Canada Looks to India as Trade War with the US Escalates

The trade relationship between Canada and the United States, once one of the most stable economic partnerships in the world, has spiraled into open conflict this year. After negotiations between Ottawa and Washington collapsed in late August, Canadian Prime Minister Mark Carney did not hold back on how he characterized the moment, telling reporters that Carney likened the U.S. actions against Canada to a conflict, saying “You’re at war when you get attacked. We got attacked.”

The immediate trigger was Washington’s decision to impose steep new duties on Canadian exports. Washington imposed a 50 percent levy on $20bn worth of Canadian goods, with the new Canadian tariffs targeting US steel, dairy and electronics industries among others, taking effect September 8. Carney was blunt about the response, vowing that “Canada will match Washington’s new tariffs dollar for dollar in order to protect Canadian workers, farmers, families, and businesses.” The breakdown came after what officials described as a last-minute complication in the talks, with Canada saying it had spent months negotiating in good faith, but the concessions being asked of it weren’t fair, and trade talks were suspended after Canada accused the US of tacking on last-minute demands, including provisions that would have affected Quebec’s French language protections.

The retaliation has already reached into ordinary households. Canada’s counter-tariffs, covering hundreds of American products, have made items like paper goods a flashpoint. Toilet paper is set to be hit by a huge 25 percent tariff, and up to 50 percent on some facial tissue materials. That matters because of how deeply intertwined the two countries’ supply chains are: the US imported $328 million worth of toilet paper from Canada in 2024, making Canada the largest exporter of the product to the US. Beyond bathroom staples, the dispute is also touching back-to-school shopping, appliances, farm equipment, and spirits, with several provinces having already pulled American liquor from store shelves in earlier rounds of the fight.

Against this backdrop, Ottawa has been leaning harder into a strategy it calls diversification — reducing reliance on the US market by courting other trading partners, and India has emerged as a central piece of that plan. Speaking about the strengthening ties, Canada’s finance minister framed the push plainly: “We’re going to be strong at home and diversified abroad. So this is very much our diversification agenda in action.” He added that the two economies are “uniquely complementary.”

This isn’t a one-off gesture. Canadian officials have repeatedly stressed that outreach to India predates the current crisis but has taken on new urgency. As one senior minister put it when asked whether the US trade war was accelerating the pivot, Champagne said it was always Ottawa’s “plan A” to diversify Canadian trade. On the Indian side, officials have echoed the enthusiasm, with the two governments pointing to renewed high-level dialogue as evidence of “this broad ambition to move beyond traditional trade and goods and services and build a deeper economic partnership, encompassing investment, finance, capital markets, and regulatory co-operation.”

The numbers underline the ambition. Sitharaman’s visit comes as Canada finds itself in an escalating trade war with the US, its largest economic partner with over $1 trillion in annual trade, while bilateral goods and services trade between India and Canada currently stands at around C$30 billion annually, with the two countries aiming to more than double that to C$70 billion by 2030. Talks have also moved toward a long-discussed Comprehensive Economic Partnership Agreement, alongside cooperation on critical minerals, energy, and digital finance.

None of this means Canada’s troubles with Washington are resolved — retaliatory tariffs are set to bite on both sides of the border starting in September, and consumers in both countries are bracing for higher prices. But the courtship of India, along with parallel outreach to Japan, Australia, and other Indo-Pacific partners, signals a broader strategic shift: Canada is trying to ensure that its economic fortunes are no longer hostage to the mood in Washington.