What challenges will Carney face as he reduces Canada's US reliance?

As the trade war between the US and Canada continues to escalate, Canada's Prime Minister Mark Carney is this week making a series of dramatic moves to reduce his country's reliance on its southern neighbor. 

On September 15, he gathered more than 100 of the world's largest investors for a summit in Toronto, where he pitched Canada as a "safe harbor" in a climate of increasing geopolitical and economic uncertainty. 

From there, he flew to Strasbourg, France to meet with EU leaders and discuss ambitious plans to make Canada the first "associate member" of the European Union. 

A quick hop over the English Channel saw him meeting Britain's new Prime Minister Andy Burnham to discuss closer cooperation on trade and defense, before again flying to Strasbourg to address the European Parliament on Thursday (September 17).

It's a dramatic ramping up of efforts. However, Carney's plans to pivot away from the US didn't start with this latest round of tit-for-tat tariffs.

In January of this year, Carney made a landmark speech at Davos, announcing the end of the "old order" and calling on the world's "middle powers" to band together to stand up to larger countries. In March, he said Canada would "need to dramatically reduce [their] reliance on the United States" and "pivot [their] trade relationships elsewhere.” 

Yet, despite strong words and early signs of support from investors and European leaders, Carney's struggle to reduce Canada's reliance on the US will be difficult. 

The two countries' proximity and historic partnership means their markets, infrastructure and militaries are deeply intertwined. If Carney hopes to shield Canada against any more Trumpian turbulence, he will need to address these challenges, lest he leave his country weaker on all fronts.

Trade

The most obvious challenge Carney faces is finding new markets for Canada's exports. In 2025, 71.7% of Canada's exports went to the US. This was down from 75.9% in 2024, but is still far and above the figures of any other country. 

The EU, Canada's second biggest trading partner, made up 5.5% of Canadian exports in 2025. This was up from roughly 4.79% in 2024. 

Meanwhile in 2024, 4.07% of Canada's exports went to China and 3.75% to the UK. There was a significant increase in exports to the UK in 2025, as demand for gold (which already made up an outsized proportion of Canada's exports to Britain) increased.

EU chief Ursula Von der Leyen has said the EU is looking to rebalance its trade relationships with partners, particularly China. This means they will be looking to import certain products from elsewhere. It will also mean the EU will be looking to increase production within its borders, driving up demand for Canada's metals, raw materials and car parts.

The UK, on the other hand, is looking to secure its supply of critical raw materials as China imports more global supplies for its own use. Ottawa is already devising strategies to assist European allies with the processing and storage of critical minerals, which represent a large proportion of their current exports to the US.

The US market is close and deeply embedded in Canadian supply chains. There are also free trade agreements, which have been in place since the 1980s. If Carney wants Canadian businesses to shift towards markets like the EU and the UK, he will need to negotiate agreements robust enough to rival the powerful appeal of American trade.

Trump's tariffs have already started to shift Canadian businesses to other markets, but some are struggling to diversify their trade. 

A report by the Canadian Chamber of Commerce identified Ontario as a region where manufacturing is particularly integrated with the US. 

Cities in Ontario "remain heavily tied to the US market, while growth in exports outside the US has been limited or insufficient to offset broader weakness in trade activity and local economic conditions," the report said.

Fear from EU countries

In her State of the Union speech in Strasbourg on Wednesday (September 16), Von der Leyen declared her support for plans to make Canada an "associate member" of the EU, collaborating closely with the bloc in sectors like tech, defense, energy, critical minerals and AI. However, it remains to be seen how the EU's member nations feel about the plans.

Some will be wary of alienating US President Donald Trump, who has not been shy to impose tariffs on countries that have incurred his wrath.

If the chants of "USA, USA" as Carney began his address to the European Parliament are anything to go by, this subgroup will not be afraid to make their feelings known.

Others will be more wary of upsetting their own citizens by being seen to favor foreign producers, subject to looser regulation, over domestic businesses. 

Past efforts to implement a trade deal between Canada and the EU were met with hostility within Europe. Over a decade after the EU-Canada Trade Agreements (CETA) were introduced, 10 of the EU's 27 member countries - including France, Italy and Ireland - have still not ratified the deal. Some EU officials have suggested ratification should first be completed before any new plans are introduced.

European farmers will be particularly wary of any new agreement between Canada and the EU. Protests across Europe to oppose CETA, as well as an EU-Mercosur deal earlier this year, highlight farmers' willingness to combat what they call unfair competition from abroad. 

Domestic opposition

Carney also faces opposition from within Canada. Protestors outside his investors summit in Toronto held signs proclaiming "Canada is not for sale" and demanding billionaires keep their "hands off Canada's water!"

"In the middle of a trade war, handing profitable public infrastructure over to private investors is exactly the wrong move," said Lily Chang, Secretary-Treasurer of the Canadian Labour Congress, about Carney's plans to privatize four of Canada's main airports. "If the goal is to make Canada stronger and more secure, we should be investing in the assets we depend on, keeping their value here at home."

On Thursday (September 17), Carney announced that there will be a vote in Canadian parliament on future relations with the EU. He said he expects debate but "polling shows an overwhelming majority of Canadians support much closer ties."

Digital and military sovereignty

'Sovereignty' is fast becoming the favourite buzzword of global policy experts everywhere. The erosion of international agreements and declining trust in Washington has made countries look more closely at their reliance on major powers like the US. 

Trump's open criticism of bodies like NATO has pushed countries to pursue more sovereignty militarily. Meanwhile, incidents like the International Criminal Court's emails allegedly being cut off by US-based Microsoft, and the passing of the US CLOUD Act, which could give the US government access to Canadian's private data, have strengthened drives for digital sovereignty.

Untangling any military and digital infrastructure away from the US at all is particularly challenging for Canada. 

Militarily, Canada relies heavily on the North American Aerospace Defense Command (NORAD), a binational military organization between the US and Canada which, in the words of its commander, Air Force Gen. Gregory M Guillot, is "integrated at all levels". While Canada monitors most of its vast airspace itself, it relies on the US to keep an eye on its blind spots, and has a policy not to conduct its own ballistic missile defense. 

Equally, Guillot has said the US relies on Canada to monitor and protect its northern approaches, the easiest routes for Washington’s adversaries to attack it by land, air and sea.

Europe will be keen to work more closely with Canada militarily. Currently, Ottawa spends 2% of its GDP on defence, which is more than the 14 smallest EU defense budgets combined - only Germany, Italy, Poland and France spend more on defense than Canada in the EU - and Carney has announced plans to increase this spending to 4% by 2030. Even then, Canada and European countries' defense spending will be dwarfed by that of the US, whose military budget accounts for roughly 60% of total NATO spending.

Canada is also heavily reliant on its southern neighbor for its digital infrastructure. A recent report from the Canadian Anti-Monopoly Project found that three US companies (Amazon, Microsoft and Google) own 85% of public cloud share in Canada, much higher than the global average of 65%.

There are however prospects for a sovereign cloud. Quebec-based company Micrologic recently raised C$45 million ($33 million) in a growth equity round to accelerate the rollout of its sovereign cloud services across Quebec and Canada. Micrologic is the only Canadian sovereign cloud, according to the research and advisory firm Gartner.

Data centers, AI investment and undersea cables have also been a major focus of talks between Canada, the UK and the EU. Cables under the Atlantic from Canada to Europe will also be a major step forward for Europe's own digital sovereignty efforts to break its reliance on US firms. 

"Reducing dependency on foreign companies is vital for digital sovereignty," Sasha Pearson from the European Centre for Development Policy Management (ECDPM) told CGTN. "Four US-based hyperscalers - Google, Meta, Microsoft, and Amazon - currently control more than 90% of the capacity on transatlantic cable routes. In these times of global uncertainty, that carries significant risk".

Despite these promising moves, Ottawa has said complete digital sovereignty is out of the question. A white paper focused on improving the digital readiness of the Government of Canada stated that Canada “cannot obtain a state of complete digital sovereignty, known as digital autonomy, due to the absolute interconnected nature of the digital world.”

High stakes

Carney has said he is not attempting to sever ties with the US, but rather seeking to “diversify to hedge against uncertainty.”

Canada's geography and historic partnership with the US has left the two countries deeply interdependent. When trust was there, this strengthened Canada. When it is not, it could hobble Canada, keeping it at the whim of its larger neighbor and preventing Canadians from looking elsewhere for trade, mutual defense and more. 

The stakes are high. Carney told Canadians that his pivot away from the US will ensure “no country can ever hold us hostage.” However, success is not guaranteed.