Canada stands to face the largest fallout of political turmoil in the USA 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 nations “is historical past” and ongoing commerce uncertainty will have an effect on the Canadian economic system.
“(U.S. President Donald) Trump’s systematic effort to dismantle checks on his energy and weaponize the equipment of presidency towards his political enemies will inevitably reshape not solely Canada-U.S. relations, however the Canadian economic system and Canadians’ engagement with the remainder of the world,” the report says.
“The problem for Ottawa — and Canadian companies extra broadly — will likely be to play defence and offence on the identical 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 nations.
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 in some way 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 latest U.S. navy operation in Venezuela to seize President Nicolas Maduro, the report says Trump’s need to dominate the Western Hemisphere will “preserve Canada on the defensive.” It says Carney’s authorities must defend Canadian sovereignty whereas acknowledging the diploma to which Canada relies on the U.S.
Eurasia Group’s report says Canada was “snug” with its deep ties to the U.S. for many years, however the relationship has modified and Washington’s actions might see Canadian firms and traders “grow to be 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. might 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 evaluate this yr. The report predicts that deal gained’t be formally renegotiated, prolonged or terminated, and can as an alternative be a “zombie, neither absolutely useless nor alive.”
Carney campaigned on reaching a brand new commerce take care of the U.S. however has since stated 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 nations 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 companies to deepen strategic and industrial ties with the continent, stress on NATO states to answer (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 economic system is producing low cost merchandise that, if accessed by Canada, might break 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
