Canada’s Strategic Move Against U.S. Dominance

Canada’s Prime Minister, Mark Carney, seems to have taken a stand as one of the leading voices against President Donald Trump’s policies. The former head of the Bank of England is actively pursuing new security and economic partnerships, possibly to annoy Trump or simply to lessen dependency on the U.S. one way he’s doing this is by planning a railroad that connects Canada’s West Coast directly to Mexico, without stopping in the U.S.

The current relationship between the two nations isn’t exactly warm, so it makes sense, perhaps, for Canada to seek trade routes that bypass the U.S. entirely. Tensions have escalated recently, particularly when Trump threatened to block sales of Bombardier aircraft in the U.S. unless production moved to American soil. In response, the White House announced bans on certain Canadian dairy products, motorcycles, and almost all alcoholic drinks, mirroring earlier actions taken by Canada. They also increased tariffs on a range of Canadian goods, while Canada retaliated with tariffs affecting about $20 billion in American exports.

That’s all part of the background noise now.

A fascinating twist in this trade saga is that Canada has spent years developing the infrastructure needed to support trade routes that evade the United States. As a result, the Canadian Pacific Railroad is in an excellent position to benefit.

Canada’s New Connection

In 2023, Canadian Pacific merged with the U.S. regional railroad, Kansas City Southern, which included KCS’s operations in Mexico. This merger created a rail network that stretches approximately 20,000 miles from Canada into Mexico, establishing a direct line from Canada to Mexico. Interestingly, no similar East-West connection exists in the U.S.; Canada boasts a North-South link that spans three countries.

Carney has characterized Canada’s reliance on the U.S. market as a vulnerability and has set an ambitious goal to double exports to other countries within the next ten years. Additionally, Ottawa aims to boost exports to China by 50% by 2030, backing this initiative with a C$5 billion Trade Diversification Corridors Fund to develop ports, rail, and highways for expanding trade beyond the U.S.

Funding has already begun to flow. Over C$303 million has been allocated for infrastructure improvements at Prince Rupert port in British Columbia, with an additional C$150 million loan from the Canada Infrastructure Bank to facilitate this. The upcoming expansion at Vancouver’s Roberts Bank Terminal 2 is expected to enhance container capacity by over 30%. Canada is also subsidizing port gateways to compete effectively against American ports for trans-Pacific cargo, potentially including imports heading to the U.S. automotive market.

Canadian Pacific Kansas City, or CPKC as it’s known in Canada, is set to act as the “land bridge” connecting Canadian and Mexican producers without considering the U.S. as the end destination, according to CPKC’s CEO, Keith Creel.

But, will it actually work?

Last September, Creel teamed up with Carney at a grain terminal in Mexico City to greet a train carrying Manitoba wheat that had traveled through the U.S. en route to Mexican buyers. CPKC estimates that their business dealings between Canada and Mexico were valued at about $100 million in 2023 and could rise to $600 million this year, with a potential long-term target of $1 billion.

Changing Trade Dynamics

It’s a curious notion, but if the U.S.-Mexico-Canada Agreement (USMCA) were to be split into separate bilateral trade agreements, Canada could potentially navigate U.S. territory to trade with Mexico, possibly even without duties (which might have significant consequences for jobs in Canada, but I digress).

CPKC also facilitates traffic in the opposite direction. It promotes Mexico’s Lázaro Cárdenas port to Asian shipping companies as what some executives call the “Texas shortcut,” allowing them to move containers from Asia to the U.S. Midwest without relying on U.S. ports. CPKC reports that its Asia-related traffic amounts to around $2 billion a year, representing business that American ports are missing out on.

Interestingly, no U.S.-owned railroad currently connects the coasts in a single line. The American rail shipping system lacks a direct counterpart to CPKC’s three-nation service.

U.S. companies are trying to build their own East-West connection. Union Pacific and Norfolk Southern are seeking to merge, which would create a 50,000-mile network spanning 43 states and more than 100 ports. The U.S. Surface Transportation Board is reviewing this proposal. Given CPKC’s direct line to Mexico, it seems prudent for the U.S. to establish a California to New York connection to alleviate shipping bottlenecks.

However, this idea is not welcomed by Canadian shippers. CPKC has argued that the merger is unnecessary.

Creel expressed concerns about the merger, noting that a combined Union Pacific-Norfolk Southern could control nearly 50% of U.S. freight rail traffic, which raises questions about public interest and risks to supply chains.

If a railroad connects from the coast in the U.S., it would turn Canada’s unique railroad system from the sole option into one among several, potentially overlapping with Union Pacific’s link to Mexico, which could shift market share. Meanwhile, Canadian Pacific’s growth narrative hinges upon diverting freight away from American clients while telling American regulators that their railroads shouldn’t build their own “land bridge.”

Whether the proposed merger makes sense from a competition standpoint is up for regulators to determine. Yet, it’s vital that strategic factors are also part of the conversation. The future of North American freight infrastructure isn’t just about optimizing goods movement within the U.S., but rather about which country’s ports, railroads, and logistics networks will dominate trade.

Canada has already constructed its North-South connection.

The debate continues in the U.S. about whether to establish an East-West counterpart.