Two days before Prime Minister Mark Carney’s recent visit to Berlin, Canada put on a little show at the German Foreign Ministry.
This country, the Group of Seven president this year, was one of three that did so at the Auswärtiges Amt’s open house. Walking up the red carpet and through the marbled halls, one could see little Maple Leaf flags sticking out of backpacks and waved by children. Bully, the polar bear mascot for the Eisbären Berlin hockey team, also made an appearance.
But there were few other offerings. Canada gave out a singular maple syrup candy for completing a bingo quiz with questions such as “What is the name of the Prime Minister of Canada?” (One could keep the faux-wooden pen, though.)
Denmark, which holds the rotating European Union presidency, had a section at least three times larger. The Danes offered spin-the-wheel prizes and liquor samples, sold Danish hot dogs and went big on a Lego play section and ads for the Berlin Legoland. Did you know Lego comes from Denmark? The Danes think you forgot.
South Africa, the G20 president this year, ostensibly shared the hall with Canada but took up twice the space. The country sold wine, hawked safaris, had a multipanel exhibit on Nelson Mandela and offered oranges. And how to stage a spectacle when you don’t even have an opera singer? When the South African soprano drew a crowd under the cobalt blue ceiling, some of whom sipped their South African wine, one could tell the last thing on their minds was Canada.
A relatively muted Canada exhibit is on display at the the Auswärtiges Amt’s open house in Berlin.
Ethan Lou/The Globe and Mail
Will the world change because Canada looked a little small and cheap on a random weekend in Germany? Probably not. But small issues reflect the big. That scene symbolizes something: the Canada of old, the one that, over decades, shrank from international engagement and degraded its capacity for it. The one that took for granted the protection and market access to the south, growing fat and comfortable suckling on the American teat.
Two days later came the Canada of the new.
Mr. Carney arrived in Berlin to military honours, quipped “sign me up” as he toured an U-Boot at the shipyard and was later praised for his “energy.” With Mr. Carney was his battle buddy from Goldman Sachs and the Bank of Canada, Natural Resources Minister Tim Hodgson, fresh from cataract surgery and fitting right in with his sunglasses in the techno music capital. Mr. Hodgson brought a trade delegation of business bigwigs and signed a critical minerals pact.
We all know why Mr. Carney goes to Berlin. The United States is our lifeblood, the destination of more than 70 per cent of exports from this export-dependent country, and it’s imposed crippling tariffs. Calls for Canada to join the European Union have popped up again: from The Economist, from politicians in Germany and academics both sides of the Atlantic, and from 46 per cent of Canadians in an Abacus Data survey. The old continent is the hot new thing.
It was Mr. Carney’s fourth trip to Europe as Prime Minister. On his first foreign visit, Mr. Carney had spurned the U.S. and made for Britain and France. He said then he was “creating new trade corridors with reliable partners” and called Canada “the most European of non-European countries.” Germany is Europe’s biggest economy, and Canada does about $30-billion in merchandise trade with the country annually. Now, we need more.
Mr. Merz, left, receives Mr. Carney with military honours in Berlin on Aug. 26. Canada does about $30-billion in annual merchandise trade with the Germany, Europe’s biggest economy.Soeren Stache/The Associated Press
Look deeper, though, and you’d see the critical minerals agreement signed in Berlin mentions no specific projects or timeline, but does state it is “not legally binding and does not create any financial commitment.” You’d notice the scant attention German media paid to Mr. Carney’s visit. You’d notice Canada had no ambassador in Germany for the bulk of the past three years. You’d notice there is no Canadian chamber of commerce based in Germany.
This vision of a new Canada has not quite washed away the old, and can we really expect anything different?
Mr. Carney said, “We can control our destiny.” But there’s also the saying that geography is destiny. Some say Napoleon first uttered it, though you’re more likely to note it as the title of a book that says the dominant force in Britain’s history has simply been its blessed plot and its earth. So, too, it is for us. And geography we cannot control.
For want of the riches of the land, this country was settled. Through tension with its neighbour, this country was defined. And from selling its riches south, this country was subsumed. It is the land that shapes us, the land that feeds us, and now the land that binds us. There is no question about the worthiness of the cause. But let’s not hold any illusions about the difficulty of diversifying trade to Europe, not just the toil and the cost but also the time – it might well outlast the will we have now summoned for it.
Former foreign affairs minister Chrystia Freeland delivers a speech in the House of Commons in June, 2017, highlighting Canada’s commitment to its transatlantic alliance with the EU.Sean Kilpatrick/The Canadian Press
Back in U.S. President Donald Trump’s first term, Canada’s then-foreign-affairs-minister, Chrystia Freeland, in the spring of her career, said we must “set our own clear and sovereign course.” In a noted speech, she mentioned trade 12 times. “Rising trade barriers hurt,” Ms. Freeland said. “Our steadfast commitment to the transatlantic alliance – our bond is manifest in CETA, our historic trade agreement with the European Union.” This country would “intensify our efforts to diversify.”
Later in 2017, the Comprehensive Economic and Trade Agreement provisionally came into force. Since then, the value of Canadian goods and services exported to the EU and Britain, which retained a version of the pact when it left the union in 2020, has risen to almost $100-billion. That is an increase of more than 50 per cent.
Go to a bar in Berlin, one might pay with a terminal by Montreal’s Lightspeed Commerce Inc. Stream a podcast, and one might hear an ad with the entrepreneur “Theresa” saying chirpily that Shopify never gives any probleme and is super einfach. Go to the big industry meets – the Frankfurt Bookfair, Hannover Masse and VivaTech in France – and you’ll see Canada as the guest of honour, shining like a beacon.
But consider that Canada’s exports as a whole grew nearly 50 per cent since 2017. While trade with Europe grew faster than with other countries, it hasn’t moved the needle. The EU and Britain’s share of Canada’s total exports is now a little under 10 per cent, gaining less than one percentage point since Ms. Freeland charted her clear and sovereign course.
In 1972, amid the Nixon administration’s shock of – wait for it – tariffs, yet another Canadian foreign affairs minister had another ambitious idea. Mitchell Sharp pushed the “Third Option,” and Ottawa signed a framework trade agreement with the then-European Economic Community. We all know how that ended. The Canadian Encyclopedia labelled the Third Option “easier to applaud than to implement.”
Canada’s trade with the U.S. kept rising. Goods exports went from 70 per cent of the total to nearly 80 per cent by the mid-1980s. Then came the Canada-U.S. free-trade Agreement. John Turner, Liberal leader at the time, warned that it made Canada a “colony,” but he lost the 1988 election. And a curious thing happened. Not only did Canada continue trading heavily with the U.S., trade as a portion of the Canadian economy also rose – to a peak of more than 80 per cent in 2000, up from 50 per cent in 1989.
And deep in the embrace of Big Brother, we lost ourselves. Observers note Ottawa’s diminishing influence abroad, and the Foreign Ministry’s diminishing influence within Ottawa. Canada was repeatedly snubbed internationally, including being left out of AUKUS, the Australia-Britain-United States defence pact. Diplomatic missteps compounded, such as then-prime-minister Justin Trudeau’s 2018 visit to India. The Canadian Foreign Service Alumni Forum writes, “Much of Canada’s diplomatic presence is a Potemkin village.”
In some way, we can go back even farther, to the U.S. Smoot-Hawley tariffs of early 20th century, or to the 19th century, when Canada faced hostile trade action from the British Empire and the U.S. In South Park, Leopold Stotch asks, “How come every time I think of something clever, The Simpsons already did it?” This country has been in this position before. The solution was not always Europe, but the final destination was always south.
Canada’s Minister of Energy and Natural Resources Timothy Hodgson addresses the Canadian and German trade delegations at the Canadian embassy in Berlin, where he and German Economy and Energy Minister Katherina Reiche signed a Joint Declaration of Intent on critical minerals in August.
Ethan Lou/The Globe and Mail; Larissa RAUSCH/AFP
The morning after Mr. Carney left Germany, Natural Resources Minister Hodgson addressed Canadian and German trade delegations at the embassy in Berlin. He quoted the late West German chancellor Konrad Adenauer and tried his best to pronounce one of those German portmanteau combo-words (Energiewende).
Mr. Hodgson stressed he was “not speaking in the abstract,” and the Canadian delegation list reflects that seriousness. Companies that sent chief executive officers or other honchos include Ovintiv Inc., the natural gas producer that was once Canada’s largest; LNG Canada, the first export terminal for liquefied natural gas, and Woodfibre LNG and Ksi Lisims LNG, yet-to-come projects; Canada’s top three pipeline firms Enbridge Inc., TC Energy Corp. and Pembina Pipeline Corp.; and major miners Teck Resources Ltd. and Vale Base Metals.
“Unlike the previous Canadian government, which closed the door to LNG exports, Prime Minister Carney’s government has opened them,” Mr. Hodgson said. A Bloomberg hit went out when he was still talking, saying he “rebukes Trudeau.” Parse Mr. Hodgson’s words, though, and you’d see the hedging: “if the demand is here and the infrastructure is built.”
Later, Mr. Hodgson repeated that caveat. Yes, Ottawa has opened a Major Projects Office to “build things we never imagined, at a pace we never thought possible.” Even so, Mr. Hodgson told Politico: To ship LNG to Europe from the much-hyped Port of Churchill, “you’re probably talking about five to seven years.”
An internal file obtained by The Globe and Mail’s Bill Curry projects necessary upgrades at nearly $2-billion. The port lost money for most of its history. Experts are not sold.
This might be a good time to talk about a related commodity: oil, the embodiment of this country’s U.S. economic dependence. Almost all of Canada’s oil goes south, and more than a decade ago, Ottawa threw its weight behind efforts to change that. Some of the very companies represented at Mr. Hodgson’s trade delegation suffered heavy losses.
Opposition from environmental groups and some First Nations, and the political mood, resulted in challenges, legal or otherwise. Two pipelines never made it. Enbridge was out nearly $400-million. TC Energy wasted $1-billion and later spun off its entire oil business.
The U.S. company Kinder Morgan Inc. threatened to walked away from its Trans Mountain expansion project after spending $1-billion. A desperate Ottawa bought the pipeline. Last year first oil flowed, 12 years after the expansion was proposed, six years behind schedule and at a cost of $34-billion, an astronomical sum almost seven times the original estimate – the entire Telus Corp., for example, has a stock market value of $35-billion.
There’s a school of thought that it was still worth it. The Bank of Canada has estimated that, in the second quarter of 2024 alone, the pipeline added 0.25 per cent to Canada’s economy (roughly $7-billion). But in terms of diversifying from the U.S., how much difference did the expansion make? Ninety-two per cent of Canadian oil now goes to the U.S., down from 97 per cent.
To varying degrees, oil’s is the same problem that afflicts nearly every industry that matters. And we have not even begun to talk about the heavy grade of Canada’s oil sands crude, to which some American refineries cater. It doesn’t matter whether the chicken or egg came first. Whether it’s infrastructure, regulatory compliance, supply lines or product specifications, we’ve shaped our economy over decades to adapt to one dominant customer. The cost and risk to reorient that is enormous.
That was the problem with Ottawa’s Third Option in the 1970s, according to academics from Laval University. “There was very little follow-up on the part of the Canadian private sector,” Gordon Mace and Gérard Hervouet write. The private sector “did not feel, at that time, that there were enough incentives to balance the costs of expanding economic relations outside the North American markets.”
Every time there is a European trade fair, we hear of small and medium-sized Canadian firms finding success. But the plural of anecdote is not data. Last year, the top 1 per cent of Canada’s exporters produced nearly 80 per cent of the value of exports. And who is this 1 per cent? Look at the companies on the Toronto Stock Exchange, legacy industries that spent decades burrowing into the U.S.
Mr. Carney watches as Canadian wheat is unloaded from a train car during a tour of the Canadian Pacific Kansas City train yard in Mexico City earlier this month. Born out of the merger between Canadian Pacific and Kansas City Southern, in 2023 CPKC became the only rail network to seamlessly connect Canada, the U.S. and Mexico.
Adrian Wyld/The Canadian Press
Canada’s banks, in their saturated domestic market, see American expansion as crucial. The auto industry is so intertwined with the American one that it is the American one. Canadian Pacific Railway Co. has become Canadian Pacific Kansas City Ltd., buying an American rail network and linking the continent in a single route. It bet everything on America.
What can Canada’s steel industry, which sends south more than 90 per cent of its wares, do in Europe? “There just aren’t those opportunities right now,” Michael Garcia, CEO of Algoma Steel Group Inc., said on a recent earnings call. “I don’t think that there’ll be a lot of those opportunities going forward, to be frank.”
The softwood lumber industry, which sends 90 per cent of its wares south despite decades of trade friction, isn’t keen on Europe either, saying, “We’re never going to diversify our way out of the U.S.” Among other issues, Canadian wood is cut to imperial measurements; changing that is not easy.
Two companies represented at Mr. Hodgson’s trip, TC Energy and Ovintiv, once had the country in their names: TransCanada and Encana Corp. Then they dropped the name and pivoted south. TC Energy and its fellows might be keen on a Port of Churchill pipeline, but its CEO said this year: “We see the highest risk-adjusted returns being in the United States. The vast majority of our discretionary capital is going, and we expect that it will continue to go, into the United States.” Ovintiv has moved its headquarters to Denver.
For companies in the S&P/TSX Composite Index, mentions of Europe on conference calls are no more this year than last year. But look at the mentions of the Canada-United States-Mexico Agreement, or USMCA, as the Americans call it: Almost 60 instances until the end of August, up from the 10 for the entire 2024. Listen to Business Council of Canada head Goldy Hyder, the voice of big corporations: “The USMCA continues to be our most important trade and investment agreement. That’s why it must be Prime Minister Mark Carney’s top trade priority.”
In July, even amid this diversification talk, Canada’s U.S. exports increased for the second month in a row. While tourism to the U.S. has been falling, business travel is unchanged.
Mr. Carney, left, tours Thyssenkrupp Marine Systems, a submarine building facility in Kiel, Germany, with Industry Minister Mélanie Joly and Germany’s Federal Minister of Defence Boris Pistorius in August.Christinne Muschi/The Canadian Press
Ottawa has so far homed in on some of the right sectors where there is European demand. There’s natural resources. And there’s defence, for which Ottawa has signed a pact to let Canadian companies to supply the EU. But this country has 15 free-trade deals with more than 50 countries, representing nearly 70 per cent of the world economy, and it still sends most exports to one customer. Simply signing papers and playing matchmaker is not enough.
To make actual progress, Ottawa must provide additional support for businesses. This, it has done to a certain degree. Ottawa has pledged billions to subsidize Canadian-German hydrogen trade and to help tariff-affected companies reach new markets. Many items considered by the Major Projects Office, which may involve financial support, are geared toward diversifying exports.
But there is not necessarily wisdom in having the government pick winners. The hydrogen trade, for example, yet to see results and behind schedule, cannot even be called a winner. Such government support will always be costly.
And every dollar Ottawa spends on something is not just a dollar not spent on something else; in the current fiscal situation, it is also a dollar taken from somewhere else that must be repaid. Even the business lobby has been critical, saying, “The spending of today stays with us in the deficits of tomorrow.” The spending of today can also stay with us in the cuts of today. Mr. Carney is already warning of an austerity budget in November.
This is the quandary. In trying to diversify to Europe, we will be fighting geography. We will see hardship and difficulty, and for a long time, we will not see results. Do we have the imagination and perseverance to keep convincing ourselves that it remains righteous?
History tells us we do not. History tells us we always choose the ease and certainty of losing small over the difficulty and risk of trying to win big. Products that comply with CUSMA are exempt from Mr. Trump’s tariffs. Businesses feel no fire underneath to fuel boldness. Some face separate sectoral tariffs, but there’s still hope in the air that, like the Japanese and the Europeans, we will strike some unequal treaty that will not entirely kill margins, and companies will take that hit and thank Mr. Trump for it. And once we reach that new normal, the big bucks we spend now to diversify will not be so spent again.
Ottawa must take advantage of the current political mood. But it must also be judicious about the projects it backs and be mindful that Europe is one market in a big world, and that export diversification is itself one policy goal among many. At the same time, Ottawa must prepare for the waning of the current political mood and look toward lighter diversification efforts.
For smaller firms, Ottawa can build a system to distill the voluminous frameworks of trade agreements into hyperspecific product information. The U.S. has this, and it makes a difference, writes Carlo Dade, director of the University of Calgary’s School of Public Policy, in a research note. Ottawa can also help streamline the agencies offering export help. “A food processor in Alberta that owns neither a tractor nor a chainsaw would be surprised to discover that help is in the Alberta Ministry of Agriculture and Forestry,” Mr. Dade said.
Such lighter diversification efforts could be as simple as an attitude adjustment. German media have noted that honourees at the Hannover Masse usually send major leaders, but Canada sent only Stéphane Dion, EU envoy and ambassador to France and Monaco. There’s value in appearances, including offerings at a foreign ministry’s open house. Canada should also embrace tighter the continental bodies in which we already participate, such as the Council of Europe.
Ottawa can also work on policy measures that have trade diversification as an indirect outcome. Such initiatives, which have additional impetuses and interest groups behind them, can have broader appeal.
One example is to build up sectors not so dependent on geography: those of the future, such as artificial intelligence, quantum computing and cryptocurrency. Cohere, an Ottawa AI darling, is opening a Paris office. We need more such moves. Ottawa might also target sectors out of favour in the U.S., such as clean technology. Some of this perverts the free market. But we are trying to bend capital from its path of least resistance.
Ottawa can also overhaul the long-troubled foreign service, which has an important role in trade. Maybe it should be spared Mr. Carney’s across-the-board cuts. And soft power must not be neglected. South Korea subsidizes K-pop; Thailand, Thai restaurants abroad. Ottawa should study the most efficient Canadian equivalent.
Such efforts will not have nearly as much impact as a new pipeline or an upgraded port. But they can be easier to maintain over the long run. And that is what we must keep in mind: Europe is a difficult long game. If 20 years down the road, we turn that 10 per cent of exports to the continent to 15 or even 20 per cent, that would be as much success as we can ever hope for.
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