For decades, Canada’s economy has been built around one obvious geographic reality: the United States is right next door.
Trucks can leave an Ontario factory in the morning and cross the U.S. border hours later. Pipelines, railways, electricity grids, automotive supply chains and agricultural markets have all developed around that enormous neighbouring economy.
That relationship has brought Canada tremendous benefits.
It has also created a vulnerability.
When the United States changes tariffs, trade rules or border policies, Canadian businesses can feel the effects almost immediately. Recent American trade uncertainty has therefore revived an old question:
Can Canada realistically reduce its dependence on the United States?
The answer is yes — but it does not mean abandoning American trade.
And Canada already has one of the most important pieces of the solution.
It is called CETA.
What is CETA?
CETA is the Comprehensive Economic and Trade Agreement between Canada and the European Union.
It provisionally entered into force on September 21, 2017, creating preferential trade access between Canada and the European Union’s 27 member countries.
When CETA took effect, Canada and the EU immediately eliminated tariffs on approximately 98% of tariff lines. By 2024, roughly 99% of tariff lines had been eliminated.
That means Canadian businesses already have unusually favourable access to one of the largest and wealthiest markets in the world.
CETA isn’t simply a deal to lower tariffs.
It covers merchandise trade, services, customs procedures, government procurement, professional mobility, intellectual property, rules of origin and a range of other areas intended to make it easier for Canadian and European businesses to operate in each other’s markets.
In other words, Canada does not have to begin negotiating a European free-trade agreement.
We already have one.
CETA Has Quietly Become Much More Important
When CETA was originally negotiated, diversification was useful.
Today it is increasingly strategic.
According to Global Affairs Canada, Canadian merchandise exports to the European Union increased by 23.4% in 2025.
Imports from the EU increased by about 6%, while total bilateral Canadian trade with the European Union increased by 10.9%.
The EU accounted for approximately 8.6% of Canada’s total trade in 2025.
The European Commission reports an equally striking long-term trend.
EU-Canada trade in goods and services reached approximately €130 billion in 2025, compared with €72.1 billion in 2016 — an increase of about 80% since the period before CETA’s provisional implementation.
Merchandise trade alone reached approximately €81.5 billion in 2025.
CETA clearly has not replaced Canada-U.S. trade.
But it has helped create a much larger second economic relationship.
Canada’s Dependence on the United States Is Already Declining
The changing trade numbers are particularly interesting.
In 2024, roughly three-quarters of Canadian merchandise exports went to the United States.
In 2025, the U.S. share dropped to 72.5%, its lowest level since the early 1980s according to Global Affairs Canada’s analysis.
At the same time, Canada’s merchandise exports to Europe and Central Asia increased by approximately $22.3 billion — or 30% — in a single year.
Their share of Canadian merchandise exports rose from 9.5% in 2024 to 12.4% in 2025.
That does not mean Canada is abandoning the United States.
It means diversification is already happening.
And that distinction is important.
Canada Should Not Try to Replace the United States
There is an understandable temptation during trade disputes to say Canada should simply stop relying on the United States.
That is neither realistic nor desirable.
The American market is geographically close, enormous and deeply integrated into Canada’s economy.
Canadian and American factories frequently operate as parts of the same supply chain. Automotive components can cross the border several times before becoming part of a finished vehicle. Agricultural products move in both directions. Electricity crosses provincial and state boundaries. Energy pipelines connect Canadian production directly with American refineries.
Europe cannot reproduce that geography.
Shipping a product from Windsor to Detroit will almost always be easier than sending it across the Atlantic.
The objective therefore should not be replacing the United States.
It should be ensuring that Canada has alternatives when the United States becomes unreliable or politically unpredictable.
What Could Canada Sell More of to Europe?
Canada has considerable potential in areas where Europe needs reliable long-term suppliers.
Natural resources immediately come to mind, but the opportunities extend much further.
Canada produces energy, uranium, potash, critical minerals, aluminum, nickel, lumber, grains, oilseeds and seafood. Canadian companies also operate sophisticated aerospace, machinery, technology, pharmaceutical, engineering and professional-service industries.
Global Affairs Canada reported that some of the strongest Canadian export growth to the EU in 2025 occurred in mineral fuels and oils, aluminum and oilseeds.
For Canadian agriculture, the European market is particularly interesting.
CETA expanded market access for various agricultural and food products while maintaining restrictions and quotas in politically sensitive sectors.
Europe also gained additional access to Canada’s cheese market. Canada’s CETA tariff-rate quotas provide access for 16 million kilograms of cheese generally and another 1.7 million kilograms of industrial cheese.
So CETA creates opportunities, but it is not an unrestricted free-for-all. Agricultural quotas, regulations and product standards still matter.
The Problem: Canada Isn’t Fully Using CETA
Perhaps the most revealing number in the entire agreement has nothing to do with total trade.
It is the preference utilization rate.
Global Affairs Canada reported that in 2024 only about 59% of eligible Canadian exports to the European Union actually used CETA’s preferential tariff treatment.
By comparison, approximately 93% of eligible non-energy Canadian exports to the United States used CUSMA preferences.
That means Canada has negotiated preferential access to Europe that many Canadian exporters are simply not using.
There are several reasons.
Sometimes the ordinary European tariff is already low enough that completing the paperwork isn’t worthwhile. In other cases, companies struggle with rules of origin, documentation, supply-chain requirements or simply lack experience selling in Europe.
A July 2026 Global Affairs Canada study examining CETA utilization also found that rules of origin, supply-chain structures and differing tariff advantages can significantly influence whether companies actually claim CETA preferences.
This may be one of Canada’s greatest unrealized trade opportunities.
The agreement exists.
The market exists.
The customers exist.
But Canadian companies still need to use them.
Infrastructure May Be the Bigger Challenge
Trade agreements do not move physical products.
Infrastructure does.
If Canada wants to dramatically increase trade with Europe, it needs the ability to efficiently move Canadian products from farms, mines and factories to Atlantic ports.
That means rail capacity, roads, container terminals, port infrastructure and potentially additional energy-export infrastructure become part of Canada’s trade strategy.
A Canadian farmer or manufacturer cannot take advantage of European customers if getting products to an export terminal is slow, expensive or unreliable.
Diversifying Canada’s economy therefore requires more than signing trade agreements.
It requires building the infrastructure necessary to actually use them.
Canadian Manufacturers Also Face Rules of Origin
Another complication is that a product does not automatically qualify for CETA treatment simply because it was shipped from Canada.
Products must meet the agreement’s rules of origin.
That can become important for Canadian manufacturers whose products contain substantial American or other foreign content.
A company may assemble something in Canada but still have to demonstrate that sufficient qualifying production occurred in Canada or the EU before receiving the preferential CETA tariff.
This makes Canada’s broader industrial strategy important as well.
The more complete supply chains Canada develops domestically, the easier it may become for Canadian companies to take advantage of multiple international trade agreements.
CETA Still Isn’t Fully Ratified
There is another unusual aspect of the agreement.
Almost nine years after provisional implementation, CETA still has not been completely ratified by every EU member state.
As of 2026, 17 EU countries have completed national ratification while 10 have not: Belgium, Bulgaria, Cyprus, France, Greece, Hungary, Ireland, Italy, Poland and Slovenia.
That does not mean today’s free-trade relationship is about to disappear.
Most of CETA’s economically significant provisions are already operating.
The main portions awaiting full ratification relate to investment protection and the proposed investment dispute-settlement system.
For ordinary Canadian exporters, most of the agreement they care about is already available.
Canada and Europe Are Going Even Further
CETA may also be becoming the foundation for an even broader Canada-EU economic relationship.
In March 2026, Canada and the European Union launched negotiations toward a new Digital Trade Agreement intended to expand cooperation in digital commerce.
Canada is therefore not moving away from its European relationship.
It is attempting to deepen it.
What About Britain?
One important point sometimes causes confusion.
The United Kingdom is no longer part of CETA because it left the European Union.
Canada and Britain instead trade under the separate Canada-United Kingdom Trade Continuity Agreement, which preserved many of the preferential trading arrangements that previously existed while Britain was part of the EU.
So Canadian businesses considering European diversification potentially have access not only to the EU through CETA, but also Britain through a separate agreement.
Canada’s Goal Should Be Diversification, Not Separation
The strongest Canadian economy would probably not be one that stops trading heavily with the United States.
It would be one where the United States remains Canada’s largest and most important customer — but no longer has the ability to disrupt enormous portions of the Canadian economy through a single tariff decision.
Imagine the difference between a Canadian company selling 95% of its exports to one American customer and another company selling to customers across the United States, Germany, France, the Netherlands, Japan and Australia.
The second company may still value the American market enormously.
But it has options.
The same principle applies to Canada as a country.
Canada’s response to trade uncertainty should not be economic isolation or retaliation for its own sake.
It should be resilience.
Build more infrastructure.
Develop more domestic processing.
Help Canadian companies enter foreign markets.
Use the trade agreements Canada has already negotiated.
And continue trading with the United States wherever doing so benefits both countries.
CETA May Be Canada’s Most Underused Economic Insurance Policy
Canada spent years negotiating preferential access to the European Union.
Most tariffs are already gone.
Trade has grown substantially.
Canadian exports to Europe are rising rapidly.
And yet a significant portion of Canadian companies eligible for CETA preferences still are not taking advantage of them.
That suggests Canada may not need to invent an entirely new strategy to reduce its economic vulnerability.
Part of the strategy already exists.
Canada simply needs to use it better.
The United States will almost certainly remain Canada’s largest trading partner because geography and decades of economic integration make that relationship extraordinarily valuable.
But being America’s closest trading partner does not require Canada to be economically dependent on only one market.
CETA gives Canada access to hundreds of millions of consumers across Europe.
In an increasingly unpredictable global trading environment, that access may be worth considerably more to Canada today than it was when the agreement was signed.
Editorial note
This article discusses trade diversification as an economic strategy. Statements about desirable Canadian trade policy represent analysis rather than claims of government policy. Trade figures and details of CETA are based primarily on Government of Canada and European Commission data available as of September 2026.
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