Canada is at a historic moment in its relationship with the United States. The Donald Trump presidency poses existential threats to the Canadian economy and sovereignty through tariffs and repeated calls by the president for Canada to become the fifty-first state.

This has galvanized Canadian politicians, business leaders and everyday Canadians around reducing the country’s economic dependence on the United States. Increasing trade within Canada and expanding trade to partners beyond the U.S. are at the top of political agendas.

This is not the first time Canada has tried to reduce its economic dependence on the U.S. Previous attempts have yielded precious few results.

Will this time be different? Can this moment be transformed into momentum to expand Canada’s domestic and international economic flows?

Maybe.

Much will hinge on political leaders’ resolve to work through tough issues that have proved intractable in the past.

And much will hinge on energy. Energy may be one of the keys to success — the seismic shifts in the political and economic landscape open a massive window of opportunity for change.

The United States: from reliable trading partner to volatile multigame player

We’re seeing a new attitude from our largest trading partner: the administration is no longer all in on trade, no longer all in as partner. The very language of partnership sounds passé in this moment.

Instead, we’re facing a very unpredictable administration whose objectives are shifting and unclear. We’re never sure what game we’re playing. Are tariffs about the border, fentanyl, trade deficits, revenue for U.S. coffers, renegotiating USMCA, annexing Canada? Or are they the president’s Swiss Army knife, repeatedly held to Canada’s neck to extract concessions across all of these issues and more? Who knows.

What we do know is that President Trump’s threats and actions have shaken the country to its core. And not just the political and business elite.

Everyday Canadians are exercised. They are booing the American anthem at sporting events. They’re checking labels, changing travel plans and cancelling streaming services to avoid supporting the U.S. economy.

Kitchen table talk has turned to expanding trade within Canada and diversifying trade to countries beyond the U.S. This is a momentous time.

Canada at a crossroads: time for the fourth option on trade?

What does all of this mean for energy?

First and foremost, it does not mean turning away from energy trade with the United States. The market opportunities in the U.S. are and will remain substantial. We have built a vast network of infrastructure over many decades to support trade. Complex cross-border supply chains across multiple sectors are invaluable to both countries. All levels of government and all parts of the energy industry need to continue to make the case about the value of Canada-U.S. energy trade.

Rather, this is about pursuing a ‘fourth option’ on trade. The ‘third option’ was first proposed in the early 1970s by then federal Secretary of State for External Affairs Mitchell Sharp. Faced with a similar existential moment for the Canadian economy, Sharp identified three options: the status quo, further integration with the United States, and trade diversification.

In the years that followed, Canada prioritized the second option. It entered into the Canada-U.S. Free Trade Agreement and the the North American Free Trade Agreement after that. Despite periodic efforts to diversify trade, including with a flurry of new free trade agreements over the last couple of decades, the economic pull of the United States — the largest market in the world right at our doorstep — has continuously swamped efforts to diversify trade within Canada and beyond North America.

Now, public debate is crystallizing around a fourth option: maintaining market access to the U.S., expanding trade within Canada and expanding trade beyond North America.

In theory, this makes all kinds of sense. In a world of growing protectionism, global volatility and the predictable unpredictability of the U.S. for the next four years — a trend that could well endure — placing Canada’s economic eggs in more than one market basket increases the country’s resilience and ability to adapt to rapidly changing circumstances.

It also reduces Canada’s vulnerability to a single trading partner weaponizing our dependence on their market against us. This is particularly concerning for energy, where threats to bilateral energy trade are threats to Canada’s energy security, especially in the East.

For energy, this opens up many possibilities. The possibility of greater interprovincial collaboration to move energy from one part of the country to another. The possibility of major energy infrastructure projects to strengthen Canada’s domestic energy security and to boost energy exports to markets beyond the United States. The possibility of a stronger, more resilient energy system and country in a world of increasing volatility and disruption.

All good in theory.

In practice, big changes like this don’t happen overnight.

Turning a trade diversification moment into trade diversification momentum

Will the current threat environment drive success at the internal trade negotiating table where previous efforts have foundered? Will the existential threats to the Canadian economy from the U.S. administration finally tip the scales in favour of trade diversification?

This is not Canada’s first time at these rodeos — so far we’ve failed to come home with big buckles.

Will this time be any different?

Possibly.

This moment in Canada-U.S. relations is combining with a number of other seismic shifts in the political and economic landscape.

First, concerns over affordability, productivity, economic growth and competitiveness were already intensifying in recent years. The economic threats from the Trump presidency have raised them to a fever pitch.

Second, the global geopolitical and security context remains volatile — and seems set to get even more so with President Trump in the White House.

Third, Canadian public opinion on energy and climate has shifted (see Part I of DOB Energy’s four-part series on public opinion). Canadians’ views on the balance Canada should strike between environment and economy have changed: they want to see more priority given to economy. Similarly, Canadians’ climate ambition is weakening. People are less climate ambitious now than they were at the height of the COVID-19 pandemic.

This doesn’t mean Canadians don’t care about climate change or environmental protection. Many of them do. This is about strategic realignment to more weight on the economy.

Another shift in public opinion relates to oil and gas. The proportion of Canadians who rate oil and gas as important to Canada’s current and future economy is on the rise in recent years. Almost nine in ten Canadians now rate oil and gas as important to the current economy and seven in ten rate it as important to the future economy (Part II of the four-part series will dig into this topic). These numbers speak to a growing awareness among Canadians of the importance of oil and gas to the country’s energy system and broader economy.

Finally, Canadians want the country to strike its own path on energy and climate policy. In a Positive Energy/Nanos poll at the beginning of February, when asked whether Canada should align its energy and climate policies with those of the United States, Canadians leaned heavily towards not aligning. Over six in ten said Canada should ‘not align’ (47 per cent) or ‘somewhat not align’ (14 per cent) energy policies with the U.S. and close to two-thirds said Canada should ‘not align’ (53 per cent) or ‘somewhat not align’ (11 per cent) climate policies (full results to be released in the coming days).

Even before the current crisis in Canada-U.S. relations, these political, economic and security drivers were setting the stage for expanding domestic and international energy trade. Now, they can help build momentum and the political resolve needed to address the many challenges, trade-offs and complexities of building new trade flows within and beyond the country.

Energy can play a strategic role in this moment. The energy industry has been attempting for years to strengthen energy flows within the country and beyond North America. Business leaders know where the key opportunities and barriers lie, and their support could help give focus and the prospect of tangible wins to governments working to strengthen Canada’s economic security, resilience, growth, productivity and competitiveness.

But it’s going to take more than industry stepping up. There are many conditions for success.

First, governments need to work hand in glove with industry. Canadian governments don’t always have the reflex to reach out to industry and work in a relationship of trust with business. That has to change. 

Second, success will hinge on governments helping to get large energy infrastructure projects built. Despite growing attention to the need for regulatory and permitting reform, Canada has yet to truly move the needle on this issue. There is a lot of work ahead (stay tuned for a forthcoming article on this topic).

Third, Canada needs collaboration between governments — not confrontation. This applies especially to federal-provincial relations, but also to relationships with Indigenous nations and governments — something that risks getting lost in the rush to find easy solutions to complex problems.

Fourth, success hinges on ongoing public support. While Canadians are signalling the country needs to course correct to more emphasis on the economy and they increasingly view oil and gas as important to Canada’s current and future economy, this doesn’t mean they don’t care about the environment and climate change. They do. The path forward cannot ignore the environment.

Fifth, success requires ongoing analysis of the international environment to strengthen Canada’s competitiveness and prosperity, especially if the country is leaning into trade diversification.

But more than anything, success hinges on resolve. Canada often talks a good game and has great ideas, but it struggles mightily with execution. We know what needs to be done; we just can’t seem to make it happen.

Let’s hope this time is different and the country can turn the urgency of this trade diversification moment into trade diversification momentum in the years ahead.