Centennial Terminals, a major container port in Vancouver, Canada. Sergii Figurnyi/Adobe Stock

Canadian Prime Minister Mark Carney’s office used strong words when, in January, it announced a new trade deal with China. ‘In a more divided and uncertain world,’ it said, Canada was working ‘with urgency and determination’ to diversify its trading relationships and ‘catalyse massive new levels of investment’.

As with Carney’s speech to the World Economic Forum in Davos, which came four days after the China announcement, Canada’s statement didn’t explicitly mention the US. Yet for Matthew Kronby, a Member of the IBA International Trade and Customs Law Committee Advisory Board, the warming of relations between China and Canada after close to 18 months of trade war is a direct response to the policies of US President Donald Trump.

‘This isn’t a free-trade agreement but rather an agreement in principle on certain goods and is more about a renormalisation of the Canada-China trading relationship following several years of tensions,’ says Kronby, who’s a partner at Canadian firm Osler. ‘I see what’s happening with China and Canada as […] probably the best example of the consequences for Canadian trading relationships of what’s happened under Trump [2.0] and the challenges that Canada is facing in navigating this rupture.’

‘One of the patterns established by this administration is what I call xenophobic autarky – an economic term that means the opposite of free and open trade,’ says Bhala, who’s a university distinguished professor and expert in trade law at the University of Kansas. ‘When I look at the tremendous disruption of the second Trump administration as distinct from the first […] it has shifted to xenophobic autarky against friend or foe alike.’

Bhala adds that when assessing the reasons the Trump administration has given for imposing tariffs on other countries – for example national security and the suggestion that the US is being cheated by other jurisdictions – the ‘common theme is that this administration does not believe it’s in America’s best interests to rely on foreigners for almost any product. Long-time trusted, interdependent trading relationships are being disrupted in pursuit of reducing trade and we’re retreating into an isolationist economy.’

Given its vast land border with the US, Canada’s business interests have historically been particularly entwined with and dependent on strong relations with its southern neighbour. As with Mexico, which also borders the US, President Trump’s tariffs – and the unpredictability with which they may be imposed and rescinded – have caused huge uncertainty for Canadian businesses. With the trilateral US-Mexico-Canada free trade agreement (USMCA) up for renegotiation in summer 2026, there are fears that the situation could worsen.

Emilio Arteaga, an officer of the IBA International Trade and Customs Law Committee, says the USMCA puts Mexico in a strong position in that the goods covered by the free trade agreement can enter the US with zero per cent duties. However, he highlights that anything that doesn’t meet the agreement’s rules of origin (ROO) test is ‘in a worse [situation] than goods from other territories’. That’s particularly problematic for Mexico, which ‘doesn’t make things, but assembles them’, especially if the US cracks down on ROO requirements as part of the free trade agreement review.

‘I believe there will be changes [to] the rules of origin,’ says Arteaga, who’s a partner at Mexican firm Vazquez Tercero y Zepeda. ‘That’s the centre of it. The idea is to bring back manufacturing to the US, and you do that by tightening the rules.’

What trade agreements ‘do more than anything else is offer stability and predictability for businesses,’ says Kronby. ‘When you weaponise tariffs and abandon the commitments you made under those agreements, whether on a national security pretext or anything else, you lose that stability and predictability. That’s hugely problematic.’

Against this backdrop, Bhala says it’s unsurprising that countries around the world are seeking to divert trade away from the US and highlights that some of the relationships resulting from that ‘decoupling’ are unexpected. ‘Countries are signing trade deals we never would have thought of, like the EU-India free trade agreement,’ Bhala says. ‘But that’s a two billion person trade deal. Companies like BMW in Germany will now have a reduction in Indian auto tariffs from about 75 per cent to 25 per cent then ten per cent over the coming years. That gives […] access to a huge and growing market because the middle class in India needs and wants cars.’

Arteaga says that a deal between Mexico and the EU that has been delayed several times over the past decade now looks likely to be signed, while Yves Melin, Co-Chair of the IBA International Trade and Customs Law Committee, says that the EU-Japan deal, which entered into force in 2019, would ‘never have happened without Trump’.

‘Japan wasn’t ready, but they concluded it because of Trump,’ says Melin, who’s a Brussels-based partner with Cassidy Levy Kent. ‘I remember thinking about two years ago that there would never be a free trade agreement again. The idea of granting access to third parties that don’t respect your rules didn’t seem possible, but things have changed; there’s now a need to find allies.’

Kronby believes the new partnerships that bypass the US are here to stay. ‘What’s happened, particularly in the last year, has been a wake-up call for Canada that has moved it away from the complacency that trade with the US is easy and will always be easy,’ he explains. There’s a sense, adds Kronby, that even if the US reverts to its former approach under a different administration or if Congress after the mid-term elections in November takes a more active role in supervising trade, ‘there’s nothing to stop this happening again.’