Washington may be able to impose greater costs on Canada, but by weaponising its largest market, it is encouraging its closest economic partner to build alternatives to American dependence and change the centrality of the American market for ever.

Canada Is Adapting Faster Than Washington Expected

The latest escalation in the US-Canada trade dispute is striking precisely because it involves two of the world’s most deeply integrated economies. The development is striking, since it was hardly expected to happen until only a few years ago. On August 22, Washington imposed 50 per cent tariffs on roughly US$20 billion of Canadian goods after trade negotiations collapsed. Ottawa has responded with dollar-for-dollar tariffs on US products beginning September 8. On August 25, Canada announced imposing a swath of duties on US goods - mainly steel products - worth US$20 billion.

There is no doubt that Canada, in this war, will bear costs. It imports more from the US than it exports. Its economy remains heavily dependent on the United States, and many Canadian industries have spent decades building production around access to the American market. More than 90 per cent of Canadian-made vehicles and 60 per cent of Canadian-made auto parts, for example, are exported to the United States. But that vulnerability is precisely what makes Canada’s response important.

Ottawa is not simply trying to persuade Washington to restore the old relationship. It is adapting to the possibility that the old relationship may never return. Prime Minister Mark Carney has been unusually explicit about this. In announcing the collapse of the latest negotiations, he said Canada had recognized that “America has changed” and would focus on building its strength at home while diversifying its international partnerships.

The strategy is already producing measurable changes. Canada’s 2026 State of Trade report found that exports to the United States fell 3.7 per cent in 2025, while exports to non-US markets increased 11.1 per cent. The share of Canadian exports going to non-US destinations consequently reached 32.8 per cent, its highest level in more than four decades.

That does not mean Canada is replacing the United States. Nor can it do so quickly. American demand, geography and deeply integrated supply chains give the United States advantages that Europe or Asia cannot replicate overnight. But Canada’s objective is becoming more realistic: not to replace America, but to make America less indispensable.

Ottawa’s Trade Diversification Strategy aims to double non-US exports over the next decade, creating an estimated additional C$300 billion in trade. Canada already has preferential access to 1.5 billion consumers through existing trade agreements and says it is working to expand that market access further. That is the strategic problem for Washington. Tariffs can raise the cost of Canadian exports today. They cannot prevent Canadian companies from establishing new customers tomorrow.

The Markets Are Waiting for Canada

The most obvious beneficiaries are the economies that can absorb some of Canada’s trade as it diversifies. China is particularly important. Ottawa has no intention of exchanging dependence on the United States for dependence on Beijing. Yet the deterioration of the US-Canada relationship is creating incentives for Canada to deepen commercial ties with the world’s second-largest economy.

That process has already accelerated. In January, Carney visited Beijing - the first visit by a Canadian prime minister since 2017 - and forged a new strategic partnership with China focused on trade, energy, agriculture, and clean technology. Ottawa has set a goal of increasing Canadian exports to China by 50 per cent by 2030. The two countries also reached arrangements intended to reduce barriers to Canadian canola, seafood, and other exports, potentially unlocking billions of dollars in Canadian export orders. China is not the only destination, however, and this distinction is crucial. Canada’s strategy is diversification rather than substitution.

Europe offers an obvious alternative. Canadian merchandise exports to Europe and Central Asia rose by $22.3 billion, or 30 per cent, in 2025. The United Kingdom and European Union were among the principal contributors to Canada’s stronger non-US export performance.

The Indo-Pacific is potentially even more consequential. Canada already has preferential access to markets including Japan, Australia, Vietnam, Malaysia, and Singapore through the CPTPP. Two-way Canadian merchandise trade with the Indo-Pacific reached C$281.4 billion in 2025, an increase of 7.4 per cent.

India represents another enormous opportunity. Its rapidly expanding economy and vast consumer market make it one of the few countries with the potential to absorb substantially more Canadian exports over the long term. Canada is therefore trying to build relationships across several regions simultaneously rather than betting its future on one new partner. This is why the trade war could have consequences far beyond North America.

For decades, Canada’s geography encouraged an unusually concentrated economic relationship with the United States. The logic was simple: why search for distant customers when the world’s largest market is immediately across the border? Washington has now changed that calculation. Canadian firms that establish customers in China, Europe, India, or Asia will not necessarily abandon them if US-Canada relations improve. New contracts, logistics networks, investment relationships, and distribution channels create economic habits that can persist for decades. The irony is hard to miss: the United States is using its market power to force Canada to develop alternatives to that very market power.

America’s Strategic Miscalculation

This is why America may not be winning. Washington has a stronger hand. Its economy is vastly larger, and it can impose costs on Canadian exporters that Ottawa cannot match. But economic power depends not only on what others gain from access to your market, but also on how dependent they are willing to remain on it.

For decades, America’s enormous consumer market gave Washington extraordinary leverage. But if access becomes unpredictable, dependence becomes a vulnerability. Canada is responding by building alternatives, and other US partners are watching. They need not decouple from America; they simply need enough alternative markets to resist future economic pressure.

The result could be multipolarization of globalization, i.e., countries continuing to trade with the United States while simultaneously deepening ties with China, Europe, India, and the Indo-Pacific. Canada is an early test case. Its economy will suffer, and diversification will take time, but the direction is clear: Ottawa is trying to become more resilient and less dependent on any single partner.

That is the paradox of this trade war. America can make Canada pay more for access to its market, but it cannot easily force Canada to remain dependent on it. If Canada’s diversification succeeds, even partially, Washington may discover that the greatest cost of its trade strategy is not the tariffs themselves, but the gradual erosion of the dependence that once made those tariffs so powerful.

Salman Rafi Sheikh, research analyst of international relations and Pakistan’s foreign and domestic affairs. Courtesy

https://journal-neo.su/2026/08/27/can-america-win-trade-war-with-canada/