Canadian Prime Minister Mark Carney pledged to pivot Canada away from the US toward Europe. But his vow of distancing the world’s fourth-biggest oil producer from its largest trading partner will face considerable headwinds.
“The old relationship we had with the United States based on deepening integration of our economies and tight security and military corporations is over,” Carney said after winning federal elections on April 28. Canada has a “critical need to diversify trade and strategic alliances,” he said in a BBC interview on May 4.
Despite Carney’s tough talk, Canada has deep US trade ties that will be difficult to diversify. In 2024, 76% of Canadian merchandise exports went to the US, according to Statistics Canada. About 88% of Canada’s energy exports and 94% of motor vehicles go to the US.
“Canada has limited options for reorienting its trade with the United States elsewhere,” Edward Alden and Inu Manak, trade policy experts, wrote for the Council on Foreign Relations on April 29.
“But quitting the United States is not likely to be easy for Carney or for Canadians. The new Liberal prime minister will learn what Canadian diplomat John W. Holmes once observed in his book Life with Uncle: that Canada ‘can disagree with the United States but not reject it.'”
Canadian businesses could lose out on opportunities as President Donald Trump reshores manufacturing and strengthens US dominance in Artificial Intelligence. He has secured trillions of dollars in investment pledges, including $500 billion each from Nvidia Corp.NVDA and Apple Inc. AAPL, that could require goods and services from Canada.
In contrast to the US, European economic growth remains weak, undermined by overregulation and bureaucracy. Euro Area annual average real GDP growth is expected to be just 0.9% in 2025, and strengthen to 1.2% in 2026.
Trump Rhetoric Spurs Canada’s Disillusionment With US
Despite extensive business and cultural ties, Canadians have become disillusioned with the US political rhetoric from Trump. The 47th president has taken an unusually combative and threatening stance toward Ottawa during his campaign and after winning.
He has repeatedly suggested that the northern neighbor should become the 51st state, insisting that Canada is heavily reliant on the US.
“We subsidize Canada to the tune of $200 billion a year,” he told NBC’s Kristen Welker in an interview for Meet the Press. “Again, remember this, we don’t need their cars, we don’t need their lumber, we don’t need their energy. We don’t need anything.”
Trump’s remarks have stirred Canadian nationalist sentiment and strained trust with Washington. It ultimately changed the course of the country’s election, helping Carney’s party defeat Pierre Poilievre, a lifelong conservative.
The Liberal Party won 169 seats, shy of the 172 needed for a majority in the 343-seat House of Commons. Voter turnout stood at 68.65%, with more than 7 million Canadians voting in advance, a record, according to Elections Canada.
Carney Faces Difficult Economic Challenges
But Carney, who was the head of the Bank of England from 2013 to 2020, must address difficult domestic economic challenges. Canada has witnessed sustained capital flight and declining investor confidence.
“The pension plans in Canada and Canada’s sovereign wealth don’t invest in Canada anymore,” O’Leary Funds Management Chairman and TV personality, Kevin O’Leary, said on X on April 29. “Canada’s not investable.”
The Canadian dollar has strengthened against the US dollar year-to-date, gaining about 3.85%. However, it declined about 5% against the euro, 5.2% against the Japanese yen, and 2.3% against the British pound- all notable trading partners.
In addition, its economic performance in the past decade has lagged behind its OECD peers. Real GDP per capita has grown at a rate of 0.6% to 1% annually, placing Canada near the bottom of the developed world.
Canadian Manufacturing Lags Behind All Peers In G7 Group
The Group of 7 (G7) country has the smallest manufacturing base of the entire group, according to the National Bank of Canada (NBC).
“Unfortunately, Canada is a shadow of its former self when it comes to playing a key role in the G7 manufacturing chain,” NBC said in a December report. “When world leaders gather in Alberta for the G7 Summit in June 2025, Canada will have the unfortunate distinction of having the smallest manufacturing sector among the member nations.”
Instead of spurring private sector investment, Canada’s economy has become increasingly dependent on government spending.
Current estimates suggest that about 21% of Canadian jobs are in the public sector. Government employment accounts for nearly half of all recent job growth.
Young Canadians Face High Unemployment, Housing Shortages
Youth unemployment has also remained persistently high in the G7 members. According to data from Trading Economics, it increased to 13.7% in March from 12.9% in February.
For young Canadians, affordable housing has become increasingly out of reach. In March, the national average home price was $678,331, down 2.9% from the previous year, but still out of reach for most young people.
Mass immigration has exacerbated the housing crisis and put pressure on public services.
Canada admitted a record 471,550 new permanent residents in 2023, according to Immigration, Refugees and Citizenship Canada (IRCC) data.
Environmental Concerns Trump Energy Production
Unlike Trump’s policy of pumping more oil, Canada has imposed strict environmental restrictions on major oil and gas projects.
During the federal election campaign, Carney said he had no intention of reversing Bill C-69. The law grants the federal government additional powers to review and potentially prohibit major infrastructure projects.
In response, the Government of Alberta has expressed concerns that the act overreaches into provincial authority. This has reignited separatist sentiment in the province, which exports about 87% of all Canadian oil production to the US.
“I’ve been watching the Alberta situation closely,” O’Leary wrote on X on Saturday. “And let me tell you, it’s heating up fast.”
Environmental Restrictions Raise Concerns About Succession
Alberta’s Premier Danielle Smith has amended the legal criteria for a provincial plebiscite on separation. She lowered the threshold to 177,000 verified signatures and extended the collection period to 120 days.
The move has been framed as a constitutional safeguard to ensure Alberta’s voice is heard in Ottawa. However, analysts say Alberta has escalated its province’s standoff with Ottawa.
The policy shift sends a clear message: If Ottawa imposes policies like Bill C-69, Alberta appears willing to formally test the limits of federal unity.
“A minority government, a carbon tax out of the gate, and now the province that creates most of Canada’s wealth is talking sovereignty,” O’Leary wrote. “This is going to be a big story, and you heard it from me first.”
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