Introduction
The re-election of Donald Trump as America’s president has accelerated the unravelling of the global trading order, with significant implications for the Canadian economy and international relations. American unilateralism and gunboat diplomacy, including the use of punitive tariffs to drain investment and compel policy reform from U.S. trading partners, pose existential threats to Canadian industries dependent on stable access to U.S. markets.
Prior to and since the federal election in May, Prime Minister Mark Carney has described this state of affairs as a “hinge moment” for Canada. In his words, the old relationship with the U.S., marked by ever closer security and military integration in exchange for secure trading relations—“is over.” In its place, Carney proposed that Canada should be making more of what it currently imports, decreasing export dependence on the U.S., and broadening interprovincial and non-U.S. economic ties.
However, echoing the “old relationship” with the U.S., the federal government has significantly increased defence spending, cancelled a digital services tax unpopular with U.S. tech firms, proposed to join an unrealistic U.S. missile defence scheme, cracked down on migrants, enhanced police powers to access personal online data, and granted the U.S. preferential access to fast-tracked Canadian critical minerals projects in an effort to eliminate U.S. tariffs on steel, aluminum and automotive products.
Overview
This year’s Alternative Federal Budget takes the Trump threat seriously by hinging away from the failures of free trade and deep integration with the United States. It walks away from an international order that serves the interests of powerful corporations and their financiers and invests in a new international economic order that prioritizes people over profits and cooperation over competition.
“Inclusive trade” reforms pursued by the Trudeau government related to gender, Indigenous Peoples, small- and medium-sized companies, and labour aimed to preserve rather than challenge the inequitable and anti-democratic free trade model. Yet we may miss inclusive trade when it’s gone.
The second Trump administration, with its embrace of trade unilateralism abroad and authoritarian repression at home, fundamentally threatens lives and livelihoods within and well beyond the continental United States. Unchecked, it could prove devastating for the Canadian economy.
Efforts by the federal government and provinces to further deregulate interprovincial trade and investment—by removing public policy exceptions in the Canadian Free Trade Agreement and committing to mutual recognition of provincial standards—could just as likely reinforce as counterbalance Canadian dependence on the U.S. market. Canada will also be expected to make further concessions to U.S. corporate interests during the upcoming review of the Canada-U.S.-Mexico Agreement (CUSMA).
Interprovincial trade and the Building Canada Act
For the past two years, the federal government has worked with the premiers to radically deregulate services and investment rules in Canada under the guise of enhancing internal trade. Policy-makers have used the Trump threat—and trumped up estimates of the alleged cost of interprovincial regulatory differences—as an excuse to remove important public policy exceptions in the Canadian Free Trade Agreement that will leave the provinces and Canada open to trade disputes challenging important economic development levers such as local processing requirements for fish, forestry products and minerals.1Marc Lee, “Those big GDP numbers about interprovincial trade barriers are wrong,” Canadian Centre for Policy Alternatives, February 21, 2025, https://www.policyalternatives.ca/news-research/those-big-gdp-numbers-about-interprovincial-trade-barriers-are-wrong/.
The premiers and federal government have also passed legislation this year, such as the controversial Bill C-5, that requires regulators to mutually recognize each other’s standards, protections and labour certifications as comparable to their own.2Stuart Trew and Marc Lee, “Federal ‘one Canadian economy’ legislation is a power grab,” Canadian Centre for Policy Alternatives, June 11, 2025, https://www.policyalternatives.ca/news-research/federal-one-canadian-economy-legislation-is-a-power-grab/. While advocates of mutual recognition claim it is a fast way to neutralize the effect of minor differences in standards and regulations on trade and economic growth, without appropriate guardrails these laws can only lead to a race to the bottom on public protections.
Federal “one Canadian economy” legislation, which purports to help the government undertake nation-building projects and tear down internal barriers to trade, was rushed through Parliament with little debate or discussion in the third week of June. The bill echoed recent legislation in Ontario3Nathaniel Denaro, “Let’s call Bill 5 what it is—a power grab,” Canadian Centre for Policy Alternatives, June 5, 2025, https://www.policyalternatives.ca/news-research/lets-call-bill-5-what-it-is-a-power-grab/ and British Columbia4Chuck Chiang, “Necessary tool or ‘power grab?’ B.C. NDP seeks to give itself new powers to fight U.S. threats,” CBC News, March 20, 2025, https://www.cbc.ca/news/canada/british-columbia/bill-7-tariffs-greens-conservatives-ndp-1.7489262. that similarly concentrates power within the executive level of government to advance major projects by bypassing the regular processes for environmental assessment and other consultations.
Canada-Israel trade relations
Israel’s ground and air assault on the Occupied Palestinian Territories (OPT) of Gaza and the West Bank is nearing the two-year mark. The world reacted with horror to the Hamas-led attack on Israel of October 7, 2023. But the ferocity of the Israeli military response, increasing evidence of the government’s genocidal actions and intentions, and Israel’s blocking of humanitarian aid shipments to Gaza have triggered calls to stop the conflict and investigate war crimes on both sides.
Israeli military operations to September 12, 2025 had killed at least 65,000 people, more than half of them children, and killed or injured as many as 200,000, according to a former Israeli army commander.5Julian Borger, “‘We took the gloves off’: ex-IDF chief confirms Gaza casualties over 200,000,” The Guardian U.K., September 12, 2025: https://www.theguardian.com/world/2025/sep/12/israeli-ex-commander-confirms-palestinian-casualties-are-more-than-200000. That month, a UN commission found that Israeli airstrikes, shelling, burning, and controlled demolitions have destroyed more than 90 per cent of schools and university buildings across Gaza. “We are seeing more and more indications that Israel is carrying out a concerted campaign to obliterate Palestinian life in Gaza,” said Navi Pillay, Chair of the Commission.6Office of the United Nations High Commissioner for Human Rights, “Israeli attacks on educational, religious and cultural sites in the Occupied Palestinian Territory amount to war crimes and the crime against humanity of extermination, UN Commission says,” press release, Geneva, June 11, 2025, https://www.ohchr.org/en/press-releases/2025/06/israeli-attacks-educational-religious-and-cultural-sites-occupied
In May 2025, the European Union voted to review its free trade agreement with Israel based on concerns that the Israeli government was violating human rights in the Occupied Palestinian Territories of Gaza and the West Bank.7Nicholas Vinocur, “EU to launch Israel trade review as Gaza crisis worsens,” Politico Europe, May 20, 2025, https://www.politico.eu/article/eu-israel-diplomatic-agreement-review-humanitarian-crisis-gaza-strip/. The United Kingdom simultaneously suspended trade negotiations with Israel and imposed additional sanctions on settler outposts in the West Bank.8Al-jazeera, “UK government suspends free trade talks with Israel over Gaza war,” Al-jazeera, May 20, 2025, https://www.aljazeera.com/news/2025/5/20/uk-government-suspends-free-trade-talks-with-israel-over-gaza-war. In October, Colombia paused its free trade deal with Israel and expelled Israeli diplomats following the detention of activists carrying aid to Gaza via flotilla.
While Gazans have welcomed an early October ceasefire deal between Hamas and Israel, illegal Israeli settler land grabs in the West Bank continue. Canada’s free trade deal with Israel violates international law by categorizing trade from the OPT as originating in Israel, which “erases the Palestinian identity of OPT trade, and provides a material incentive and economic reward to Israel’s ongoing settlement activity.”9Michael Bueckert, “Annexing Palestine Through Trade: The Canada–Israel Free Trade Agreement and the Occupied Palestinian Territories,” Canadians for Justice and Peace in the Middle East, September 2023, https://www.cjpme.org/annexing_palestine_through_trade. Canada continues to approve the sale of weapons and military goods to Israel despite an announced pause in 2024.10Alex Cosh, “Canada Sold $18.9 Million Of Military Goods To Israel, Despite ‘Pause’,” The Maple, June 7, 2025, https://www.readthemaple.com/canada-sold-18-9-million-of-military-goods-to-israel-despite-pause/.
Investor-state dispute settlement
Investor-state dispute settlement (ISDS) continues to come under intense scrutiny globally. ISDS lets foreign investors bypass domestic courts to sue countries, sometimes for billions or even tens of billions of dollars, when the decision of a government, court, or other public body negatively affects their expected profits.
In December 2024, two Australian coal investors brought an ISDS case against Canada under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) related to Alberta’s planned coal mining phaseout. The Alberta government reversed course in June 2025, announcing it was recommitting to new coal mines because of the high cost of these and other, domestic lawsuits from coal companies.11Matthew Scace, “Premier Danielle Smith faces raucous, angry town hall on Alberta’s coal policy,” Global News, June 12, 2025, https://globalnews.ca/news/11237622/alberta-coal-town-hall-smith-jean/.
The Intergovernmental Panel on Climate Change says the prevalence of such ISDS cases threatens the global response to the climate emergency.12Intergovernmental Panel on Climate Change, Climate Change 2022: Mitigation of Climate Change (Chapter 14: International Cooperation), Working Group III contribution to the Sixth Assessment Report of the IPCC, April 2022. In 2015, the Special Rapporteur on the Rights of Indigenous Peoples found that ISDS has “significant potential to undermine the protection of [Indigenous Peoples’] land rights and the strongly associated cultural rights.”13United Nations, Statement by Victoria Tauli Corpuz, Special Rapporteur on the Rights of Indigenous Peoples 70th session of the General Assembly Third Committee Item # 70 (a), United Nations, October 20, 2015. In 2023, another United Nations report found that ISDS poses “catastrophic” risks to the achievement of human rights.14David R. Boyd “Paying Polluters: the Catastrophic Consequences of Investor-State Dispute Settlement for Climate and Environment Action and Human Rights,” Report of the Special Rapporteur on the issue of human rights obligations relating to the enjoyment of a safe, clean, healthy and sustainable environment, United Nations, July 13, 2023.
Canada continues to negotiate new treaties that include ISDS, primarily to strengthen the hand of Canadian mining firms abroad when faced with public or governmental opposition to their projects.15Stuart Trew, “Ecuadorians reject corporate courts in national referendums,” Canadian Centre for Policy Alternatives, April 25, 2024. Canadian firms are behind at least 20 of 57 recent ISDS cases related to critical minerals.16Madeleine Songy and Martin Dietrich Brauch, “How ISDS Interferes with the Governance of Critical Minerals for a Just Energy Transition—And What to Do About It,” Columbia Center for Sustainable Investment, March 27, 2024.
Canada-Ecuador trade agreement
In October 2024, several leaders of Indigenous and environmental organizations in Ecuador travelled to Canada to share disturbing testimony of human rights violations and ecological harms linked to Canadian mining projects. In meetings with government officials and members of Parliament, the women described the disregard of Ecuadorian officials and private companies for constitutional guarantees, and failures of due diligence with huge consequences for the Amazon and the communities that depend on it.
After hearing this news from Ecuador, leaders of six Canadian labour unions sent a strongly-worded joint letter to the federal government calling for a halt to the free trade negotiations and guarantees of rights protection.17United Steelworkers Union, “Labour unions express concerns about proposed free trade agreement with Ecuador,” October 18, 2024, https://usw.ca/labour-unions-express-concerns-about-proposed-free-trade-agreement-with-ecuador/. The Ecuadorian defenders and Canadian unions expressed special concern that the governments of both Canada and Ecuador sought to include investor-state dispute settlement (ISDS) provisions in the free trade agreement, even though a huge majority of Ecuadorians voted in a referendum in April 2024 to maintain the unconstitutionality of ISDS in their country.
The 2026 CUSMA review
North American nations are about to begin a mandatory review of the Canada-U.S.-Mexico Agreement (CUSMA). According to one former United States Trade Representative, the purpose of the review “is to maintain a certain level of discomfort” in Canada and Mexico, in order to extract further concessions for U.S. corporate interests.18Alexander Panetta, “U.S. Trade Czar: Don’t Get ‘Too Comfortable’ North American Trade Pact Will Stay as is,” CBC News, March 6, 2023. Though the process is not without its risks, there may be opportunities to improve labour, environmental and human rights related enforcement mechanisms in the “New NAFTA,” in consultation with civil society in all three countries.
Forced labour
Following the ratification and implementation of the Canada-United States-Mexico Agreement (CUSMA), Canada amended its Customs Tariff to align with a U.S. ban on imports of products made using forced labour. While under the Biden administration U.S. customs agents blocked thousands of shipments a year, Canada’s forced labour import ban has been ineffective, despite repeated promises to improve enforcement. Drastic funding cuts for forced labour programs in the U.S. force Canada to pick up the mantle.19Georgina Alonso, “As the U.S. drops the ball on forced labour, Canada must pick it up,” Canadian Centre for Policy Alternatives, June 4, 2025, https://www.policyalternatives.ca/news-research/as-the-u-s-drops-the-ball-on-forced-labour-canada-must-pick-it-up/.
In March 2025, the Trump administration cancelled20Michael Sainato, “US labor groups sue over ‘ignorant’ cuts of programs fighting child labor abroad,” The Guardian, April 15, 2025, https://www.theguardian.com/us-news/2025/apr/15/musk-doge-child-labor-cuts US$577 million in grants administered by the Bureau of International Labor Affairs (ILAB) to various programs meant to promote labour rights abroad. Many people with expertise21Margaret Spiegelman, “Biden Labor official: ILAB cuts ‘devastating’ to fight against unfair trade,” Inside U.S. Trade, April 11, 2025, https://insidetrade.com/daily-news/biden-labor-official-ilab-cuts-devastating-fight-against-unfair-trade. on identifying and advocating against forced labour lost their jobs. A number of U.S. labour rights groups have filed a lawsuit22Solidarity Center, “Stopping the Global Race to the Bottom,” n.d., https://www.solidaritycenter.org/stopping-the-race-to-the-bottom/. against the cuts and several groups have issued a public call23See joint letter, “Civil Society Groups Alarmed by Cuts to ILAB Grants to Address Forced Labour and Child Labor,” 2025, https://htlegalcenter.org/wp-content/uploads/Restore-ILAB-Grants-Letter-1.pdf to restore funding.
International unions and human rights groups are also pushing for a coordinated strategy to deal with forced labour and other core labour rights violations in global supply chains. The 18 members of the Coalition Against Forced Labour in Trade (CAFLT)24Human Trafficking Legal Center, “Coalition Against Forced Labour in Trade,” n.d., https://htlegalcenter.org/our-work/coalition-against-forced-labour-in-trade/., representing groups from Canada, the U.S., Mexico, Chile, Japan, South Korea, Australia, the U.K. and the EU, advocate that no country should become a safe harbour for forced labour and are calling for worker-centred import bans.
Actions
The AFB will terminate or suspend the Canada-Israel Free Trade Agreement and ban all weapons sales to Israel—including munitions, military fuel, related military equipment, and duel-use items—to pressure the Netanyahu government to heed its international legal and humanitarian obligations towards Palestinians. Canada will also prevent the transit, docking and servicing of international vessels carrying military goods to Israel and review all public contracts, to prevent public funds from supporting Israel’s illegal occupation of the Palestinian Territories, as promised by 30 nations at the Emergency Conference of The Hague Group in July 2025.25The Hague Group, “States announce unprecedented measures to halt the Gaza genocide at Bogotá conference,” July 16, 2025, https://thehaguegroup.org/meetings-bogota-en/?link_id=2&can_id=d9aee94d18cd2162e52de18be66f6d3c&source=email-pi-briefing-no-26-the-bogota-breakthrough&email_referrer=email_2819587&email_subject=pi-briefing-no-26-the-bogot_-breakthrough&&
The AFB will invest $2.3 billion over five years in a Canada–Africa Strategy to expand trade and development partnerships across the African continent. This initiative will support inclusive green industrialization in Africa and position Canada as a trusted development partner and climate ally.
The AFB will review Canada’s international and internal trade commitments with respect to public procurement to ensure the federal, provincial, territorial and municipal governments have the room to prefer Canadian goods and services (e.g., food, construction materials) when spending public money.
The AFB will allocate $50 million over two years to expand the number of professions covered by the Interprovincial Standards Red Seal Program, which allows certified workers to ply their trade in any part of Canada. The Red Seal program strengthens Canada’s economic union without the risk of a race to the bottom on health and safety standards that is created by current federal and provincial mutual recognition plans.
The AFB will withdraw Canada from the free trade agreement with Ecuador. The agreement is estimated to provide meagre real trade benefits—in the low millions of dollars—for a small number of sectors, but it could have serious human rights impacts by empowering Canadian mining companies over mining-affected communities.
The AFB will allocate $2 million to convene a broad civil society advisory group to help the Canadian government develop priorities for the 2026 mandatory review of the Canada-U.S.-Mexico Agreement (CUSMA).
The AFB will direct Canada’s mission to the World Trade Organization to support an African Group proposal to review the WTO agreements to ensure both major industrialized and industrializing countries can safely use green industrial policies like those adopted by the U.S. and Europe to support domestic green energy, electric vehicle, and semiconductor manufacturing. Canada will also support a “climate peace” clause at the WTO, and in its current free trade agreements, that would block countries from challenging measures aimed at rapidly lowering carbon emissions.
The AFB will direct Global Affairs Canada to remove investor-state dispute settlement (ISDS) from existing Canadian trade and investment deals and to take ISDS off the table in current and future trade negotiations with Mercosur, Indonesia, India, Indonesia and the Association of Southeast Asian Nations (ASEAN).
The AFB will establish and fund an expanded forced labour and inclusive trade branch within Global Affairs Canada, with an annual budget of $20 million. The branch will facilitate bottom-up monitoring and enforcement of treaty provisions—in Canada and in trading-partner countries—through state-to-state dispute settlement, similar to how the rapid-response labour mechanism functions in CUSMA.
