Global Trade at a Crossroads: The PAA Trade Team’s 2025 Year in Review and the Outlook for 2026

As the PAA International Trade Team concludes 2025 and nears its 150th PAA Trade Report, it has prepared a review of key trade developments from the past year, along with insights into what can be expected in the global trade landscape in 2026.

Interested in reading more? Contact tradereport@paainc.ca or a member of the PAA International Trade Team.

It is challenging to understand the year’s trade dynamics without acknowledging the ongoing deterioration of the multilateral trading system. The World Trade Organization (WTO), once the backbone of global trade governance, entered 2025 in a state of near paralysis. With the Appellate Body non-functional since 2019 and no prospect of U.S. support for restoring it, the organization has been unable to perform its core function: enforcing binding dispute settlement. For a mid-sized, trade-dependent economy like Canada, the absence of a predictable rules-based system has materially raised commercial risk and accelerated the need for alternative pathways.

This dysfunction has only widened under President Trump’s second term. Within days of the inauguration, the administration reiterated its rejection of constraints on U.S. trade actions, signalling a shift toward unilateral tariffs, industry-specific “mini deals,” and the expanded use of national security exceptions. Analysts noted an accelerating fracture of the global system into U.S.- and China-aligned blocs, with middle powers, including Canada, forced to hedge.

For Canada, the challenges presented by the institutional decline coincided with resurgent bilateral tensions. This challenging environment shaped every major trade decision Canada has made throughout 2025. The diversification push initiated by the Carney Government was not discretionary, rather it was structural and strategic.

Key Events in 2025

• January 20 – Trump’s inauguration sets tone for unilateralism: The new administration’s “America First Trade Policy” memorandum directed agencies to prepare tariff action plans by April 1.
• February – The first tariff shock: In early February, just weeks after President Trump was inaugurated, the U.S. imposed sweeping tariffs on Canadian goods. Ottawa responded immediately with phase-one retaliation. Although implementation was temporarily paused, the message was clear: the United States was prepared to escalate beyond traditional irritants and into broad-based duties.
• March: Despite the brief reprieve of the previous month, the United States followed through on its promise to impose tariffs and on March 4, U.S. tariffs came into effect, followed by Canada’s countermeasures. Additional U.S. steel and aluminum tariffs took effect March 12, prompting further Canadian retaliation on March 13.
• April: Several new U.S. tariff actions were implemented – this includes a 10% baseline “reciprocal tariff” on all imports, a 25% tariff on autos and auto parts, and new tariff stacking rules. As a result, Canada expanded support measures for impacted firms, including tariff remissions and new liquidity facilities. Later in the month, the Liberal Party, under new leader Mark Carney, prevailed in the federal election on April 28.
• May – Carney’s early diplomatic moves: Carney’s first months in office were dominated by immediate crises, but they also established a pattern: steady engagement with Europe and cautious engagement with Washington.
• June – Marked a pivot toward a longer-term trade and economic diversification strategy: At the G7 Kananaskis Summit, PM Carney positioned Canada at the center of a collective push for: supply-chain resilience, economic security, de-risking from China, and coordinated transatlantic industrial policy. Meanwhile, tariff escalation continued: on June 4, U.S. steel and aluminum tariffs doubled to 50%.
• September – Europe and Asia: Canada tabled implementing legislation for the UK’s accession to the Comprehensive and Progressive Agreement and Trans-Pacific Partnership (CPTPP) in September.
• October: On October 23, Trump suspended sector-specific negotiations with Canada following Ontario’s anti-tariff ads. A few days later, Mark Carney undertook his first Indo-Pacific trip, which marked the start of a more assertive Indo-Pacific agenda under Carney.
• November: In November, Prime Minister Carney visited the Middle East and Africa, UAE to deepen clean-tech, critical minerals, and investment ties, and South Africa for the G20 summit. In late November, Canada launched its Steel & Lumber Defence Measures.
• December – FIFA: In early December, Prime Minister Carney was in Washington for trilateral meetings regarding hosting of the FIFA tournament. While publicly framed around FIFA, coming out of a closed-door meeting, the three leaders agreed to “keep working together on trade deal.”

Canada’s Diversification Efforts

In light of increasing trade tensions with the United States, the Government of Canada spent the past year aggressively diversifying its trade and geopolitical relationships away from its North American neighbour. As part of this strategy, Prime Minister Carney travelled all over the globe to enhance strategic partnerships with allies. Out of this extensive travel schedule came several wins for Canada and its partners, such as a path forward for the UK’s CPTPP accession – but many things remain to be achieved.

Looking Ahead to 2026: CUSMA, Fragmentation, and the Search for Durable Wins

As Canada approaches 2026, the trade policy landscape remains defined by managed uncertainty rather than by clarity. The single most consequential milestone will be the mandatory joint review of the Canada-United States-Mexico Agreement in July 2026, marking the agreement’s sixth anniversary. While the review does not automatically trigger renegotiation, it opens the door to political pressure, targeted revisions, and, at its outer edge, the possibility of withdrawal if one party chooses to issue notice ahead of 2036.

Preliminary discussions are already underway, and Canadian industries are already bracing for potential U.S. demands related to rules of origin, labour provisions, digital trade, and sector-specific market access. Even in the absence of a formal renegotiation, the review process itself creates uncertainty, particularly in a U.S. policy environment that has shown a growing preference for leverage-based, transactional trade arrangements over comprehensive, rules-bound frameworks.

A further source of uncertainty will be the political dynamics created by the U.S. mid-term elections. Given the reversals and adjustments we have witnessed since the second Trump Administration began, it is entirely possible that public sentiment in the U.S. will provoke changes to the Trump Administration’s aggressive tariff policy in 2026. Clearly, for Canada, the challenge in 2026 will be less about preserving the letter of CUSMA than managing the political dynamics surrounding it.

Beyond CUSMA, 2026 will test the durability of Canada’s diversification strategy. The Carney government has signalled that trade diversification will remain a priority, with continued efforts to conclude or advance agreements with Mercosur, Indonesia, the Philippines, and ASEAN partners, alongside deepening sector-specific cooperation with Europe, the Indo-Pacific, and select emerging markets. The expectation is not a return to an era of mega-deals alone, but a mixed strategy combining comprehensive agreements where feasible with narrower, industry-focused arrangements where speed and political feasibility are more important.

The G20 Summit in Miami, to be hosted by the United States in December 2026, will offer further indications of how Washington intends to frame global economic leadership over the coming year. Trade is likely to be treated primarily as an instrument of economic security and domestic industrial strategy rather than as a pillar of multilateral governance. For middle powers like Canada, this reinforces the need to hedge, maintaining engagement with U.S.-led frameworks while building parallel relationships that reduce exposure to sudden policy shifts.

China is expected to re-enter the trade conversation early in 2026, albeit cautiously. Any movement on CPTPP accession discussions, whether involving China, Taiwan, or other applicants, will carry strategic weight, particularly as Canada balances economic opportunity against security considerations. Ottawa is likely to continue compartmentalizing trade and security, maintaining channels of communication without signalling a broader reset.

At the multilateral level, there is little indication that the WTO will regain its dispute settlement function in the near term. U.S. resistance to appointing Appellate Body judges remains entrenched, raising questions about whether alternative pathways, such as plurilateral arrangements, sectoral compacts, or informal enforcement coalitions, will increasingly substitute for formal multilateral adjudication. The result may be a more fragmented but flexible trading system, one that rewards agility over institutional loyalty.

This raises the central question for 2026: where are the potential big wins? Canada may secure incremental gains through FTAs with smaller blocs, expanded sectoral agreements, and deeper alignment with like-minded partners. But in a world of weakened multilateral institutions and heightened U.S. unilateralism, the more meaningful achievement may be stability rather than expansion. The challenge will be translating diversification activity into predictable market access, policy certainty, and reduced exposure to sudden trade shocks, even if those outcomes fall short of transformative growth. As CUSMA enters its most politically sensitive phase yet, Canada’s trade strategy will be tested not just by what agreements it signs, but by whether it can preserve a degree of certainty in an increasingly fragmented and volatile global trading system.