Ottawa (Rajeev Sharma): Canada could face the most significant international consequences from political instability in the United States next year, according to a new assessment released Friday by global risk consultancy Eurasia Group.
The report argues that decades of predictability in Canada–U.S. relations have effectively come to an end, warning that continued volatility south of the border will directly affect Canada’s economy, trade security, and foreign policy direction.
According to the analysis, U.S. President Donald Trump’s consolidation of executive power and aggressive use of state institutions has implications far beyond American politics. Eurasia Group says these developments are reshaping Canada’s relationship with its largest trading partner and forcing Ottawa to rethink how it engages with the world.
The firm describes Canada’s challenge as twofold: coping with an increasingly erratic United States while simultaneously building new global partnerships in what it characterizes as an unstable, leaderless international environment.
Relations between the two countries deteriorated sharply after Trump’s return to office in 2024, particularly following repeated rhetoric questioning Canada’s sovereignty. Since then, Washington has imposed multiple tariffs targeting Canadian industries, including steel, aluminum, automotive manufacturing, and lumber — sectors that play a critical role in the national economy.
The report also highlights recent U.S. military action in Venezuela as evidence of Washington’s renewed push to assert dominance in the Western Hemisphere. That posture, Eurasia Group suggests, will leave Canada constantly defending its interests while remaining economically dependent on its southern neighbour.
For decades, the report notes, Canada benefited from deep integration with the U.S. market. That comfort has now become a liability, as American policy decisions increasingly risk turning Canadian businesses and investors into unintended casualties.
Eurasia Group’s analysis comes with notable Canadian connections. The firm’s vice-chairman, Gerald Butts, has served as an informal adviser to Prime Minister Mark Carney, while Diana Fox Carney, the prime minister’s wife, is affiliated with the organization. Artificial Intelligence Minister Evan Solomon also previously worked with the group before entering politics.
The report raises concerns that political disruption in the U.S. could spill over into foreign policy, potentially destabilizing defence and trade arrangements with Canada. One such concern is the future of the Canada–U.S.–Mexico Agreement (CUSMA), which is scheduled for review this year.
Rather than a formal renegotiation or cancellation, Eurasia Group predicts the agreement will linger in a state of uncertainty — neither fully functional nor officially abandoned — describing it as a “zombie” trade pact.
While Prime Minister Carney campaigned on the promise of securing a new trade agreement with Washington, he has since clarified that Canada will not commit to any deal that undermines national interests. Trade talks were further strained after Ontario Premier Doug Ford released a U.S.-focused anti-tariff advertisement quoting former president Ronald Reagan.
Despite the turbulence, the report notes that exemptions for CUSMA-compliant goods continue to limit the overall tariff burden on Canada, keeping some level of trade flow intact. However, it warns that the U.S. is likely to use targeted tariffs — particularly in industries it wants to bring back domestically — as leverage in prolonged negotiations, potentially driving wedges between Canada and Mexico.
As Ottawa seeks alternatives beyond the United States, Eurasia Group cautions that Europe may offer limited stability. Political divisions and internal pressures in countries such as the United Kingdom, France, and Germany could restrict their capacity for deeper engagement.
The report also flags security risks, including potential Russian hybrid operations targeting Canadian military interests in retaliation for Ottawa’s strong support of Ukraine. While increased European defence spending could open doors for Canadian firms, heightened tensions with Russia could pull Canada into broader NATO-related crises.
China presents another complex challenge. Eurasia Group warns that Beijing’s slowing economy is producing a surge of low-cost exports that could severely disrupt Canadian manufacturing if allowed into the domestic market. At the same time, any move toward China risks further friction with Washington.
Prime Minister Carney is expected to meet Chinese President Xi Jinping in Beijing next week, marking the first official visit by a Canadian prime minister to China in over eight years. The trip signals Ottawa’s effort to repair ties following years of strained relations.
Canada–China relations deteriorated sharply after the 2018 arrest of a Chinese telecom executive at the request of the United States, followed by the detention of two Canadians in China. Trade tensions have persisted, with Canada imposing steep tariffs on Chinese electric vehicles, steel, and aluminum, and Beijing retaliating with heavy duties on Canadian agricultural and food products.
The report also highlights emerging friction over artificial intelligence regulation. Eurasia Group suggests that Canadian efforts to regulate AI could face resistance from U.S. officials and technology companies, particularly given past disputes over digital taxes and online content legislation.
However, the firm sees opportunity in this space. It argues that Canada’s strength lies in developing smaller, specialized AI models — an area where the country’s research ecosystem is well positioned to compete globally.
“If Canada can maintain investment and resist external pressure,” the report concludes, “its AI sector has significant room to grow, with few limits on its long-term potential.”
