Canada stands to face the most important fallout of political turmoil in the US in 2026, a brand new report by the Eurasia Group warned on Friday.
The chance administration agency says the long-standing relationship between the 2 international locations “is historical past” and ongoing commerce uncertainty will have an effect on the Canadian financial system.
“(U.S. President Donald) Trump’s systematic effort to dismantle checks on his energy and weaponize the equipment of presidency in opposition to his political enemies will inevitably reshape not solely Canada-U.S. relations, however the Canadian financial system and Canadians’ engagement with the remainder of the world,” the report says.
“The problem for Ottawa — and Canadian corporations extra broadly — might be to play defence and offence on the similar time: managing an unpredictable and unreliable U.S. whereas carving out new roles in an more and more unstable G-Zero world.”
The report warns Canada’s efforts to diversify commerce and worldwide relationships will face “highly effective headwinds” this yr, and that it might want to handle its relations with the U.S. whereas constructing new ones with different international locations.
The connection between Canada and the U.S. soured in 2024 following President Donald Trump’s return to the White Home and his threats to by some means make Canada a U.S. state.
Trump has imposed a number of tariffs on Canada within the months since, together with devastating duties on the metal, aluminum, automotive and lumber sectors.
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Citing the current U.S. army operation in Venezuela to seize President Nicolas Maduro, the report says Trump’s want to dominate the Western Hemisphere will “preserve Canada on the defensive.” It says Carney’s authorities should defend Canadian sovereignty whereas acknowledging the diploma to which Canada is dependent upon the U.S.
Eurasia Group’s report says Canada was “comfy” with its deep ties to the U.S. for many years, however the relationship has modified and Washington’s actions may see Canadian corporations and traders “develop into collateral harm.”
Diana Fox Carney, spouse of Prime Minister Mark Carney, is affiliated with the Eurasia Group and Synthetic Intelligence Minister Evan Solomon used to work with the group earlier than getting into politics. Gerald Butts, the vice-chairman of Eurasia Group, has been an unofficial adviser to Carney.
The report says Trump’s actions within the U.S. may result in home political revolution, which might put overseas commerce and defence ties with Canada into query.
It warns of a “Zombie USMCA” commerce deal between the U.S., Mexico and Canada that’s up for assessment this yr. The report predicts that deal gained’t be formally renegotiated, prolonged or terminated, and can as an alternative be a “zombie, neither totally lifeless nor alive.”
Carney campaigned on reaching a brand new commerce take care of the U.S. however has since mentioned he gained’t signal one until it’s good for Canadians.
Washington ceased commerce talks with Canada after the federal government of Ontario Premier Doug Ford launched an anti-tariff advert within the U.S. quoting former president Ronald Reagan criticizing tariffs.
“The excellent news is that tariff exemptions for CUSMA-compliant items will preserve free commerce on life help, leaving Canada (and Mexico) with decrease common efficient U.S. tariff charges than a lot of the world,” the report says.
“The unhealthy information is that Trump will use sectoral tariffs on items corresponding to autos, metal and aluminum — sectors he’s bent on reshoring to the U.S. — as leverage in limitless negotiations, the place Washington will search to divide and conquer Ottawa and Mexico Metropolis.”
As Canada seeks to diversify its buying and selling relationships, Eurasia Group is warning that European international locations are divided and coping with a altering political setting. It says the U.Ok., France and Germany “face paralysis at finest and destabilization at worst.”
It additionally warns of Russian “hybrid assaults” on Canadian Forces to punish Canada for its staunch help for Ukraine.
“Whereas Europe’s rearmament will create alternatives for Canada and Canadian corporations to deepen strategic and industrial ties with the continent, stress on NATO states to reply to (Russian President Vladimir) Putin’s provocations danger pulling Canada right into a NATO-Russia disaster this yr,” it says.
The report additionally says China’s weakened financial system is producing low cost merchandise that, if accessed by Canada, may destroy the automotive sector and danger additional rifts with the U.S.
Carney will meet with President Xi Jinping in Beijing subsequent week as he makes the primary official journey to China by a Canadian prime minister in additional than eight years.
© 2026 The Canadian Press
