Synopsis

Canada faces a trade war with the United States after imposing significant tariffs. Prime Minister Mark Carney stated Canada was attacked and retaliated accordingly. This conflict highlights Canada's deep economic dependence on its southern neighbor. Diversification efforts are underway, but trusted partners remain limited. Canada must expand its strategic trust beyond familiar cultural spheres.

ET Bureau

Toronto: The Canadian idea of citizenship rests on its promise to contribute to a shared set of societal values. That promise has been mostly tested at the border: whom do we let in? On what terms? But this year, it's being tested in a different theatre altogether. Canada is now in a trade war with the one country it has trusted so completely, for so long, that it rarely had to ask what that trust was worth.



The trade war between Canada and the US began in Feb 2025. It has since escalated sharply. Talks collapsed last week after Washington introduced demands Ottawa considered economically damaging and incompatible with its sovereignty. Last Saturday, Donald Trump announced 50% tariffs on C$27.6 bn (about US$19.9 bn) of Canadian goods, including products that comply with the existing continental trade agreement. On Tuesday, PM Mark Carney announced counter-tariffs of equivalent value. Asked whether this amounted to a trade war, Carney was blunt: 'You are at war when you are attacked. We were attacked.'



The deeper subject is an older one, familiar to any country shaped by empire. A nation can be constitutionally sovereign while depending on another power for its markets, capital and defence. That dependence stays invisible for decades, until the stronger country turns it into leverage.

Canada is discovering the distance between possessing a flag and possessing freedom of action. The numbers describe how deep that dependence still runs. Even after a year of tariffs and rupture, 71.7% of Canadian goods exports still went to the US in 2025. This is the lowest share since the early 1980s. But still, it's an overwhelming concentration of exports in a single market.



Diversification has become the word du jour. At Davos in Jan, Carney explained why. Diversification, he said, is 'a material foundation for honest foreign policy', since a country earns the right to take a principled stand only once it has reduced its exposure to retaliation. It is a clean argument for spreading risk. So, why has Canada's menu of choices for deep trading relationships remained so narrow?



Geography explains the relationship with the US, where proximity has always functioned as destiny. The rest of the world offers no such alibi. Is something other than distance influencing Canada's options today?



China, a relationship Ottawa treats with open wariness, is still Canada's second-largest single-country trading partner, with bilateral merchandise trade of roughly C$119 bn (about US$85.7 bn) in 2024. Yet, Ottawa has rarely approached China with the institutional familiarity it extends to partners in the Anglosphere and Northern Europe. When Ottawa did make a gesture toward Beijing this Jan, in what Carney described as a 'landmark' deal, it amounted to a tariff exemption for only 49,000 Chinese-made EVs a year. That represents under 3% of the Canadian market. Even that modest opening drew immediate political backlash at home.



With China, Canada's reasons for hesitation are spoken aloud: IP theft, fear of another 'China Shock', and hollowing out of manufacturing towns and entire communities, not to mention another hegemon seeking hyperpower status in a conflict-tangled world.



India presents a more complicated case. Here's a market of nearly 1.5 bn people, a fellow democracy and G20 economy, and a Commonwealth partner with a shared history in two world wars. It holds tremendous complementary potential for Canadian technology, agriculture, education and healthcare. Yet, in 2025, two-way merchandise trade amounted to an underwhelming C$10.9 bn (about US$7.85 bn).



The figures establish the scale of underperformance, though not its cause. India's trade barriers, Canada's continental economic structure, and the diplomatic rupture of 2023 all matter. But they don't fully explain why a relationship with such evident complementarities remained strategically peripheral for so long.



A trade agreement between Canada and India was paused in 2023, and has only this year produced terms of reference, with both governments now talking about reaching US$50 bn in trade by 2030. It's a target that serves to emphasise how far below potential that relationship has sat.



In June, German firm TKMS executive Philipp Schon, bidding against South Korea's Hanwha for a Canadian submarine contract, urged Ottawa to weigh which 'cultural ecosystem' it wanted to join. He pointed to a common working language and shared cultural ecosystem as forms of infrastructure in a decades-long defence partnership.



Schon was talking about English fluency among his engineers. But he was also naming a test that seems to quietly guide Canada's choice of partners: whom do we trust enough to understand us, our values, so completely, so intuitively, that we can throw open the doors to a possible marriage? The executive's language may be dismissed as a bidder's salesmanship. But that makes it more revealing in one respect: he evidently believed cultural familiarity would strengthen his case before Canadian decision-makers.



In public discussions of diversification, capability and price are debated endlessly. The prior question of eligibility receives far less attention: which countries feel sufficiently familiar to be trusted with the infrastructure of Canadian sovereignty? Can the country extend its map of strategic trust beyond its inherited cultural perimeter? Should cultural familiarity count as strategic infrastructure?



Solidarity built on historical grievance and geographic familiarity comes easily. Solidarity built on chosen principle must be forged under pressure. Canada's test was never only external. It is whether a country that defines itself by civic inclusion at home can resist the temptation to retreat into an Anglo-European comfort zone abroad. Canada's sovereignty will depend on the range of partners it can cultivate.



The writer is chair, advisory board, Green College, University of British Columbia, Canada

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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