What Mark Carney’s Election Win Means for Trade and U.S.-Canada Relations

Edward Alden is a senior fellow at the Council on Fore­­­ign Relations, specializing in U.S. economic competitiveness, trade, and immigration policy. Inu Manak is a fellow for trade policy at the Council on Foreign Relations.

In no country have the political effects of U.S. President Donald Trump been more dramatic than in neighboring Canada. By December 2024, Canadian Prime Minister Justin Trudeau of the Liberal Party was deeply unpopular after his decade in power, with voters favoring his Conservative Party rival Pierre Poilievre by more than twenty-five points. Then came Trump’s return to the White House. Canadians voted to keep the Liberals in office for a rare fourth consecutive term, delivering a strong mandate for new Liberal leader Mark Carney, though it is still unclear if his party will secure enough seats to form a majority government. In a stunning reversal, Poilievre, the recent frontrunner, failed to clinch his own riding, though his party made impressive gains. Instead of facing a sympathetic Conservative prime minister in Poilievre, Trump now faces a Liberal who sold himself to voters as the best man to “stand up to Donald Trump,” and a Canadian population that has rallied behind him.

Carney tapped into a sentiment that has fueled debates about Canada’s place in the world that go all the way back to when it became a nation in 1867. Which way should Canada orient itself—towards the world or towards its larger and wealthier neighbor to the south? Since the fur trade, Canada has been a trading nation and sought to expand its market opportunities around the world. This in turn shaped Canada’s foreign policy, making it an ardent multilateralist; Canada played a leading role in creating the international trading system that exists today.

Canada’s North American orientation was never certain. If anything, Canada has always been ambivalent about how deeply it should tie itself to the American market. Today, with U.S. protectionism in resurgence, Canada is revisiting this age-old debate.

Voting on U.S. Ties

Poilievre wanted the 2025 Canadian election to be known as the “carbon tax election,” focused squarely on the country’s domestic economic ills. Instead, it became the third time a Canadian election has been fought entirely on the issue of Canada’s relationship with its powerful southern neighbor. In all three elections, Canadian economic interests in closer integration with the United States clashed with deep-seated fears over the loss of Canadian sovereignty. Twice, including this week, sovereignty won.

In 1911, the then Liberal government of Prime Minister Wilfred Laurier concluded a “reciprocity” agreement with the United States, which would have eliminated most agricultural tariffs and opened large new U.S. markets for Canadian farmers. But instead of economic hopes, fear dominated the election. The Conservatives warned that the deal would undermine the country’s historic ties to Great Britain and mark a first step towards annexation by the United States. U.S. House Speaker James Beauchamp “Champ” Clark, a Democrat from Missouri, did not help by declaring on the floor of the House of Representatives that “I look forward to the time when the American flag will fly over every square foot of British North America up to the North Pole.” Laurier’s Liberals suffered a crushing defeat, taking the issue of free trade with the United States off the agenda for two generations.

But in 1988, Canadians took a “leap of faith” and instead embraced much deeper integration with the United States. Conservative Prime Minister Brian Mulroney and U.S. President Ronald Reagan negotiated a comprehensive free trade agreement. As had Laurier, Mulroney called an election to let the people decide. The Liberals, this time on the other side of the fight, called it the “Sale of Canada Act,” warning that Canada would give away its authority over water, energy, health care, and social programs. Mulroney’s campaign mobilized a vast free-trade coalition that countered the Liberals’ anti-trade rhetoric through pamphlets and TV advertising. This time, Canadians went the other way, handing Mulroney a majority.

Free Trade Whiplash

Canadians never looked back on trade, or on the United States. Ottawa joined the negotiations on the North American Free Trade Agreement with Mexico and the United States. Canada came out with its economic interests largely intact after the bruising renegotiation during the first Trump term that created the U.S.-Mexico-Canada Agreement. The country later joined other trade pacts around the world, including with Europe and the Asia-Pacific.

That might have continued even if Trump had returned in January demanding yet another renegotiation of the North American trade order. Instead, he went much farther, threatening economic warfare against Canada, with the goal of forcing Canada to become the “fifty-first state” or face economic annihilation. He threatened across-the-board 25 percent tariffs unless Canada clamped down on the trickle of cross-border illegal migration and fentanyl smuggling. And he revived the steel and aluminum tariffs from his first term, raising the aluminum tariff from 10 to 25 percent. Canadians were outraged—they booed the Star Spangled Banner at hockey games; during the first Canada-U.S. game at the inaugural 4 Nations Face-Off of professional hockey players, three fights broke out in the first nine seconds.

Trudeau, a lame duck prime minister, gave the most impassioned speech of his political career, warning Canadians: “What [Trump] wants to see is a total collapse of the Canadian economy because that will make it easier to annex us. That is never going to happen. We will never be the fifty-first state.” In the Liberal leadership race, Carney swept in with more than 85 percent support among party voters. He comes with an impressive political and business resume, having served as central bank governor in both Canada and Great Britain, and board chairman of Brookfield Asset Management.

Before Trump’s outbursts, those credentials might have hurt Carney. Conservative leader Poilievre, from the oil-rich province of Alberta, was hoping to coast to victory on the same anti-elite sentiments that put Trump back in the White House. He promised to slash government and end what he called the Liberals’ “radical woke ideology.” But he was never able to pivot following Trump’s threats to Canadian sovereignty; instead, he continued to imitate Trump by promising a “Canada first” approach. Voters were not swayed.

With Carney, Canada now has a tough, capable leader that can certainly go toe-to-toe with Trump. Using the hockey analogies that Canadians love, he has promised an “elbows up” tussle with the U.S. president. But Canada’s alternatives to a strong trading relationship with the United States are few.

Challenges of a Post-U.S. Trading Path

It is notable that Carney’s first foreign trips as interim prime minister were to Britain and France. He has also promised to diversify Canada’s trading relationships with new infrastructure investments, calling the recent battles with the United States an “opportunity to build a new Canadian economy.” But this strategy faces strong headwinds, not least because 75 percent of Canada’s exports go to the United States.

While it is possible that Canada could look to two other massive markets—China and India—even there it faces significant hurdles. Canada’s relationship with China soured after an incident involving Canada’s extradition of a Huawei executive—acting on a U.S. warrant—that resulted in China jailing two Canadians. More recently, Canada and India expelled their top diplomats over allegations from the Trudeau government that India ordered the assassination of a Canadian citizen in British Columbia.

Though it has fifteen trade agreements with fifty-one countries, Canada has limited options for reorienting its trade with the United States elsewhere. One thing Canada can do is to remove internal barriers to trade, which could grow the Canadian economy by between 4 and 8 percent, and reduce trade costs by 15 percent. Carney has pledged to do that, but so have other prime ministers—with less than stellar results. He could also expand Canada’s trade agreements, but that will take time.

At one point in the campaign, Carney went so far as to proclaim that Canada’s long and deep friendship with the United States “is over” and the country must figure out how to prosper in “a radically different world.” But quitting the United States is not likely to be easy for Carney or for Canadians. The new Liberal prime minister will learn what Canadian diplomat John W. Holmes once observed in his book Life with Uncle: that Canada “can disagree with the United States but not reject it.”

This work represents the views and opinions solely of the authors. The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher, and takes no institutional positions on matters of policy.