Canada is the "best friend" and "greatest ally" of the United States and should be treated as such, the former U.S. ambassador to Canada, Bruce Heyman, told CNBC on Monday.

"The U.S. is making a big mistake in how we are treating Canada on NAFTA," he said in an interview with "Closing Bell."

When President Donald Trump initially announced impending tariffs on steel and aluminum, there were no specific exclusions of any trading partners. However, when he signed the tariffs last week, he exempted Canada and Mexico.

It was a move that Commerce Secretary Wilbur Ross called "further motivation" for Canada and Mexico to "make a fair arrangement" with the U.S. on the North American Free Trade Agreement.

However, Canada's Prime Minister Justin Trudeau told CNBC earlier Monday that he doesn't link tariffs and NAFTA negotiations together.

Heyman, who served under President Barack Obama, said the issue of tariffs on Canada should never even have been debated, pointing out that the U.S. has a $12 billion trading surplus in goods and services with Canada.

And while over 70 percent of Canada's exports go to the U.S., Trudeau has no choice but to explore other trading avenues, he added.

Canada just signed on to the new Trans-Pacific Partnership, which is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Trump decided to pull out of the original agreement last year.

Canada also started a free trade agreement with the European Union last July. Trudeau even travelled to China in December, although no trade agreement has been reached, and he recently wrapped up a visit to India.

"It's a mistake for the U.S. long term to see Canada build those kinds of relationships, especially China and the most recent visits," Heyman said. "Canada has to do it to diversify, and it makes economic sense."