Canada: EU protectionist shift challenges diversification – NBC

National Bank of Canada’s (NBC) Angelo Katsoras argues that Canada’s push to diversify exports away from the United States (US) toward the European Union (EU) faces growing obstacles as EU industrial policy turns more protectionist. He highlights that EU procurement rules, subsidies, tariffs and local content requirements increasingly favour European manufacturing, forcing Canadian firms to consider local production in Europe despite CETA’s tariff benefits.

EU rules complicate Canada’s exports

"The fact that the EU is increasingly using procurement rules, subsidies, tariffs and local content requirements to encourage more manufacturing within Europe could pose a significant challenge for Canadian exporters. Even with the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) in place, Canadian firms seeking contracts, especially in the public sector, may need to establish manufacturing facilities within the EU rather than simply exporting from Canada."

"The difficulty in increasing exports to the EU is illustrated by the fact that, even though CETA came into effect in 2017, the proportion of Canadian exports going to the EU has since risen only by about one percentage point, from approximately 4.4% to 5.5%. Further, much of the increase in 2025 was driven by commodity exports—particularly crude oil, aluminum, and agricultural products—rather than by an expansion of exports from the manufacturing sector."

"Canada must strike a careful balance between pursuing an aggressive 'Buy Canadian' strategy at home and seeking to expand exports and create new opportunities for Canadian firms abroad without alienating key trading partners."

"It is important, also, to recognize that local content policies tend to be most effective in countries and trading blocs with large domestic markets, such as China, the United States and the European Union. Canada's relatively small domestic market means it has less leverage."

"For Canada, diversifying trade beyond the United States to regions such as the EU will likely be more challenging than many people anticipate. Success will depend less on securing new trade agreements and more on adapting to a world where market access increasingly depends on local production, supply-chain resilience and economic security."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)