not only in population size, but also in economic strength. With a population of roughly 350 million and a GDP of about 29.2 trillion US dollars, the US is the world’s largest economy as well as a technological and military superpower.²² With a population of 41 million and a GDP of around 2.25 trillion US dollars in 2024, Canada views itself as a middle power that often operates in the slipstream of the US. Roughly 70 to 75 per cent of Canada’s trade flows are directed towards the US, though exports have fallen by about ten per cent due to tariff disputes and uncertainty²³: “Not only do three-quarters of Canadian exports go to the US, but Canada is also America’s most important export destination and the largest export partner for 32 of its 50 states.”²⁴

This deep integration of the two economies goes hand in hand with both advantages and significant vulnerabilities. The respective trade surpluses of the US and Canada have led to differing assessments of the conflict. At the start of 2025, Trump repeatedly highlighted the US trade deficit with Canada, which is largely the result of Canada’s energy exports to the US. Canada’s wealth of natural resources is of critical importance for the US energy supply, the automotive and steel industries, agriculture, and therefore also food security. Canada is the largest energy trading partner of the US, supplying around 60 per cent of US oil imports and almost 99 per cent of its natural gas imports. The nation additionally supplies heavy crude from oil sands, liquefied natural gas, and critical minerals and metals as well as about 85 per cent of imported electricity.²⁵ Canada has thus far refrained from using its energy leverage as retaliation against US tariffs, instead remaining mindful of the potential damage to its own industries. Nonetheless, calls from energy-producing provinces have grown louder.²⁶ When Ontario Premier Doug Ford was re-elected in March 2025, he immediately threatened to halt energy exports to the US at the onset of the trade war²⁷ – a move that would have driven up US energy prices and further escalated the conflict.

Canada’s dependence on the US is likely to remain a constant. In 2024, the US imported goods worth around 476 billion US dollars from Canada – more than from China (463 billion US dollars), though less than from Mexico (562 billion US dollars) according to the Bureau of Economic Analysis.²⁸ Any significant reduction in these imports would inflict severe damage on the Canadian economy. Whatever the duration of the trade conflict, the key for Canada will now be to chart a course of strategic resilience that involves the following measures:

1. Achieve emancipation from the US in the area of trade policy through the diversification of trading partners towards the EU and the Indo-Pacific region together with a gradual loosening of the integration between Canadian and US industries. This is not a new idea, but it has yet to be fully realised.
2. Strengthen the industrial and security partnership with the European Union through concrete projects in the Canadian budget so as to help meet the agreed NATO five per cent target by 2030, including participation in the SAFE and ReArm Europe programmes.
3. Expand the raw materials sector and develop sufficient energy, hydrogen, and LNG transport infrastructure, thereby ensuring continued supply capacity to the US while also improving pipeline and port infrastructure along a west–east axis. Such a determined response to these challenges was not expected of Canada in previous years and was largely ignored by the Trudeau government.

Tougher times ahead for Canada and Europe

Intensifying system rivalry and the erosion of the multilateral order are placing increasing strain on liberal democracies. In authoritarian states, respect for the rule of law is increasingly giving way to the law of the strong. The future course of the US thus remains deeply uncertain. Canada appears to be counting on the eventual passing of Trump’s second term, hoping for a return to normality. However, this may prove a false hope given Trump’s willingness to use punitive tariffs as a tool against any perceived wrongdoing.²⁹

As geostrategic trading partners and NATO allies, the US and Canada have been the most important allies outside the European Union in recent decades, thereby making them highly relevant partners. A lasting disruption in their bilateral relationship would inevitably affect both the North Atlantic Alliance and the EU. If the trade war between the US and Canada continues, the achievements of the CETA agreement will inevitably come under threat. Since its provisional application in 2017, trade between Canada and the EU has grown by 70 per cent.³⁰ Nevertheless, the free trade agreement has so far not been ratified in ten EU countries. The tariff measures announced amid the US dispute are likely to push up prices for Canadian products – increases that even more intensive trade with Europe and Germany may not be able to offset. According to the Federation of German Industries, economic cooperation with Canada is becoming ever more significant: “In 2022, bilateral trade between Germany and Canada reached a new record. Compared with in 2021, it rose by 28 per cent to 20.8 billion euros, driven largely by higher numbers of exports of German vehicles, machinery, and electrical engineering.”³¹ The current trade volume between the two countries could stagnate, thereby jeopardising jobs on both sides of the Atlantic. Increasing prices for imported steel alone would have far-reaching consequences for German industry. Last spring, the German Institute for Economic Research warned of significant indirect effects on the domestic steel sector.³² As early as in 2018, the so-called diversion effects endangered thousands of jobs in Germany’s steel industry – a development that could easily recur. Another example is Volkswagen’s investment of over five billion euros in the world’s largest battery-cell gigafactory in St. Thomas, Ontario. The aim of tapping into an additional sales market in North America would be jeopardised not only by the tariff dispute, but also by President Trump’s fundamental questioning of the transition in the automotive industry. Germany’s car industry is already under pressure amid the global industrial transformation and ongoing debates about postponing or even cancelling the planned phase-out of combustion engines; therefore, these developments would weaken the industry further.

It is thus necessary to question whether Canada can – amid a strained budget – meet its existing NATO commitments, including the planned deployment of around 2,000 Canadian troops to Latvia by 2026 in order to strengthen the alliance’s eastern flank³³ as well as investments in modernising NORAD and in developing new defence capacities along NATO’s northern flank in the Arctic.

Should the existing multilateral order of the “Global North” give way to a policy that serves primarily US interests, this would mark what political scientist Matthias Kennert described a decade ago as a “phase of multipolarity” – one characterised less by balance than by instability and vulnerability to crises.³⁴

According to an analysis by the German Institute for International and Security Affairs, the US is now “moving from a crisis of democracy towards a crisis of statehood”, with “another wave of autocratisation” to be expected.³⁵

The established principle of burden-sharing within the Western alliance is no longer accepted by Washington. The five per cent target ultimately stands as a symbol of a clear shift in responsibilities within NATO towards Europe and Canada.

In these geopolitically uncertain times, Canada’s realignment carries considerable risk. Accession to the EU under Article 49 of the Treaty on European Union is highly unlikely as Canada is not a European country. A status similar to that of Norway is likewise not among Ottawa’s current priorities, not least because this would entail adopting EU regulations – a debate Canada has yet to begin.

Instead, Canada will have to re-examine its one-sided dependence on the US. It is clearly in the country’s interest to be able to respond more independently to geopolitical challenges in an era of trade wars and cyberattacks. However, the more the US isolates itself under Donald Trump – or, as historian Anne Applebaum puts it, “moves towards an autocracy in which the media are manipulated and freedom of expression is curtailed”³⁶ – the more urgently the question turns to Canada.

The most likely outcome for now, however, is that Canada will focus on stabilising its bilateral relations with the US at a manageable level. Like Europe, Canada has grown comfortable in the slipstream of the US. However, the wake-up call is likely to resonate for some time to come.

– translated from German –

Dr Bernd Althusmann is Head of the Konrad-Adenauer-Stiftung’s Canada Office, based in Ottawa.

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14. Pressler, Florian 2011: Kanada, die transatlantischen Handelsbeziehungen und der nordamerikanische Markt: Von der Third Option zu NAFTA und CETA, Zeitschrift für Kanada-Studien 31: 1, pp. 11–35, here: p. 12, in: https://ogy.de/ko7s [29 Oct 2025]. ↩︎
15. Department of National Defence 2024: Our North, Strong and Free: A Renewed Vision for Canada’s Defence, 3 May 2024, p. 11, in: https://ogy.de/gm0o [26 Oct 2025]. ↩︎
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20. Dans / Groves (eds.) 2023, n. 18, p. 256. ↩︎
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27. Ibid. ↩︎
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29. Frankfurter Allgemeine Zeitung 2025: Trump kündigt zusätzliche Zölle gegen Kanada an, 26 Oct 2025, in: https://ogy.de/g0x2 [26 Oct 2025]. ↩︎
30. De La Feld, Simone 2025: With CETA, the EU and Canada have increased bilateral trade by more than 70 per cent, Eunews, 16 Jun 2025, in: https://ogy.de/nghl [26 Oct 2025]. ↩︎
31. Lenkeit, Daniel 2023: Deutsch-kanadischer Handel wächst kräftig, GTAI, 14 Feb 2023, in: https://ogy.de/s2pa [26 Oct 2025], quoted in: Krämer, Matthias 2025: Zusammenarbeit für eine wettbewerbsfähige Wirtschaft, BDI, 5 Mar 2025, in: https://ogy.de/xm3j [26 Oct 2025]. ↩︎
32. Kolev-Schaefer, Galina / Matthes, Jürgen 2025: US-Stahlzölle: Der Handelskrieg beginnt auch mit der EU, Institut der deutschen Wirtschaft, 11 Feb 2025, in: https://ogy.de/nfgc [26 Oct 2025]. ↩︎
33. ntv 2023: Kanada wird Militärpräsenz in Lettland “mehr als verdoppeln”, 10 Jul 2023, in: https://ogy.de/ljgr [11 Oct 2025]. ↩︎
34. Kennert, Matthias 2015: Die Mär von der multipolaren Weltordnung: Hegemonie in der Sicherheitspolitik des 21. Jahrhunderts, Working Paper Sicherheitspolitik 5/2015, Federal Academy for Security Policy, here: pp. 1 and 4, in: https://ogy.de/4aam [29 Oct 2025]. ↩︎
35. Overhaus, Marco / Thimm, Johannes 2024: Die USA auf dem Weg in die Systemkrise, SWP-Aktuell 2024/A 16, German Institute for International and Security Affairs, 11 Mar 2024, p. 8, in: https://ogy.de/0asx [11 Oct 2025]. ↩︎
36. Slomka, Marietta 2025: Was passiert da in den USA, Frau Applebaum?, interview, ZDFheute, 9 Mar 2025, in: https://ogy.de/fj48 [5 Oct 2025]. ↩︎