In a dramatic shift in trade dynamics, Canada is exploring deeper economic ties with the European Union (EU) following escalating tensions with the United States over potential tariffs. U.S. President Donald Trump has threatened to impose tariffs as high as 100% on Canadian vehicles and metals, a move that has left Ottawa scrambling for alternatives. This unprecedented threat comes as Canada is ahead of schedule in its electric vehicle (EV) sales targets, with plans to make one in ten cars sold electric by 2025.

The longstanding economic partnership between the U.S. and Canada, which saw bilateral trade exceed $900 billion in 2023, is now under strain. Canada exports a significant portion of its goods, including over 60% of its vehicles, to the U.S. However, Trump’s trade policy poses a serious risk to this relationship, prompting Canadian officials to consider redirecting vehicle and metal exports to the EU.

In response to the looming tariffs, Canadian lawmakers are contemplating retaliatory measures, including a proposed 100% tariff on Tesla vehicles. Tesla, led by Elon Musk, is not only a symbol of American ingenuity but also a crucial player in the Canadian EV market, having sold over 50,000 cars there in 2024 alone. A 100% tariff could double the price of a Tesla Model Y, significantly impacting sales and the company’s North American growth.

While the U.S. remains Canada’s largest market, analysts suggest that Canada’s Comprehensive Economic and Trade Agreement (CETA) with the EU could provide a viable alternative. Since the agreement’s implementation, Canadian exports to Europe have surged by 30%. However, challenges remain, including higher shipping costs and regulatory differences.

As Canada weighs its options, European leaders are open to bolstering trade relations. With the EU’s growing demand for battery minerals like lithium and cobalt, Canada could position itself as a key supplier in the EU’s green transition. This evolving scenario may lead to a significant realignment in global trade, as Canada seeks to leverage its resources and negotiate from a position of strength amidst U.S. protectionism.