Trending Now
We have updated our Privacy Policy and Terms of Use for Eurasia Group and its affiliates, including GZERO Media, to clarify the types of data we collect, how we collect it, how we use data and with whom we share data. By using our website you consent to our Terms and Conditions and Privacy Policy, including the transfer of your personal data to the United States from your country of residence, and our use of cookies described in our Cookie Policy.
{{ subpage.title }}
Six issues that will shape US-Canada relations in 2025
In December, Justin Trudeauwarned that dealing with President-elect Donald Trump would be “a little more challenging” than last time around.
With Trump threatening massive tariffs that would hit Canada hard, taking aim at the country’s anemic defense spending, criticizing its border policy, eyeing its fresh water, and more, 2025 will indeed be a rocky time for US-Canada relations. But Trudeau might not be around for much of it. Down in the polls and facing calls from a majority of his caucus to resign, Trudeau is mulling his future and could resign any day.
Conservative Party leader Pierre Poilievreis heavily favored to win the upcoming federal election, which would make Trump his challenge – a challenge Canadians, in fact, prefer the Conservative leader take on over his Liberal opponent.
Whoever leads Canada in the months to come, these are the top US-Canada issues they’ll be focused on:
1. Trade and tariffs
Trade between the US and Canada is worth over $900 billion a year, so the exchange of goods and services will be a top issue regardless of who’s in office. But Trump’s threat to levy a 25% tariff on imports has taken it to another level. The tariffs would raise prices in the US and hit Canadian industry, particularly the energy, automotive, and manufacturing sectors, with added costs. The Canadian Chamber of Commerce predicts the tariffs, and Canadian retaliation, would cost Canada roughly CA$78 billion – 2.6% of its GDP – a year and lead to recession. Canadian exports to the US would plummet, says the Chamber, with a predicted 60% drop in the mining and quarrying industries, 39% in m0tor vehicles, and 27% in metals – which would be costly for both countries. Ontario, the country’s most populous province and home to its auto sector, would be hit especially hard – which is why Premier Doug Ford is threatening to stop energy exports to the US if Trump proceeds with his plan.
The economic harm to Canada would be exacerbated by the fact that Ottawa would likely respond with its own retaliatory duties. The Trudeau government is working to secure an exemption from the policy for Canada but hasn’t managed to yet. But energy experts say they expect the tariffs won’t apply to Canadian oil either way.
Graeme Thompson, a senior analyst with Eurasia Group’s global macro-geopolitics practice, says Trump’s tariff threat is real but also part of the incoming president’s strategy. He’s trying to gain concessions on issues of concern, including border security and the (very limited) flow of fentanyl from north to south, and the US trade deficit with Canada ahead of the looming renegotiation of the USMCA.
Thompson notes that Canada is in a weak bargaining position given that it’s utterly dependent on its trade relationship with the US, “and for that reason, doesn’t have a lot of cards to play.” He also expects that even if Canada does secure an exemption on tariffs, Trump will be prepared to threaten them again in the future as leverage in any given negotiation.
“This is not a one-and-done,” Thompson says. “I think this is a mode of operations that will repeat several times for the next four years over a variety of issues.”
2. A (metaphorical?) border wall
Trump has made border security central to his tariff threat, arguing that the flow of fentanyl and illegal immigrants across the border poses a public safety threat to the US. Canada is already developing a border security plan to respond to Trump’s concerns. It’s also scrambling to prepare for a possible rise in asylum claims – which will exacerbate the current backlog – and irregular border crossings if Trump goes ahead with his plan for mass deportations.
Canada was already revising its immigration policy before Trump won, but it may introduce further restrictions – and continue to toughen its rhetoric – in the coming months. After Trump’s win, Immigration Minister Marc Miller said “not everyone is welcome” to go to Canada, emphasizing that his government was ready to work with the Trump administration on border security. At the same time, Foreign Affairs Minister Melanie Joly said Canada was sticking to its new immigration plan, which would see fewer newcomers admitted to the country.
The Trudeau government reduced its immigration targets in October and cut the number of international students it welcomes. Its border security plan includes CA$1.3 billion in spending around five pillars that include a commitment to “detecting and disrupting the fentanyl trade” and “minimizing unnecessary border volumes,” including an end to flagpoling – or allowing temporary residents to leave the country (typically to the US) and return immediately to access immigration services at the border. But that may not be enough.
Thompson says leaders of the current government are “overestimating their ability to manage what is coming.” He notes future demands from Trump could include “tighter screening of regular immigrants into Canada. That means that much like with tariffs, the Canadian government may end up managing cascading demands from Trump, so no single promise or plan will likely be sufficient to placate the incoming US president.
3. Defense spending and securing the Arctic
US administrations, including Biden’s, have pressured Canada to increase its defense spending and hit NATO’s 2% of GDP target for years. In April, the Trudeau government outlined a plan to boost spending, focused in large part on building armed forces capacity in the Arctic. The new initiatives total roughly CA$81 billion over two decades and will push the country toward 1.76% of GDP by 2030. In December, the government announced a further adjustment to its Arctic presence, which will include more air and naval equipment, and a renewed cooperation strategy in the region with the US in the face of Russian and Chinese regional interests.
So far, Trump administration officials and other Republicans seem unimpressed with Canada’s defense plan. Former Trump ambassador to Canada, Kelly Craft, said the country could “do better.” That means spending more – and faster – especially since Trump has reportedly considered asking NATO allies to spend a whopping 5% of GDP on defense spending. He’s also threatened to leave countries that fail to spend more to fend for themselves against foreign aggression.
Philippe Lagassé, associate professor and Barton Chair at the Norman Paterson School of International Affairs at Carleton University, says Canada could raise military spending by increasing pay, boosting operations expenditures, and contracting more for services. He says procurement of military hardware would take longer. But in the face of financial constraints, such new spending would require raising taxes, growing the deficit, cutting other programs, or some combination of the three – which could prove a challenge for the current government or its eventual replacement.
Arctic defense may prove to be a smoother issue. “The US has been trying to get Canada to do more in the region for a while,” Lagassé says, “and we've responded to that. I don’t see that as a point of tension.”
“If anything,” he adds, “the US will be glad if we just get our act together because their sovereignty considerations up there are less than ours, and they have capabilities up there that we don’t, but they do want us to actually get our act together around it.”
So, while Canada may feel the pressure on defense spending – and may need to come up with a faster, heftier plan to placate Trump, it can always point to progress in the Arctic and is likely to do so.
4. Water, water everywhere?
In September, Trump floated an idea to solve California’s drought problems: import water from British Columbia. As Trump put it, the province has “a very large faucet” that, once turned, could supply drought-stricken US states with fresh water. Experts point out that Canada doesn’t, in fact, have water to spare, and Canada can’t just turn on a “faucet” to divert water to the US.
The water Trump referred to, coming from the Columbia River, is already spoken for, in part through an existing treaty between the US and Canada – the Columbia River Treaty, which sets out rules governing flood controls, dams, and hydroelectric power generation.
That arrangement is in the process of being modernized to account for new developments, including climate change. The Biden administration and the Trudeau government recently reached an agreement in principle after years of work that began during the first Trump administration. But this time around, should Trump decide to maintain an interest in water flows north to south, the terms of the treaty could – like free trade – come back up for negotiation, with the faucet on the table.
5. Critical minerals. It’s in the name
The US and Canada share several other areas of cooperation and competition, but one is of immediate interest that could incentivize working together. Both countries are spending big on critical mineral development, including co-investments in a development in Yukon.
Critical minerals are central to cellular phones, the electric vehicle industry – in which both the US and Canada are investing heavily – and national defense. So whatever other tensions shape US-Canada relations, cooperation on critical minerals will remain a shared goal, especially as the two countries look to rival Chinese and Russian interests in related sectors.
6. Setting limits on Big Tech
Both countries are also taking on big tech giants, such as Google, through anti-monopoly investigations lawsuits. Still, the US is pushing Canada to drop its 3% digital services tax on big tech companies, including Google’s parent company Alphabet. The Biden administration requested a dispute resolution process for the tax, claiming it unfairly targets big US tech firms. The Trump administration is likely to press the issue, too, which may leave the policy as a pawn in one set of negotiations – say, over tariffs – or another.
Does Canada have any leverage to rely on? Canada has some cards to play against Trump, but it’s not clear who’ll be playing them. The Trudeau government, down roughly 25 points in the polls, is not long for this world – and Trudeau himself may resign any day. The country is due for an election by the fall, but it could come much earlier.
Regardless of who’s in power, however, they’ll likely deploy the playbook from the last time Canada had to manage its relationship with Trump. That means working contacts in states, particularly border states in which the Republicans have an interest in winning or currently govern and contacts in Washington. Then, they work the message about Canadian, and shared, interests up to Trump. There’s also the threats of retaliatory tariffs and halting certain trade, like Ford’s threat to cut off energy to border states.
Together, pulling these levers may yield some results, but Canada is in for tough negotiations and is unlikely to emerge from them unscathed.
Ian Explains: Alaska is not just a state, it's a geopolitical outpost
Amid Russia's growing territorial aggression and a fast-warming Arctic, Alaska's physical place in the world has become more geopolitically relevant than ever. Alaska's northern coastline makes the US one of six countries with exclusive economic zones in the Arctic Circle. And while no country owns the North Pole—it isn't even land—it is constantly shifting sea ice, which is going to melt. But as that happens, the Arctic is opening up, and countries are now racing to lay claim to untapped deposits of oil, natural gas, and rare earth minerals, newly accessible shipping routes, and strategic military positions between North America and Eurasia.
Russia is winning by most metrics. The Russian government has more than three dozen polar icebreakers in its fleet, compared to two, not two dozen, two in the United States, giving it a strategic and operational advantage. Russia accounts for nearly half the Arctic population, more than half its coastline, and the Arctic industry. Moscow has spent years building up military outposts in the region as polar ice melts and its northern waters become exposed.
Russia's also increasing cooperation in the region with China, which sees the Arctic as an important part of its strategic economic and environmental interests. China is believed to be exploring a military presence there. NATO countries suspended political-level meetings with Moscow, and all international research projects have been put on hold. Until Arctic states can find a way to work together, rising tensions and a zero-sum game of territorial ambition will give the most remote part of the planet a lot more of our attention.
Watch Ian's interview with Governor Mike Dunleavy on the full episode of GZERO World with Ian Bremmer, the award-winning weekly global affairs series, airing nationwide on US public television stations (check local listings).
New digital episodes of GZERO World are released every Monday on YouTube. Don''t miss an episode: Subscribe to GZERO's YouTube channel and turn on notifications (🔔).
DOD in Photos: 2020 This collection showcases the work of U.S. military photographers in 2020, when U.S. service members continued to conduct around-the-clock training and operations worldwide to ensure the nation's security, even while responding to the coronavirus pandemic. The USS Toledo (SSN-769) arrives at Ice Camp Seadragon on the Arctic Ocean kicking off Ice Exercise (ICEX) 2020. ICEX 2020 is a three-week, biennial exercise that offers the Navy the opportunity to assess its operational readiness in the Arctic and train with other services, partner nations and Allies to increase experience in the region, and maintain regional stability while improving capabilities to operate in the Arctic environment. U.S. Navy Photo by MC1 Michael B. Zingaro Where: United States When: 04 Mar 2020
US adopts a new Arctic strategy
Climate change is already reshaping US and Canadian defense policy. Melting Arctic ice raises the chances of natural disaster, and it’s also leading to an increased military presence in the north — from the US and Canada, but also Russia and China.
In response, the Pentagon has adopted an Arctic strategy that includes working with allies like Canada on interoperability while building defense capacity in the north. It includes new surveillance, reconnaissance, and communications in the region as well as training in the area.
This comes on the heels of the US signing the ICE Pact – an Arctic cooperation plan with Canada and Finland that includes an emphasis on building icebreakers. It also accompanies a Canadian security push that includes more spending on defense and a push to hit NATO’s 2% of GDP target in the next decade.
Canada recently bought a hangar in the Arctic next to a NORAD airbase after months of US urging, just as China and Russia were expressing interest in the property.
The flurry of Arctic defense news isn’t likely to diminish. In fact, on Wednesday night, Sen. Lisa Murkowskishared that she was briefed by Pentagon officials on Russian and Chinese bombers that were intercepted in Alaska’s air defense identification zone. She thanked the US-Canada integrated response and called the move by Russia and China an “unprecedented provocation by our adversaries.”
Arctic powers have been fighting over the region for years; as ice melts and shipping routes and potential defense vulnerabilities open, countries will be watching the region closely and angling for dominance.
A Canadian flag is pictured on Frobisher Bay in Iqaluit, Nunavut February 23, 2012.
Canada flexes a little Arctic muscle
Amid criticism that it is not spending enough on defense, Canada has bought a hangar in the Arctic for CA$8.6 million – an installation that sits next to a NORAD air base.
Russia and China both reportedly expressed interest in the property, which the Canadian Armed Forces had previously leased. The United States pressed Canada to buy up the hangar for more than a year – and Ottawa finally decided they were on to something.
In 2023, Canada’s intelligence agency, CSIS, warned that China was looking to purchase properties near sensitive locations, spurring espionage concerns. In recent months, Canada has adopted a new defense policy that invests in northern security, as it looks to shore up its Arctic capacities in light of threats from China and Russia, something the US has been pushing for.
The Arctic security push will include attempts to boost armed forces personnel numbers, installing maritime sensors, building operational support hubs in the north, and purchasing new helicopters, airborne early warning aircraft, and, most notably, as many as 12 new under-ice submarines.
On Thursday, the US, Canada, and Finland announced an “Icebreaker Collaboration Effort,” to be known as the ICE Pact, which will focus on Arctic security and economic cooperation and include an emphasis on building icebreakers.
Alongside the ICE Pact and a brand new plan to reach NATO’s military spending target of 2% of GDP, Canada’s evolving – that is, growing – Arctic and general defense plan may begin to quell ally criticisms that the country doesn’t take defense seriously. The efforts may even help prepare it for a second Trump administration, as the former president takes aim at countries, including Canada, that he sees as military alliance freeloaders.
Chinese President Xi Jinping and Russian President Vladimir Putin.
Putin-Xi “friendship” threatens Arctic
A new report quoted in the Globe and Mail suggests how Vladimir Putin and Xi Jinping’s “friendship without limits” is progressing: Russia is giving very generously in exchange for China buying its oil.
The report by Strider Technologies says China is gaining a major foothold in the Arctic as Russia shifts its defense priorities to the war in Ukraine. Since Putin’s invasion, 234 Chinese-owned companies have registered to operate in the Russian-controlled Arctic, Strider said, an 87% increase on the two years prior. Besides resource exploitation and investment aimed at developing Russia’s Northern Sea shipping route, the two have been deepening security ties in the form of joint exercises in the Bering Sea.
A report by Canada’s Senate Committee on national security, defense, and veterans’ affairs last year noted the worrying implications of increased collaboration in the Arctic by Russia and China.
Canada has committed to spending $38.6 billion over 20 years to modernizing the North American Aerospace Defense Command, or NORAD, including investing in new over-the-horizon radar installations, and infrastructure to house the 88 F-35 Lightning fighter jets it has on order from the US.
In the first of its 23 recommendations, the committee called on the government to include an Arctic section in its imminent defense policy statement that recognizes the situation in the North is deteriorating and offers a plan to deal “on an expeditious basis” with threats that could enter North America through the Arctic.
Graphic Truth: Russia's icebreaker fleet dwarfs US & Canada
When you think of an island nation, what comes to mind? Maybe the vast archipelagoes of Indonesia and the Philippines? Or Japan, which discovered over 6,000 more islands in its territory this year thanks to advancements in satellite cartography?
Probably not Canada, right? Well, the fact is with over 52,000 islands, Canada has more than three times as many as any of the above countries. What’s more, three of the 10 largest islands on earth are found in Canada’s arctic archipelago, which results in Canada having – by far – the longest national coastline in the world.
The problem, of course, is that more than 70% of that coastline borders the icy waters of the Arctic, rendering it inaccessible much of the year. Or at least it used to be inaccessible. Climate change is steadily opening more of the northern waters to navigation in warmer months, but the use of icebreakers is still crucial to navigation.
And there’s the strategic rub. Canada and the United States have between them fewer than 20 active icebreakers, both public and privately owned, while on the other side of the North Pole, Russia can field more than 50.
Ottawa and Washington aren’t ignorant of the imbalance. The US Coast Guard is trying to replace its aging squadron of icebreaking cutters, but delays and inexperience on the part of US manufacturers in the specialized engineering required have delayed the first ship’s delivery to 2027. The Canadian navy is faring somewhat better: The HMCS Harry DeWolf was launched in 2018 as the lead model of six planned icebreaking patrol ships, all of which are already either in service or under construction.A NASA satellite image from September 16, 2007 and released on September 21, 2007, shows Arctic summer sea ice. Arctic sea ice melted to its lowest level ever this week, shattering a record set in 2005 and continuing a trend spurred by human-caused global warming, scientists said on September 20, 2007.
Rising temps and tensions in the Arctic
As leaders convene in Reykjavik, Iceland, for the Arctic Circle Assembly, geopolitical tensions are rising as fast as the Arctic’s sea level.
Historically, Arctic diplomacy has been shielded from external matters. But melting sea ice is opening up new military, trade, and extraction opportunities up north, pitting NATO Arctic countries against China and Russia, which have been proactively showing dominance in the region.
China’s Arctic presence is focused on resource extraction and faster shipping routes to Europe. It has teamed up with Russia, which chairs the Arctic Coast Guard and has begun operating joint military vessels off the coast of Alaska.
Canada and the US have been criticized for underinvesting in Arctic security, but NATO’s presence in the region is strong. Finland recently joined NATO and Sweden is close behind, making seven of the eight Arctic countries NATO members.
Since invading Ukraine, Russia has been withdrawing from intergovernmental bodies in the Arctic, including the Nuclear Arctic Safety Program and the Barent Euro-Arctic Council. Representatives at this week's meeting are expected to decide the future of the most important Arctic institution, the Arctic Council. The US has pushed to reintegrate Russia into the forum, but other NATO members have been unwilling to include Russia in since its invasion.
Representatives from China will be in attendance, but Russia will be absent, raising practical questions about what Arctic forums can achieve without the largest geographical stakeholder.
Other items on the assembly’s agenda include environmental preservation, mineral extraction, and expanding food production as temperatures rise – eliminating traditional food sources but making agriculture more feasible.
line graph of shipping volume through the arctic
The Graphic Truth: Shipping volume through the Russian Arctic
Climate change has opened Arctic shipping channels that can be navigated by freighters without icebreakers for several months a year – and year-round with icebreakers. Canada and Russia dominate the region, but Moscow is much more aggressively exploiting the economic opportunities there.
Taking the high-latitude route over Russia can shave 5,600 miles off a voyage from Europe to China, and as sea ice melt accelerates, the economic viability grows. Total shipping volumes along the Arctic route rose steadily between 2019 and 2020, and immediately after Russia invaded Ukraine, despite the frigid March conditions, the Arctic corridor saw its highest-ever volume of shipping in 2022.
Canada and the United States, meanwhile, have faced criticism for underinvestment in Arctic security. Canada, for example, lacks sufficient early warning systems to detect missile attacks coming over the North Pole — which is dangerous, given that the Arctic is essentially split between Russia and NATO countries.
We look at trade passing through the Russian Arctic corridor above.