Canada’s effort to reduce its economic dependence on the United States is finding a sympathetic audience thousands of kilometres away. Australia, another resource-rich U.S. ally suddenly confronting the limits of old trade assumptions, has signalled that it is watching Ottawa’s push toward Europe with unusual interest.
Australian Trade Minister Don Farrell says the two countries are “on the same page” as Canada pursues a deeper relationship with the European Union. The comment does not amount to a formal Canada-Australia alliance against Washington, nor are either country’s security ties with the United States disappearing. What it does reveal is a broader shift among middle powers. As Donald Trump’s tariff policies make access to the American market less predictable, governments that once treated U.S. economic integration as an anchor are increasingly building backup routes through Europe, the Indo-Pacific and one another.
Australia Says It Is on the Same Page
The clearest signal came from Farrell as Canada prepared another major diplomatic push into Europe. He said Australia was “on the same page” with Canada and would take a close interest in what Prime Minister Mark Carney does next. Farrell also framed the changing environment in broader terms, saying the world was increasingly dividing between protectionists and free traders. That language matters because Australia is not a distant observer of the current tariff upheaval. It has spent decades treating its free-trade agreement and military alliance with the United States as pillars of economic and strategic stability.
Canada’s European initiative therefore offers Canberra something of a test case. Carney has said Canada is seeking a “unique alliance” with the EU rather than membership in the bloc. Discussions have centred on expanding economic, security and strategic cooperation in sectors including energy, defence, artificial intelligence and critical minerals. Australia has not announced that it will copy Canada’s model. Farrell’s reaction nevertheless suggests Ottawa’s strategy is being studied by another U.S. ally facing many of the same questions about economic vulnerability.
Canada’s Dependence on the U.S. Is Already Starting to Shift
Canada remains deeply tied to the American economy, but recent trade figures show that the concentration is beginning to ease. The United States accounted for 66.35% of Canadian exports in July 2026, compared with 69.39% one month earlier and 72.64% in July 2025. Year to date, roughly 68% of Canadian exports had gone to the United States, down from about 73% over the comparable period a year earlier. Those are still enormous numbers, but the direction is important for a government explicitly trying to spread risk.
July also demonstrated why diversification has become more than a political slogan. Canadian exports to the United States fell 6.6% during the month, while exports to markets outside the U.S. rose 7.4%. Ottawa’s challenge is that decades of integrated supply chains cannot simply be redirected across an ocean. Energy infrastructure, automotive plants, rail corridors and trucking networks were largely built around continental trade. Diversification therefore means gradually increasing the share of business done elsewhere while maintaining access to the market that remains Canada’s largest by a wide margin.
Trump’s Tariffs Gave Australia Its Own Warning
Australia received a similar reminder that traditional alliances do not necessarily guarantee commercial protection. U.S. authorities imposed a 12.5% tariff on many Australian imports beginning July 24, 2026, as part of a broader Section 301 action affecting dozens of economies. Canberra called the measure unjustified. Prime Minister Anthony Albanese subsequently pressed Trump to grant Australia a complete exemption, or at minimum prevent the tariff burden from increasing further.
The dispute is striking because Australia and the United States have operated under a free-trade agreement for more than two decades and maintain one of Washington’s closest security relationships. Albanese has pointed out that the United States accumulated a US$442-billion trade surplus with Australia over the previous 20 years. In other words, the tariff pressure cannot easily be explained as a conventional response to a large American trade deficit with Australia. For policymakers in Canberra, the lesson resembles the one confronting Ottawa: preferential access based on history, security cooperation or previous agreements may no longer provide the same degree of certainty when U.S. trade policy can change rapidly.
Canada and Australia Were Already Moving Closer
The September comments did not emerge from nowhere. Canada and Australia had already accelerated their bilateral relationship months earlier. Carney travelled to Sydney and Canberra in March 2026, the first bilateral visit by a Canadian prime minister to Australia in nearly two decades. Carney and Albanese used the meetings to announce deeper cooperation involving investment, economic security, defence, critical minerals, energy and artificial intelligence.
The similarities between the two economies make that cooperation unusually practical. Both are large federal democracies with relatively small populations spread across enormous territories. Both possess major mining, energy and agricultural industries, and both rely heavily on international markets to turn those resources into prosperity. Their commercial relationship is already meaningful: Australian government figures put two-way goods and services trade above A$13 billion in 2025. Investment runs much deeper. Australian investment stock in Canada reached about A$145 billion at the end of 2025, while Canadian investment in Australia stood at roughly A$107 billion. Diversification therefore has an existing financial base on which to build.
Critical Minerals Could Become the Economic Backbone
Few areas illustrate the Canada-Australia opportunity better than critical minerals. The countries are major producers of resources needed for batteries, advanced manufacturing, defence systems, electricity networks and digital infrastructure. Their governments signed a critical-minerals cooperation declaration designed to strengthen supply chains while reducing reliance on any single source. That work includes potential cooperation on financing, refining, recycling, technology deployment and strategic stockpiles.
The ambitions became more concrete when Australia joined the Critical Minerals Production Alliance championed by Canada. Ottawa and Canberra have also discussed linking Canadian financing tools with Australia’s Critical Minerals Strategic Reserve, including possible co-investment and reciprocal access arrangements. That matters because mining alone is not enough to create strategic independence. Minerals must also be processed, refined, financed and connected with reliable buyers. Canada and Australia have historically shipped large volumes of raw materials into supply chains controlled elsewhere. Their emerging approach is aimed at capturing more of the value between the mine and the finished product while giving allied economies alternatives to highly concentrated global processing networks.
Defence and AI Are Turning Trade Ties Into Something Bigger
Economic diversification is increasingly overlapping with national security. Canada describes Australia as its largest defence partner in the Indo-Pacific, and the countries have been working on closer procurement, military exercises, intelligence cooperation and defence-industrial integration. Their March package included discussions about reducing barriers to defence trade, sharing intellectual property more effectively and potentially co-producing military capabilities. Canadian personnel were also scheduled to begin training in Australia during 2026 in connection with Arctic Over-the-Horizon Radar technology.
Artificial intelligence has become another bridge. Carney and Albanese welcomed an agreement linking the countries’ AI safety institutions so that expertise and information can be shared. The significance goes beyond research cooperation. Governments increasingly view computing capacity, cybersecurity, quantum technology and AI infrastructure as strategic assets in much the same way previous generations viewed energy and transportation networks. By cooperating across defence, technology and minerals simultaneously, Canada and Australia are creating relationships that are harder to disrupt than simple import-export arrangements. That is precisely the kind of resilience policymakers are seeking as geopolitical and commercial risks become more intertwined.
Europe Offers Both Countries a Larger Alternative Market
Europe is becoming one of the most obvious destinations for that diversification. Canada already has a substantial platform through the Comprehensive Economic and Trade Agreement, which has been provisionally applied since 2017. Canadian government figures show bilateral merchandise trade with the EU increased by more than 77% between 2016 and 2025. Canada has since moved further into European security structures, including an agreement allowing Canadian participation in the EU’s €150-billion SAFE defence procurement initiative.
Australia is moving in the same broad direction, although from a different starting point. Canberra and Brussels concluded negotiations on an Australia-EU free-trade agreement on March 24, 2026, after negotiations that began in 2018. Importantly, the agreement has not yet entered into force; legal, signature and parliamentary processes remain. Still, the opportunity is substantial. Australia calculates that the EU represented a market of roughly 450 million people with nominal GDP of US$21.1 trillion in 2025. Europe therefore gives both Canada and Australia a wealthy partner capable of absorbing energy, minerals, agricultural goods, technology and investment without requiring either country to depend exclusively on American demand.
The CPTPP Gives Canada and Australia Another Ready-Made Network
Canada and Australia do not have to build every alternative trading relationship from scratch. Both are members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which has developed into one of the most important trade frameworks connecting economies across the Pacific. With the United Kingdom’s accession taking effect for Canada in September 2026, the partnership covers more than 598 million people and represents approximately 14.4% of global GDP.
That framework matters because diversification works more effectively when companies can operate under predictable rules across several markets. A Canadian producer trying to reduce U.S. exposure does not necessarily need one giant replacement buyer. It can increase sales incrementally across Japan, Australia, Britain, Vietnam and other markets while using common trade rules to simplify supply chains. Australian businesses can pursue the same strategy. Carney has gone even further, promoting the concept of building bridges between the Trans-Pacific partnership and Europe. Such a network would not replace the American market, but it could dramatically increase the number of economically viable alternatives available when U.S. tariff policy changes.
Middle Powers Are Trying to Build Strength Without Choosing Isolation
Canada and Australia are not pursuing economic self-sufficiency. Their strategy is closer to building redundancy: more customers, more suppliers and more agreements so that a dispute with one major power does not paralyse an entire sector. That approach fits Carney’s repeated argument that sovereignty does not require isolation. It requires enough domestic capacity and enough reliable partnerships that a country retains meaningful choices when pressure arrives.
The broader global backdrop helps explain the urgency. The World Trade Organization warned in its 2026 World Trade Report that the multilateral trading system is facing its most sustained disruption in decades. WTO modelling estimated that a geopolitically fragmented world could reduce global GDP by 5.1% and exports by 18.6%. In an even more fractured scenario where multilateral cooperation gave way to a patchwork of agreements, the estimated losses become larger. For countries such as Canada and Australia, which built much of their prosperity around predictable international commerce, preserving rules-based trade while creating additional bilateral and regional safeguards has become an economic-security strategy rather than merely a trade-policy preference.
Washington Will Remain Essential — But No Longer the Only Plan
None of this means Canada or Australia is preparing to sever its relationship with the United States. Canada remains extraordinarily integrated with its southern neighbour through energy networks, manufacturing supply chains, defence cooperation and geography. Australia remains a major American security ally and continues to invest heavily in the United States. Even after its recent diversification efforts, the U.S. market remains too large, wealthy and strategically important for either country to treat it as expendable.
What is changing is the willingness to rely on that relationship almost exclusively. Trump’s tariffs have exposed how quickly long-standing assumptions can be overturned, even for countries with free-trade agreements and decades of military cooperation with Washington. Australia’s decision to publicly align itself with Canada’s search for deeper European ties captures that change. Ottawa and Canberra are not replacing one superpower with another. They are constructing overlapping relationships across Europe, the Indo-Pacific, defence, technology and critical minerals. The objective is optionality — enough partners, markets and infrastructure that the next tariff shock becomes a problem to manage rather than a national economic emergency.
