Trump’s tariffs shift trade routes
The latest escalation in U.S. President Donald Trump's trade war includes a 50% tariff on a range of imported goods from wine to hockey sticks, impacting about 5% of Canadian goods—worth $20 billion (€17.5 billion). This move is forcing Ottawa to look beyond the U.S. and into new markets, particularly in Europe. Canada's Prime Minister, Mark Carney, has pledged to take any necessary steps to safeguard Canadian workers, farmers, and businesses from the potential fallout. With Trump’s tariff threats, Canada is rethinking its trade strategy and is looking to build stronger relationships with non-U.S. markets.
Trade diversification is not a new concept for Canada, but it is now being prioritized more than ever. The Comprehensive Economic and Trade Agreement (CETA), signed in 2016 and provisionally implemented in 2017, eliminated nearly 98% of tariffs between Canada and the EU. As a result, bilateral trade between the two grew to €130.8 billion in 2025, a staggering 81.2% increase from 2016. The EU estimates that the deal has contributed an additional €3.2 billion to its GDP each year.
Rare earths and energy drive Canadian exports
Machinery, pharmaceuticals, and minerals currently form the backbone of trade between Canada and the EU. However, the most promising and strategic area for the future is the export of raw materials—especially rare earths. The EU is actively seeking to reduce its reliance on Chinese suppliers for these critical materials and is turning to Canada as an alternative. This cooperation is not limited to a single partnership; Canada is engaging in raw materials agreements with several EU member states, including Germany and France.
Natural resources, particularly energy, are another major area of interest for the EU. Germany, in particular, has a growing demand for liquefied natural gas (LNG). However, the challenge is not just in the demand but in the logistics. Transporting oil and natural gas to European markets is costly and complex, requiring the development of new export infrastructure on Canada’s eastern coast. A preliminary agreement has been signed with Germany to ship 1 million tonnes of LNG annually from Ksi Lisims, a proposed project on the British Columbia coast, to Germany. However, Ksi Lisims faces significant delays due to opposition from indigenous and environmental groups who argue that the project conflicts with Canada's environmental commitments.
China emerges as a fallback market
While Canada is working to strengthen ties with the EU, China remains a crucial trade partner. Two of Canada’s largest exports—energy and food—see a significant portion sold to China after the U.S. China's industrial capabilities complement Canada's resource base, making it a natural fit. According to Julian Karaguesian, an economics lecturer at McGill University, “the Canadian and Chinese economies are so complementary: China is a manufacturing superpower, and Canada is a natural resource superpower.” Despite this, Canada still faces challenges in accessing EU food markets due to the bloc’s protectionist agricultural policies.
China may end up benefiting the most from Canada’s trade diversification strategy. The country is already a major Canadian trading partner, and with Trump’s tariffs disrupting the U.S. relationship, Beijing is well positioned to absorb some of the displaced exports. Even as Canada pushes forward with ambitious EU partnerships, its long-standing relationship with China could ensure that the shift in trade routes continues to favor Beijing rather than Brussels. Julian Karaguesian from McGill University suggests that the EU’s regulatory hurdles, especially in agriculture, will continue to be a barrier, giving China a stronger advantage.
The future of Canada’s trade strategy is likely to be a balancing act between the EU and China. While the EU offers a promising market with strong economic ties and shared environmental goals, China’s complementary economic structure and growing demand for Canadian resources make it a natural fallback. The challenge now lies in navigating both relationships effectively, building infrastructure where needed, and overcoming regulatory barriers to ensure a more diverse and resilient trade portfolio for Canada.
Mark Camilleri from The Canada EU Trade and Investment Association emphasized that the goal of this trade diversification is not to cut ties with the U.S. but to reduce over-reliance on a single export market. Canada’s focus on Europe and the Indo-Pacific has already led to tangible results, but the road ahead is not without obstacles. The Ksi Lisims LNG project and regulatory barriers in the EU food sector highlight the hurdles Canada must overcome. Yet, with a clear strategy and a commitment to diversification, Canada can navigate Trump’s trade war and emerge with a stronger, more resilient economy.