Canada Shows How to Neutralize Trump’s Trade Attacks

Speeches by heads of government are rarely worth reading, but Canadian Prime Minister Mark Carney’s speech at the Council on Foreign Relations on September 22 is an exception to this rule. Carney offers a nonsensical diagnosis: For an open, democratic economy like Canada, the end of the rules-based global order and emerging trade challenges from both the United States and China pose existential threats. However, all is not lost. As Carney put it, countries can still “go with what we can control.”

Focusing on areas where Canada retains some powers is precisely the goal of several of the reforms Ottawa has adopted recently. For other advanced open economies – such as the European Union – these policies provide a basic blueprint for a sensible response to current economic challenges. They include supporting exporters by deepening the domestic market, redoubling efforts in new free trade agreements, and leveraging existing assets to become a supplier of vital commodities to like-minded allies.

Speeches by heads of government are rarely worth reading, but Canadian Prime Minister Mark Carney’s speech at the Council on Foreign Relations on September 22 is an exception to this rule. Carney offers a nonsensical diagnosis: For an open, democratic economy like Canada, the end of the rules-based global order and emerging trade challenges from both the United States and China pose existential threats. However, all is not lost. As Carney put it, countries can still “go with what we can control.”

Focusing on areas where Canada retains some powers is precisely the goal of several of the reforms Ottawa has adopted recently. For other advanced open economies – such as the European Union – these policies provide a basic blueprint for a sensible response to current economic challenges. They include supporting exporters by deepening the domestic market, redoubling efforts in new free trade agreements, and leveraging existing assets to become a supplier of vital commodities to like-minded allies.

With the barrage of US tariffs making headlines, the first priority for advanced economies is to help exporters who appear to be on the verge of losing US market share. Taking an inside look is often a good first step. If doing business abroad becomes more difficult, boosting domestic sales may be beneficial.

Two statistics show how important this plan is to Canada. First, only 27% of Canadian businesses sold goods or services outside their home province between June 2023 and October 2024, highlighting that the country has some room to deepen its internal market. Second, Canada’s exports abroad are twice as valuable as inter-provincial trade.

Canadian companies eager to grow in the domestic market face three types of obstacles. The first is geographical: long distances and harsh winters. Second, there is a ban on inter-provincial trade – for example, in many cases, wine made in one province cannot be sold directly in other provinces. The third type of barrier relates to regulatory inconsistencies between provinces – for example, many jurisdictions have their own set of energy efficiency rules for dishwashers.

Obstacles to interprovincial sales come with a hefty price tag. The International Monetary Fund (IMF) believes that in 2015, excluding geography, these barriers were equivalent to a 21% tariff — about six times the average Canadian tariff on foreign imports. In other words, it is often easier to purchase goods from abroad than from another province.

For a long time, discussions of interprovincial trade barriers in Canada were limited to academic circles. However, tariffs imposed by US President Donald Trump made the issue mainstream and fueled the rapid adoption of the One Canada Economy Act in June. The Act aims to remove regulatory and technical barriers to intra-Canadian trade, based on one basic principle: if any one province (for example, Ontario) gives regulatory approval for a product, that is sufficient for the federal government and the other provinces to sign a bilateral agreement with Ontario. The provinces have the most power in this area, but the federal government does not stand still; In June, Ottawa removed all 53 federal exemptions from the Canada Free Trade Agreement, removing a long list of barriers to free trade between provinces.

Debates rage about the exact impact of removing trade barriers between provinces, and it is clear that these measures are not a silver bullet. Some provinces also showed caution; For example, Quebec has yet to pass a provincial bill or sign a bilateral agreement with another province. There is no doubt that this process will take a long time, and claims that the reforms could increase the size of the Canadian economy by up to 7% of GDP appear to be overly optimistic. However, we should not reject these measures; According to the International Monetary Fund, lifting all non-geographic barriers to domestic trade could boost Canada’s GDP per capita by 3.8 percent, or roughly $1,500. Gains could reach more than 16 percent in some remote Atlantic provinces.

Canada’s attempt to remove domestic barriers to trade resonates with recent calls for the European Union to deepen its internal market. Just as in Canada, the EU’s “single market” is not far behind; The IMF believes that the coexistence of 27 sets of national regulations, customs rules and tax laws places the equivalent of 44% tariffs on intra-EU goods trade.

As the bloc tries to come up with a response to Trump’s trade attacks, looking across the Atlantic to what is happening on the northern side of the 49th parallel could be a wise move for Brussels. With intra-EU shipments in 2024 worth eight times more than exports to the United States, a small 1.25 percent increase in intra-EU trades could offset the worst-case scenario of a 10 percent drop in EU exports to the United States.

The signing of free trade agreements constitutes the second element in Ottawa’s efforts to support exporters. In August, the conclusion of a free trade agreement between Canada and Indonesia was the first sign of this plan. On paper, the agreement does not seem logical; The boost to Canada’s GDP would be minimal, and the deal could hurt nickel miners, because Indonesia is the world’s largest producer. However, the deal is only a first step: Canada hopes to reach a broader trade agreement with the Association of Southeast Asian Nations (ASEAN), of which Indonesia is the largest member. In late October, Carney will attend an ASEAN summit in Malaysia in hopes of finalizing such an agreement, which has been in the works since 2018.

Just one day after announcing the conclusion of a free trade agreement between Canada and Indonesia, Ottawa revived negotiations stalled since 2021 with the Mercosur trade bloc in South America. US tariffs provided the impetus for the move: most of Canada’s shipments to Mercosur countries consist of machinery, a sector dependent on exports to the United States.

The road to concluding a free trade agreement between Canada and Mercosur will be a long one. Companies from Canada and the Mercosur countries are direct competitors in a number of sectors, including agricultural commodities, metals and aircraft. Once again, the deal demonstrates Canada’s long-term plan to promote free trade with all major trading blocs. The European Union, which has not yet overcome French opposition to a free trade agreement with Mercosur, may want to take this into account.

Reading between the lines of Carney’s speech, it becomes clear that Ottawa’s strategy goes further. Carney hinted that Canada could position itself as a bridge between the European Union and the Comprehensive and Progressive Agreement for Asia and the Trans-Pacific Partnership – two blocs with which Canada has concluded free trade agreements. The idea is not entirely far-fetched. Since transportation via Russia and the Suez Canal is less feasible these days, Canada sees itself as a future route between Europe and Asia. The pledge is certainly bold – not least because it would require huge investments to logistically connect Canada’s two sides – but it is interesting enough for EU policymakers to consider.

The third part of Canada’s blueprint concerns economic security, a popular buzzword among policymakers, especially regarding access to critical minerals that are key to making all the digital gadgets, defense equipment, solar panels, and the like. The critical dilemma regarding raw materials is well known. China is the global hegemon in this field, as it controls 60% to 90% of the global refining capacity for a number of key materials such as lithium, cobalt, graphite, and rare earths. The problem is that Beijing likes to use critical minerals for coercion; Since April, the country has intensified export restrictions on products that include Chinese-made metals or rare earth elements.

With global companies increasingly concerned about China’s restrictions on exports, Canada may have a chance to play in the all-important raw metals space. Looking at reserves, the country is among the top 10 countries globally in terms of deposits of some important minerals, including cobalt, lithium and graphite. Canada is also an important producer of a number of other minerals that are key to the green energy transition. It is the second largest producer of niobium (used in nuclear reactors), the third largest producer of palladium (for automobile catalytic converters), the fourth largest producer of tellurium (for solar panels), and the fifth largest producer of nickel (for electric car batteries).

For Ottawa, the goal is not to open new mines — a long and complex process that comes with a high environmental price — but to make the most of existing assets and put Canada at the center of the global debate. In June, Carney sounded the waters at the G7 summit hosted by Kananaskis in Alberta, where he called for the creation of a G7 buyers’ club for critical raw minerals, which would give Canada a central role in the group.

The topic is sure to be on the agenda of France’s G7 presidency in 2026. Ottawa has its eyes on the vast EU market, where the bloc has made little progress towards its pledge to refine 40% of its vital mineral consumption by 2030. In August, Carney traveled to Berlin to sign an agreement to supply vital minerals to Germany. While details about the deal are scarce, it could provide a model for other similar agreements in Europe.

Canada’s enduring modesty means that many sensible policies emerging from Ottawa remain invisible beyond the country’s borders. This is unfortunate, because Canada provides a model of what developed countries can do in responding to the challenges posed by the United States, China and the perceived need to enhance economic security.

Primarily, this applies to the European Union, another open democratic economy that likes to play by the rules. Instead of debating all of Trump’s statements, EU policymakers would be better off asking Canadians for some policy notes.