Canada-U.S. ties face unprecedented strain
Washington escalated and Ottawa refused terms, but strategic interdependence makes total rupture unlikely.
In a nutshell
- Trump’s pressure is reshaping Canadian policy faster than diplomacy can
- Ottawa is hedging toward China while quietly embracing U.S. energy agenda
- Despite escalating tensions, security, trade and geography bind the countries
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Tumult between Washington and Ottawa characterizes their bilateral relations, now at one of the thorniest periods the two countries have ever experienced. A confluence of divergent interests and issues complicates efforts to build confidence in future cooperation. Perhaps the most important and least predictable variable is the actions of the leaders of both countries, Canadian Prime Minister Mark Carney and United States President Donald Trump. What is certain is that Mr. Trump sees a broken partnership with Canada as an unacceptable strategic vulnerability and one he is likely to address in his remaining years in the White House.
Past, not prologue
The second Trump administration entered office in January 2025 with optimistic expectations for the bilateral relationship. In addition to the countries’ long-standing security, economic and commercial partnership, President Trump renegotiated the trilateral trade deal with Mexico and Canada (USMCA) during his first term, an agreement that was up for review and renewal in his second term.
When he entered office, Canadians were preparing for national elections. Despite the controversy generated by Mr. Trump’s assertion that Canada should become America’s 51st state, Washington remained sanguine about the outcome of the elections, expecting either a more like-minded conservative government or a liberal administration under a business-minded, pragmatic and pro-America Prime Minister Carney. A former governor of the Bank of England, Mr. Carney, in fact, ran for office claiming he was a leader who could “handle Trump.”
Nevertheless, a plethora of angry rhetoric and security, trade, economic and foreign policy disagreements quickly sparked a deterioration in trust and confidence on both sides. This included threats from Prime Minister Carney to align with China or a coalition of middle powers to offset some of Canada’s dependence on the bilateral relationship with the U.S. For his part, President Trump imposed an additional 50 percent tariff on a broad range of Canadian goods in August, including products that would otherwise qualify for an exemption under the USMCA, after talks in Washington collapsed. Mr. Carney said he would impose matching counter-tariffs.
A plethora of angry rhetoric and security, trade, economic and foreign policy disagreements quickly sparked a deterioration in trust and confidence on both sides.
Exacerbating the stress is the state of the Canadian economy. Real gross domestic product (GDP) increased by 1.7 percent in 2025, the slowest pace of annual growth since 2020. The U.S. economy posted a 2.1 percent rise in real GDP in 2025. Canadian business capital investment is weak, wages barely outpace inflation and unemployment is higher than in the U.S.
That said, continuity in the bilateral relationship is not affected by fractious diplomatic relations. Amid Mr. Trump’s 2025 rhetoric, tariffs and trade barriers on Canadian goods, anti-American sentiment swelled in Canada, including a decline in southbound tourism and calls to boycott U.S. products. Such shifts in Canadian attitudes toward the U.S. are nothing new – they wax and wane. Indeed, levels of Canadian tourism across the border have already rebounded somewhat from recent lows. In addition, while polls suggest many blame President Trump for contributing to trade problems, instability in the business climate and geopolitical unrest, there is also substantial support for the view that Canada’s problems are homegrown.
Contentious issues
On the security and trade front, at the operational level, many traditional activities continue unaffected. Nevertheless, the last two tumultuous years suggest that the traditional strengths of the bilateral partnership are under strain and that relations could worsen. The list of important though contentious issues is significant, though in some instances the Canadians are moving in a direction the Trump administration favors.
Challenge of China
Prime Minister Carney’s partial opening of the Canadian economy to increased trade with China to offset reduced trade with the U.S., particularly through the import of electric vehicles (EVs), has triggered huge concerns in the U.S. In addition to undermining the North American industrial base, the proliferation of Chinese goods and technologies raises numerous security concerns. As a recent report by the Canadian Macdonald-Laurier Institute concluded:
China has embedded capabilities in many of its products in use in the West that can surveil citizens, disrupt transportation and ports, and cause electricity blackouts and grid damage. During a political or military confrontation with the West, adversary-embedded capabilities in energy and other strategic Western infrastructure could have a significant impact, including on the outcome of war.
Heightened concerns have led the U.S. to threaten to bar imported Chinese EVs from crossing the border.
Energy
U.S. policy focuses on the development and export of fossil fuels. President Trump is deeply frustrated by allies that continue to emphasize the green transition, aggressively import Chinese renewable technologies and are reluctant to support permitting and financing of drilling, pipeline and refining infrastructure. Mr. Trump fears that allies that do not adopt aggressive policies to secure affordable, abundant and reliable energy will make poorer partners with unacceptably slow growth and significant economic and national security vulnerabilities. The president has scolded some of America’s closest and long-standing allies on this issue, including Europe, the United Kingdom and Canada.
In this regard, the Canadian government has recently shifted policies to expand and underwrite fossil fuel production. In July 2026, the federal government and the Alberta provincial government took a 90 percent taxpayer-funded stake in a major new West Coast pipeline expansion, and the federal and British Columbia governments committed financial assistance to develop liquefied natural gas (LNG) export infrastructure. Canada is fast-tracking major fossil fuel projects at what Mr. Carney describes as a “breakneck speed.” His government is also decoupling some climate targets from production.
Immigration and geopolitics
Migration is transforming Canadian politics to a greater extent than in the U.S., because Canada’s smaller population makes the political impact larger. Washington, for instance, is concerned about rising antisemitism and anti-Zionism and their impact in the Western Hemisphere, as well as on U.S. relations with Israel and the Middle East, particularly amid a resurgence of radical Islamist politics and transnational terrorism. In Canada, there are significant radical and separatist elements within the minority Sikh diaspora that are highly vocal, well organized and politically significant. President Trump views the effects of the Global Intifada and “woke” politics on Canada with dismay.
Border security and transnational crime
The U.S. administration has directed significant resources to the border with Canada, with rising concern over the role of China and international cartels in transnational criminal activity, including money laundering, human trafficking and drug smuggling, as well as violent crime and other criminal activity. Washington is increasingly frustrated and believes that the Canadian law enforcement and judicial systems are inadequate to deal with the threat.
Here too, the Canadians, to a certain degree, have heard Washington’s message and reacted, though they are still playing catch-up. In February 2025, Canada listed seven transnational organized crime groups − primarily Mexican cartels − as terrorist organizations. To combat the notorious “Vancouver Method,” in which Chinese triads launder drug money through local casinos, real estate and trade-based schemes, Canada implemented overhauls to its anti-money laundering framework. Yet its steps to restrict drug trafficking or cut down on Beijing’s intimidation of its overseas dissidents are considered by many to be inadequate.
Defense
Washington is deeply dissatisfied with Canada’s commitment to national defense. This year, for the first time, Ottawa officially met the minimum 2 percent defense expenditure target. President Trump is pressing for more. The U.S. is also skeptical of the level of Canadian investment in the security of the High North and Arctic region in the Western Hemisphere. To allay these concerns, Mr. Carney’s government, in July 2026, committed to the largest military procurement deal in Canadian history by ordering 12 submarines from suppliers in NATO ally Germany.
Trade and economics
It is an open question whether President Trump or Prime Minister Carney still see a future with an integrated U.S.-Canadian industrial base. Mr. Trump continues to emphasize the on-shoring of manufacturing in the U.S. and greater self-reliance in supplying minerals and other critical resources.
That said, U.S. Ambassador to Canada Pete Hoekstra, a longtime Trump ally and supporter, continues to strike a more optimistic note. At a recent Canadian-American conference, he predicted the countries can still work together. As for the onshoring of industrial production, Ambassador Hoekstra stated, “I think some of that will be on-shored and come back into Canada, because of the relationships we already have.” Mr. Hoekstra has also touted Canada as a critical energy and mining partner.
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Both Canada and Mexico had called for the USMCA’s optional 16-year extension to be activated, but the U.S. did not agree to it by the July 1 deadline. Formal talks did follow, but collapsed in Washington in August without an agreement. Some argue that President Trump’s claim that he might walk away from the trilateral trade deal is an opening gambit in negotiations.
In technology, Canada was invited to join Pax Silica, a U.S.-led initiative to secure supply chains for artificial intelligence technology, semiconductors and critical minerals, but chose observer status instead. As a result, Canada is being left out of the “inner circle” of countries shaping the architecture, regulations and supply chain rules for AI infrastructure, critical minerals and semiconductors.
Scenarios
Future scenarios could well turn on the decisions of national leaders and how they seek to shape the bilateral relationship.
Most likely: Trump gets his way
It is unlike President Trump to leave vital interests unaddressed. The U.S. president’s top two priorities are national security and economic security and growth. Canada is an important factor in achieving both objectives. It is unlikely he will allow the bilateral relationship to drift through the end of his term. How the U.S. will balance emphasizing the value of the strategic partnership and incentivizing cooperation with berating and punishing Canada for non-cooperation is unclear. The president often shifts tactics and emphasis to achieve desired ends.
In all likelihood, the statements by U.S. Ambassador Pete Hoekstra most accurately reflects the president’s objective – that President Trump wants the key issues resolved and that in the end the result will be good for both countries. While President Trump is often clear-eyed and iron-willed in his goals, he is less prescriptive about what the end state looks like and how to get there – what matters more is delivering the right outcomes.
This scenario’s likelihood increases with each step the Canadians take to meet American demands, which to date have included increases in oil and LNG exports, new defense commitments and a crackdown on cartels.
Somewhat likely: Canada turns to the Conservatives
If the Conservatives return to power after the next national elections, they will be better prepared and more anxious than the current Liberal government to deal with President Trump and address key contentious issues with the U.S., particularly on the security front and on challenges that are constraining real growth in the Canadian economy.
Least likely: U.S.-Canada bilateral relationship collapses
The prospects for a complete collapse of Canadian-U.S. relations are unlikely. The current Canadian government, as long as it retains a working political majority, will likely continue to tack back and forth, balancing a myriad of complex domestic and contradictory political pressures on social and economic issues with demands from Washington.
Prime Minister Carney recently announced that by-elections to fill vacant seats in the parliament will likely be spread over several months, making it harder to discern the direction voters will take in the next general election. There is neither a fixed term of office nor term limits for the prime minister, and a parliament can serve a maximum of five years. In modern times, about two-thirds of Canadian parliaments have lasted from three to five years. Mr. Carney may try simply to outlast President Trump.
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