Canada and the United States:  Partners, Friends, Future?

As Canadians, we’ve had a long and prosperous relationship with the United States.  From the beaches of Normandy in World War 2 to the North American Free Trade Agreement, our ties run deep.  The longest undefended border in the world separates two great countries with much in common.  But with tariff wars, 51st state rhetoric, and free trade re-negotiations, where do we go from here?   Let’s examine some of the recent developments, dispel some myths, and talk about what Canada is doing to weather the storm.

Tariff turmoil

The word ‘tariff’ has now been thrown into the everyday lexicon as the U.S. continues to push their economic policies. Tariffs have been historically known to cause price increases on consumer goods and lead to inflation, but what does this really mean to Canadians? Big numbers have been thrown around— 25% tariffs, 35% tariffs— but, according to Bloomberg and RBC Economics, the average tariff rate on Canadian goods is actually closer to 10.5%.  This has helped keep any economic fallout at bay, with Canada avoiding a technical recession for the time being.  There are also numerous “exemptions” with an estimated 90% of U.S. imports from Canada tax exempt. The future remains uncertain as tariffs are currently on trial with the U.S Supreme Court deliberating whether to keep or strike them down.

How have markets reacted?

With everything that has gone on in 2025, stock markets have in fact fared well. Year-to-date, Canada’s major stock market is up 22%, the U.S. S&P 500 is up 14.5% and the MSCI World index is up 17.5%- not bad for a trade war.  We’ve also seen two interest rate cuts by the bank of Canada in the last two meetings, with one more decision to come in December for 2025.  The rate cuts have helped take pressure off mortgage holders and businesses that had variable rate debt, and we may see another cut by the end of 2025.  Investors that have held stocks and been patient have once again been rewarded and will continue to be rewarded in the long term.  The Artificial Intelligence boom has also fueled growth in the energy sector, as increased electricity demand is needed to power data centers. 

Canada’s response

The U.S. is Canada’s largest trading partner, and will continue to be, but that doesn’t mean that Canada can’t be friends and trade with other countries.  The trade war has forced Canada to rethink its reliance on the U.S. and to diversify our trading partnerships… with threat comes opportunity. 

The liquified natural gas export terminal in Kitimat, B.C. will be instrumental in helping Canada diversify our trading relationships. The first carrier arrived in April 2025 to export LNG to Asia and is expected to export 14 million tonnes of natural gas a year, creating close to 300 ongoing jobs for an estimated value of $575 million annually for 40 years, according to the B.C. government. LNG phase 2 expansion (decided upon in 2026) will double the plant’s capacity to 28 million tonnes a year, create additional jobs, and provide economic security for Canadians at home and abroad. 

The north coast transmission line project is yet another example of how Canada is expanding its economic influence.  Northwest British Columbia is experiencing significant growth across sectors such as mining, liquified natural gas, port operations, hydrogen production, and technology. The anticipated demand for electricity is expected to exceed the capacity of northwest B.C.’s existing transmission system.  BC Hydro has proposed that the north coast transmission line expand energy infrastructure by building new transmission lines, installing fibre-optic cable, expand or upgrade substations and increasing capacitor stations.  This will go hand-in-hand with the LNG phase 2 project; it will help create additional jobs and provide economic security for Canadians.

The Port of Montreal is also being fast tracked for expansion, with plans to increase handling capacity by 60%.  The plan is to build a new terminal in Contrecoeur, Quebec, creating space for 1.15 million containers.  This will help open new markets, create business opportunities, and further diversify our trading partners.

What does the future hold?  

These are exciting times for Canadian businesses and the economy as the future remains bright.  The United States-Mexico-Canada Agreement (USMCA) will also have its first formal review in 2026, and this presents opportunities for all three countries to  re-negotiate and create better economic outcomes. One idea that could potentially strengthen our relationship with the U.S. is the “nearshoring” concept.  This strategy typically involves outsourcing to neighboring countries that share a border or are within easy travel distance (think Canada/U.S.) allowing for lower transportation costs and faster delivery times compared to offshore locations. If Canada and the U.S. can work together to align and modernize our infrastructure, ports, and our respective borders this will give us a better competitive edge in global trade. Companies have been increasing their efforts to adopt nearshoring which helps decrease their geopolitical risk and create a more efficient and resilient supply chain.  Negotiations with the U.S. will continue, but Canada will also pursue other opportunities to help strengthen the economy. Although recent waters have been choppy, Canada and the U.S. will remain close partners, will still be friends, and will continue to work together in the future.

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