Photo Illustration by Alberto Mier/CNN/Getty Images
Soph Warnes, Elisabeth Buchwald, CNN
5 min read
For decades, the United States and Canada worked to build one of the world's closest economic partnerships, with supply chains, businesses and trade increasingly intertwined.
But now, with the two countries in the thick of a trade war, Canada is taking a dramatic step to reduce its reliance on the United States. It is forging closer economic ties with the European Union and is set to become its first-ever "associate member."
"Economic integration is now being weaponized, and tariffs are being used as a means of pressure," Canadian Prime Minister Mark Carney told EU lawmakers last month in a parliamentary address.
Carney was referring to President Donald Trump's ramped-up trade war with Canada. Over the summer Trump levied 50% tariffs on around $20 billion worth of Canadian goods and, in some cases, imposing outright import bans. Canada matched those duties and has vowed to match any future tariffs. Forthcoming data is likely to show trade between the two nations fell as a result.
It's uncertain how the EU-Canada partnership could look and whether it will even come to fruition: Carney has been met with backlash from Canadian officials who feel it compromises Canada's sovereignty.
On Thursday, Carney and European Commission President Ursula von der Leyen invited other countries to join in the initiative they dubbed "Alliance for the Future."
"In a world of growing rivalries, sovereignty and independence are no longer just the freedom to act alone — it is the capacity to act together," von der Leyen said in an address Thursday at this week's two-day Canada-EU summit in Montreal.
"And this is why we will build an alliance for the future," she said. "And we start with Canada."
Few details have been shared about what Canada's association membership with the EU could look like, though Carney said earlier this week he intends to use the summit as an opportunity to further nail down the next steps.
And while trade ruptures with the US were the impetus for Carney's push with the EU, the impact of the trade war with the US has not been limited to trade. From vacations to investments, here's how the fallout is showing up across both economies.
A trend of declining trade
While Trump's tariffs on Canadian goods and Carney's retaliatory measures against American goods over the summer likely weighed on trade, they'd represent just the latest chapter in a broader decline in trade between the two countries.
The total value of trade between the US and Canada has fallen since 2022. Of those three years, the largest annual drop came last year, when Trump imposed 50% tariffs on steel and aluminum, two of the top goods the US imports from Canada.
Canada is sending the smallest share of its exports to the US in nearly 30 years
Most of Canada's exports — historically between 70% and 80% — go to the US.
While the US remains Canada's largest export market by far, its share of Canadian exports has fallen sharply since Trump returned to office, reflecting heightened trade uncertainty, according to a report published last year by Global Affairs Canada's Office of the Chief Economist.
Over this period, Canada significantly increased its exports to Europe and Central Asia as it looked to wean itself off its reliance on the US market.
Carney, in a statement Thursday unveiling an initiative titled "The Plan for a Stronger Canada," said that the shift is intended "to create greater security and prosperity for Canadians."
In addition to trade, the effort is aimed at strengthening national defense and boosting public safety.
Alcohol became an early casualty
Alcohol accounts for a relatively small share of trade between the two countries, but it has become one of the most visible symbols of their deteriorating economic relationship.
In March 2025, provincial liquor boards across Canada pulled American products from their shelves. Customers visiting the government-run liquor stores were met with empty shelves and "BUY CANADIAN INSTEAD" signs.
The fallout showed up immediately in trade data, with US alcohol exports to Canada plunging and remaining well below previous levels.
American spirits were hit particularly hard. Exports to Canada fell to a record low of $9.7 million in the second quarter of 2025 before rebounding to more than $20 million in each of the third and fourth quarters, according to the Distilled Spirits Council.
The retaliation has since gone both ways. Last month, Trump imposed a ban on most Canadian liquor shipped to the US.
Canadians are spending less time — and money — in the US
Trump has repeatedly floated the idea of making Canada the 51st state, drawing the ire of many Canadians. He further inflamed tensions recently by renaming Lake Ontario "Lake America."
Canadians' disdain for Trump has been apparent in travel data.
Canadian visits to the US peaked at nearly 80 million in the early 1990s before settling at around 40 million a year in subsequent decades. In 2025, visits to the US fell to 29.1 million — the lowest level outside the pandemic era since records began in 1972, according to Statistics Canada.
The decline is taking a bite out of US businesses. Canadians spent $16.1 billion in the US in 2024, according to Statistics Canada, but that fell to $13.4 billion in 2025, a $2.7 billion drop in a single year.
Canadian investors staged a record retreat from US stocks
After pouring $78.1 billion CAD (around $56 billion USD) into US stocks in the first half of 2026, Canadian investors abruptly reversed course in July, selling a record $31 billion CAD (around $22 billion USD) according to Statistics Canada.
The sell-off was concentrated in shares of large US technology companies. It came as the S&P 500 edged lower in July after strong gains earlier in the year.
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