Mark Carney hopes to redirect Canada’s economy around Donald Trump

CANADA IS IN a strange position. The greatest threat to its economy comes from its close ally and biggest trading partner. In 2024 exports to the United States supported 2.5m jobs in Canada and about a sixth of GDP. Donald Trump attacked as soon as he took office, prosecuting a uniquely intense trade war against his northern neighbour. In January the Bank of Canada estimated that GDP would be 1.5% lower by the end of 2026 than had Mr Trump stayed his hand.

Mark Carney, Canada’s prime minister, has not been idle (Adrian Wyld/The Canadian Press v)Mark Carney, Canada’s prime minister, has not been idle. He allowed counter-tariffs to come into effect on September 8th after rejecting an American deal that he said was not in Canada’s interest. He has recently spent more time in Europe and Asia than in the United States, drumming up investment and pushing new trade deals and alignment. And he has cut taxes at home in an effort to draw in global capital. None of this can quickly make up for the degradation of the economic relationship with the United States; Canada’s goods-and-services exports to the European Union increased by C$9.5bn ($6.8bn) in 2025, while sales to the United States declined by C$26.3bn. But in constructing credible new routes to market for Canada, he hopes to encourage investment that can buoy up the economy even as American business ebbs.

In the past week the outline of the plan has become clearer. On September 14th and 15th Mr Carney welcomed financial giants from around the world to Toronto for an investment summit. Big American firms such as BlackRock, Blackstone and Berkshire Hathaway risked drawing Mr Trump’s ire to turn up. Mr Carney promised them tax breaks on business investment worth C$36bn over the next five years, 7% of the federal corporate-tax take. The finance ministry said the cuts would give the country a marginal effective tax rate on new business investment that is one third of the OECD average. Mr Carney reiterated his promise to reduce the time needed to approve major infrastructure projects, and made a surprise offer to privatise four of Canada’s largest publicly owned airports.

The masters of the universe seemed impressed. “We’re ready to put the money in the ground,” BlackRock’s boss, Larry Fink, told conference attendees. “Even in this more challenging world for supply of capital, Canada will be a large beneficiary.” The Canadian government says the summit has yielded C$500bn in investment commitments, though it did not specify the period over which this investment would be made. In 2025 a total of C$387bn was invested in Canada, not including housing.

Mr Carney wants Europe on side, too. By September 17th he was in Strasbourg, telling the European Parliament that he welcomed the offer of Ursula von der Leyen, president of the European Commission, to make Canada the first “associate member” of the European Union.

The Canadian leader has long been a Europhile. He earned his doctorate at Oxford, married a Briton and became the only foreigner to run the Bank of England. Three days after becoming prime minister last year, his first foreign trip was not to Washington, DC, as is the custom, but to London and Paris. While in France, he called Canada “the most European of non-European countries”. Senior officials in his government say they were instructed in those very early days to completely reimagine the relationship with Europe.

There is much potential benefit for each side. Europe has expertise in technology, the ability to scale up Canada’s defence-manufacturing ambitions, deep pools of capital and 450m prosperous consumers. Canada has vast reserves of energy and critical minerals. The two also maintain a non-Trumpian belief in free trade. Canada and the EU already have a free-trade agreement, but Canada remains a small supplier to the bloc. Even after trade increased by almost a fifth in 2025, just 1.3% of the EU’s goods imports came from Canada, worth €33bn. So there is scope for more to offset American declines.

The details of any associate membership will be subject to negotiations over the next few months. Many of Canada’s standards look more American than European, for instance, especially in agriculture. Mr Carney also spoke of integrating financial services, youth mobility, and co-operation on energy, all of which could help shore up the Canadian economy. One of Mr Carney’s senior officials said they hope the outlines of a deal will be reached by the end of the year.

Mr Trump said the prospect of Canada becoming the EU’s first associate member was “laughable”. “If they do that, if I think it’s at all a hostile act, I will put very serious tariffs or stop trading with Europe on many things,” he added.

He is not alone in being unimpressed with Mr Carney’s European ambitions. In June Jamie Dimon, the boss of JPMorgan Chase, an American bank, called Mr Carney’s goal of aligning Canada with Europe and other middle powers “a fantasy”. Jeremy Carter of Fitch, a ratings agency, warns that Canada should be cautious about hitching its economic wagon to the EU’s stagnant growth and suffocating bureaucracy.

True, real GDP in the EU rose by just 1.5% in 2025, even slower than it did in Canada. The American economy expanded by 2.1%. Europe’s artificial-intelligence firms are nowhere near America’s, whose capital spending is driving a lot of the country’s growth. Previous efforts by Canadian leaders to diversify away from the United States have failed.

But Canada does not need the EU’s almost-€4trn market for imported goods and services to grow fast, just its share. And Mr Carney needs options if he is to maintain any leverage with Mr Trump as he continues negotiating over a deal he believes to be disadvantageous to Canada. Meanwhile the economic outlook is darkening. In July the Bank of Canada said it expected the economy to grow by just 0.7% in 2026, down one percentage point from 2025.

Canadians love the idea of cosying up to Europe. Polls suggest that four out of five support closer integration with the EU, about the same share that backs the decision to walk away from Mr Trump’s trade deal. Mr Carney’s own approval ratings are soaring. He is now one of the most popular prime ministers Canada has ever had, with an approval rating in the high 60s. The opposition are nowhere.

Canada’s MPs will return to parliament on September 21st. As well as enacting the legislation required to move closer to Europe and attract new investment, the government wants to eliminate intra-provincial trade barriers, push through a pipeline that it says will carry 1m barrels of oil a day to Canada’s west coast for export, and fast-track mines, ports and rail links.

It will be a crucial few months for Mr Carney’s diversification plan. Canadians happily danced to the tune of the American consumer for decades. For the last 18 months, Mr Trump has tried to force them into a torturous jig. David McGuinty, Canada’s defence minister, says Canadians understand that they “have to keep dancing”, but that it is time for a more European beat: “Now we’re dancing a waltz.”