Trade between the EU and Canada is on the rise and may now accelerate – Image: Sean Kilpatrick/empics/picture alliance
Given they share the world’s longest land border, Canada and the US have historically enjoyed fruitful trade relations. But with Donald Trump escalating his tariff war, Canada is looking to the EU and further afield.
The latest salvo in US President Donald Trump’s freewheeling trade war could have disastrous effects for Canadian business. But the new tariff threats may also open up trade opportunities elsewhere, with China and the EU in a strong position to benefit.
Trump’s planned 50% tariff on a range of imported goods ranges from wine to hockey sticks but does not include other key sectors such as energy, potash and fish.
It is expected to impact about 5%, or $20 billion (€17.5 billion) worth, of goods and “the impact could be devastating for the people in businesses involved,” Julian Karaguesian, an economics lecturer from Canada’s McGill University, told DW.
Canada’s Prime Minister, Mark Carney, has promised to take “any measures necessary” to protect Canadian workers, farmers and businesses, likely by moving away from a single major trading partner.
Canada seeks to further diversify trade after Trump tariffs
“The Canadian policy has, for a while now, been to diversify trade with non-US trading partners. So this new threat is not going to change that,” Mark Camilleri, from The Canada EU Trade and Investment Association, told DW. “With Mark Carney as Prime Minister, we’ve seen a much more ambitious trade diversification strategy, in particular with Europe and also the Indo-Pacific.
Camilleri emphasized that trade diversification in this context was not about decoupling with the US, but about reducing Canada’s over-reliance on a single export market.
Canada’s trade relationship with the EU has been strengthened significantly in the last decade, largely thanks to the introduction of the Comprehensive Economic and Trade Agreement (CETA), signed in 2016 and provisionally applied since 2017.
Raw materials, rare earths and energy key to future Canada-EU trade
Machinery, pharmaceuticals and minerals are among the major drivers of trade between the two parties. Canada’s natural resources, such as rare earths and minerals, are appealing to the EU, which is seeking to reduce its reliance on China for rare earths while also meeting environmental targets.
“This has really been one of the main areas of enhanced cooperation between Canada and the EU,” said Camilleri. “That will be a big part of that relationship that will continue. It’s also happening at the bilateral level as well. Canada and a number of the EU member states are also engaging, including Germany and France, in raw materials partnerships. Canada has these raw materials, rare earths materials, and the EU needs them.”
Though tariffs have all but gone, EU regulations on some goods remain a barrier for Canadian exporters, said Karaguesian.
“The EU could be a major destination for Canadian food products but protectionist policies in agriculture continue to keep Canadian food products at a competitive disadvantage,” he added.
Infrastructure a hurdle for Canadian energy export
Another resource the EU, and Germany in particular, require, is energy. But here, infrastructure is an issue.
“The problem is that oil and natural gas are expensive to move and that Canada needs to build up export capacity on the east coast in order to move natural gas and oil to European consumers,” said Karaguesian.
Canada recently signed a preliminary energy agreement with Germany that will see one million tonnes per year of liquefied natural gas (LNG) travel from Ksi Lisims, a proposed project on British Columbia’s coast, to Germany in the near future. But Ksi Lisims has yet to receive the green light, with indigenous and environmental groups opposing the project, arguing that it runs counter to Canada’s environmental commitments.
The infrastructure and regulatory barriers to Canada-EU trade will mean that China can strengthen its relationship with Canada instead, said Karaguesian.
China, India and more could benefit from move away from US
“I would say that China would be the number one destination for increased exports from Canada. The reason is that the Canadian and Chinese economies are so complementary: China is a manufacturing superpower, and Canada is a natural resource superpower.”
Karaguesian pointed out that two of Canada’s three largest exports are energy and food products, with China ranking as the largest buyer after the United States.
But the diversification of Canada’s trade does not look likely to stop at China — already a major Canadian trading partner — and the EU.
Canada’s foreign minister, Anita Anand, attended an ASEAN (Association of Southeast Asian Nations) meeting this week in Indonesia and signposted Canada’s plans to increase trade in that region with a free trade agreement (FTA).
“Making sure that there’s unanimity towards concluding the FTA between ASEAN and Canada, that’s our top priority here at this summit,” Anand said.
Karaguesian said that the deterioration in trade relations with the US has made Canada look further afield, with India and Latin America among the markets sought. It could, he said, be seen as an opportunity to get ahead.
“Given Canada’s comparative advantage in wheat and other grains, and agriculture more generally, it is foreseeable that Canada could forge closer relations with North Africa and the Middle East. We should also not forget countries such as Nigeria, whose population has reached 250 million,” Karaguesian said.
He noted that these markets, which had been neglected by many Western exporters, offered significant growth opportunities for Canada.
That may challenge Trump’s assertion that: “Without us, there’s no way they [Canada] can survive.”
DW.com/NAN 24-07-26
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