From Reliance to Resilience

PPF thanks its Mission Canada partner organizations, the Canadian Association of Petroleum Producers, Export Development Canada and Deloitte, for their support of this project.

INTRODUCTION

Canada’s Route to More Diversified Trade

The world’s trade winds in recent months have sometimes felt more like a tornado tearing off in unpredictable new directions. The impact has been felt from coast to coast to coast here in Canada, particularly as the basic assumptions of our relationship with the United States — our largest and most tightly integrated trading partner by a wide margin — have shaken and cracked in the gales.

Canadian government and business leaders have been speaking often and in strident tones about the need to diversify our trade portfolio, and the sense of urgency is understandable. To fully comprehend the position Canada finds itself in, however, we need to see the emerging map of this new world clearly.

The upheaval underway goes well beyond a handful of trade relationships. The U.S. is trying to fundamentally reconfigure the global economy, moving away from long-standing commitments to trade liberalization and rules-based trade to a series of often one-sided deals that offer limited stability.

These new U.S. trade policies are causing substantial disruptions that can fundamentally shift economic fortunes for its trading partners. For Canada, they could alter the basic nature of Canadian trade and its economic position in the world.

Canada’s deep economic integration with the United States is the focal point of this disruption. More than 18 months into the tariff and trade battle initiated by the Trump Administration, the share of Canadian exports shipped to the U.S. declined in July 2026 to its lowest level since 1997 (outside of the pandemic) — down from recent levels of roughly 75 percent to 66 percent. The United States nonetheless remains by far Canada’s largest export market. Imports from the U.S., meanwhile, accounted for 59 percent of the overall total, a slight decline from recent levels.

Significant steps on diversification have already been taken. Most prominently, the federal government has been pursuing new trade opportunities around the world, accelerating the negotiation of free trade agreements with India, Mercosur, ASEAN, the Philippines, Thailand and the United Arab Emirates, while pursuing more focused deals with the European Union, China, India and others. Canada’s close ties with the U.S., Prime Minister Mark Carney said recently, “have become weaknesses we must correct.”

Shifting from a focus on the U.S. market generates particular risks for those sectors most intertwined with the U.S. market and most threatened by recent U.S. actions — in particular steel, aluminum and automobiles, as well as the manufacturing sector more broadly. There are few trade relationships on earth that are deeper, broader and more lucrative than the one between Canada and the U.S. Canada’s efforts to chart a new course in these tumultuous economic times will face many substantial challenges.

Diversifying away from the U.S. market is likely to mean not only changes in trading partners, but also changes in the nature of Canada’s exports, requiring an emphasis (at least in these initial stages) on natural resources over manufactured products.

The nature of the domestic market may change as well, with an increased emphasis on attracting investment from sources outside of the U.S. Increases in foreign investment will be particularly important for energy and natural resources, and the future of manufacturing and advanced industrial production in Canada. The pursuit of new investment and trading partners also presents an opportunity for Canada to re-evaluate its strengths as a trading nation and focus on its greatest strategic advantages  in the shifting global marketplace.

Navigating safely and prosperously through this storm is at the very top of the agenda for Canadian policymakers today. Geography, history and the pull of the U.S. economy will likely ensure the U.S. remains the main destination for Canada’s exports. But as the U.S. moves backwards on free trade, there are opportunities for other countries to move forward.

For Canada, it means an urgent building of domestic capacity for trade diversification (including much-needed trade enabling infrastructure) and measures to secure market access to maximize opportunities for Canadians firms.

PART ONE: Canada’s Current Trade Position

The dominant position of the U.S. market

The fundamental fact of Canadian trade is its heavy reliance on and extensive integration with the U.S. economy. As Canadian policymakers intensify efforts to diversify, their work begins from this baseline. Not only do most Canadian manufactured goods ship to the U.S., but the majority of those exports are unfinished products that receive further processing after shipping, and the bulk of this trade is either intra-firm or between related firms.

Supply chains often crisscross the border multiple times before products reach their final customers. The case of the auto industry is often cited as a prime example of this, with some vehicles crossing from Canada to the U.S. and back again as many as eight times before completing final assembly. Making significant changes to these relationships would involve much more than simply charting a new course; it would also involve untangling a tightly knotted web of trade arrangements and partnerships. As one of the most extreme examples, Canada’s auto manufacturing industry will face fundamental ongoing challenges over time if Canadian partners are expected to serve simply as suppliers to U.S. firms.

Canada’s trade relationship with the U.S. is also as long as it is deep, supported by regulatory alignments that have been assembled over decades for the mutual benefit of both partners and often involving export products tailored by Canadian producers exclusively for American customers. A case in point involves efforts in recent years to increase exports of Canadian beef to the EU under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). The EU imports beef from more than a dozen trading partners. Even with preferential access, though, few Canadian beef producers have shifted their exports to the EU market due to the significant regulatory hurdles (including hormone-free regulations and differing carcass-washing standards) that would have to be overcome to meet EU rules. In the beef trade, as with most Canadian export sectors, the relationship with the U.S. was simply too well-established, too free of friction and too lucrative to justify the effort and investment required to reach other markets.

Managing tariff uncertainty

Recent U.S. policy changes have generated deep uncertainty for its trading partners regarding whether the new trade regime is temporary or permanent. Many businesses in Canada, the U.S. and beyond have responded by essentially attempting to hold steady as they wait to see where all this will land. There is logic to this position. U.S. efforts to reshore production have shown limited success to date, and efforts to do so face fundamental flaws. Despite all the noise, U.S. manufacturing starts actually declined last year, manufacturing jobs were down as well, and the U.S. trade deficit in goods not only did not decrease but actually increased.

Shifting production away from locations established based on sound economic principles to others reflecting political preferences and the artificial inducement of tariffs is not an easy process. It takes time — meaningful shifts in production locations in most sectors are likely to take at least five to 10 years, and few businesses have yet to fully buy into this commitment.

Such moves are also very expensive. Shifting aluminum production to domestic suppliers would alone cost U.S. firms more than $100 billion. There is also very little appetite for boosting manufacturing jobs in the U.S. Even at current levels, the country’s manufacturers are facing significant challenges in finding and retaining labour.

Even if these efforts to reshore manufacturing prove to be successful, they would leave U.S. manufacturers far less competitive in world markets than they are today. Production increases would have been artificially induced and would require ongoing subsidization and protection to maintain production levels. Containing the forces of globalization in today’s interconnected marketplaces — let alone reversing them — is unlikely to succeed in the long term. In trade, as with technological innovation, some advances cannot be put back into the box. Trying to move ahead of globalization continues to be the much stronger economic position.

The chaotic approach to tariffs taken by the U.S. over the past year is compounding the many uncertainties in today’s global marketplace. These measures include: tariffs imposed, removed and regularly threatened; the Supreme Court ruling against the use of the International Emergency Economic Powers Act; the court ruling against the use of Section 122 of the Trade Act of 1974; the product specific application of Section 232 of the Trade Expansion Act of 1962 tariffs, even in sectors where the U.S. does not produce enough to meet its own needs; the imposition of across the board tariffs under Section 301 of the U.S. Trade Act of 1974 against countries on the basis of unproven allegations that they have not taken action against or are not enforcing provisions against forced labour; and the recent imposition of tariffs against Canada under the Tariff Act of 1930.

All this uncertainty is leading many businesses to be cautious about investment commitments and long-term planning. This lack of clarity is one of the largest obstacles to more determined moves towards diversification.

Seeking new markets

Canada’s initial efforts to diversify trade in the first year after the Trump Administration launched its tariff war illustrate both the opportunities near at hand and the limits of such trade relationships.

Canada has set a new goal to double non-U.S. exports over the next decade by generating $300 billion more in trade and directing billions in funding and system capacity to prioritize growing areas of key competitive advantage. Provincial agencies across Canada are amplifying these efforts by ratcheting up efforts to increase exports for their strategic sectors.

The federal government has also announced a new Strategic Exports Office at Global Affairs Canada (GAC) to coordinate engagement across all federal departments. It is also providing funding and other export-oriented tools to “curate a pipeline of international business opportunities and build sophisticated, proactive roadmaps for Canadian senior-level engagement to open doors and remove roadblocks for Canadian companies.”

In pursuit of more diversified trade, Canada has already begun to leverage its extensive network of free trade partners. This takes advantage of Canada’s status as the only G7 country that can boast trade agreements already in place with all other G7 countries, as well as 15 further agreements involving 51 countries. Building on this foundation, Canadian negotiators have engaged trading partners in markets around the world, including free trade agreement negotiations with six other trading partners covering a total of 18 countries, smaller deals with the EU, China, India and others, and a number of agreements on defence contracts.

These efforts aim to take advantage of the rapidly shifting global economic order, in particular the fact that although the U.S. has moved sharply away from rules-based international trade, the rest of the world has not. For the most part, countries other than the U.S. continue to follow their trade obligations under the WTO and bilateral and regional agreements as they were, except where new deals with the U.S. conflict with those obligations. U.S. barriers are both forcing and encouraging countries to trade around the U.S. As a result, it remains possible—and profitable—for Canada to negotiate binding commitments with other nations.

Prime Minister Carney’s influential Davos speech in January 2026 categorized the present global geopolitical situation as “a rupture, not a transition,” and it identified the potential for “middle powers” to provide stability in a world in turmoil. Many of these mid-sized countries have begun to explore closer alignment, including the pursuit of new approaches to trade.

One particularly promising opportunity for Canada is the tighter trade relationship emerging between the EU and the 12 nations (including Canada) that are parties to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These two groups combined account for more than 30 percent of the entire world’s trade — more than twice the share of trade involving the U.S. While not likely to move towards free trade negotiations anytime soon, the EU and CPTPP countries are actively exploring issues aimed at further integrating markets, including rules of origin, cumulation and supply chains. These essential steps are an early indication that countries can build valuable trading relationships outside the U.S.

PART TWO: Challenges and Opportunities for Canada in Strong Trade Winds

Internal challenges

Even as its relationship with the U.S. remains Canada’s defining trait as a trading nation, the country is well positioned and well advised to pursue greater trade diversification. These efforts should be guided by a clear understanding of the challenges in its path and the opportunities most worthy of pursuit.

Canada’s status as a trusted trade partner around the world, with numerous strong trade agreements already in place, have positioned it for success in its pursuit of diversification. But it also begins this project with an economy marked by some significant challenges. As PPF noted in its report, Canada’s Super Sectors, Canada’s economy today is hampered by slow growth, stagnant productivity and declining investment, even as it faces a “generational challenge” in its need to both boost its economic growth and reaffirm its sovereignty in a rapidly changing geopolitical order.

Canada’s cozy trade relationship with the massive and dynamic U.S. economy has also engendered a certain degree of complacency in certain export sectors, which have never before needed to look beyond the southern border for lucrative trade routes. As the Coalition for a Better Future’s March 2026 economic scorecard noted, Canada’s economy continues to suffer from chronic under-investment, even as this moment demands that we “choose to build and compete—or risk being left behind.”

If Canada is to achieve success in its diversification efforts, it will also need to dedicate itself ruthlessly to strengthening its competitiveness. Achieving that will require, at minimum, that Canada take the following measures: remain on a level playing field with the U.S. on taxation levels; improve regulatory efficiency, including project approvals and the removal of internal trade barriers; encourage low-cost operating environments; ensure it keeps pace with advanced technology, including AI; match its work force with shifting demands for skilled labour; and strengthen the security of supply chains.

PPF’s landmark 2025 report Build Big Things emphasized the vital roles that governments need to play in creating a stable, low-risk environment for investment in Canada’s economy to meet these goals. This is especially true for firms and sectors looking to diversify trade into new markets.

The federal government’s recent unveiling of the Canada Strong Fund is an encouraging move in this direction and could become a valuable tool in diversification efforts in the years to come. Its commitment to catalyze $1 trillion in new investment across Canada over the next five years is also a welcome sign of its intent to take strong action and think big, as is the investment summit being held in Toronto on Sept. 14-15.

Challenges in other markets

Canadian manufacturers have long enjoyed a level of integration and smooth cooperation with U.S. firms that has no precedent — a “building things together” approach that will be difficult, if not impossible, to fully duplicate elsewhere.

New trading partners, for example, are unlikely to be able to copy the auto manufacturing supply chain that sees vehicles cross the border multiple times in their journey to final assembly. This close and previously seamless relationship is among the top reasons why many Canadian export companies have been reluctant to commit fully to diversification.

Some significant challenges to Canada’s diversification efforts will likely emerge from the character of the new markets themselves, which may not necessarily prove to be more reliable than the U.S. over time. Consider the example of Canada’s often shifting relationships with China and India, as both countries pursue their own changing agendas.

Access to the U.S. market, meanwhile, remains much better than most other markets, even factoring in the current uncertainties with the U.S. government (with the obvious exception of the Trump Administration’s tariffs on Section 232 goods such as steel, aluminum, and automobiles, and recent Section 338 tariffs against a broad range of products).

There are also likely to be ethical and moral issues to grapple with as Canada adopts the pragmatic, transactional approach to trade outlined in the prime minister’s Davos speech. Some promising new markets for Canadian trade come with the strong possibility of human rights issues emerging as obstacles, and others may not share the rule of law and other institutional supports of a well-established democratic nation.

Pragmatic near-term priorities notwithstanding, Canadian institutions and the Canadian public will not remain indifferent to the implications of trade relationships that call our core values into question.

Canada will also encounter structural challenges as it seeks to break into new markets. Integrating its trade with other markets in a manner similar to the free trade regime with the U.S. will likely prove much more difficult than it has been with the U.S. In some of these situations, Canada will be a new entrant in an already crowded marketplace and will need to find ways to push other players out of their positions. Canadian exporters will also need to adjust to different regulatory standards, consumer preferences and expectations. This could significantly alter the profile of Canadian exports, for example leading to a stronger emphasis on natural resource exports and smaller volumes of manufactured goods.

The challenges of U.S. reaction

As Canada pursues new trade relationships, we should anticipate an even more pointed response from the U.S., which could further threaten to constrain Canadian trade, even as the U.S. pursues its own bilateral deals. This has already proven true in the case of Canada’s new deal with China and with the Prime Minister’s era-defining Davos speech, both of which have been met by strongly negative reactions from the Trump Administration. More recent trade tensions with the failure of Canada-U.S. bilateral discussions in August are leading towards an even more fractious relationship.

Trump’s response to Canadian diversification efforts should be understood in context of the new U.S. National Security Strategy. This includes Trump’s reconfigured version of the Monroe Doctrine, which envisions greater U.S. control over the entire Western Hemisphere. The U.S. is not seeking to preserve its cozy established trade relationship with Canada but rather to take a new and more aggressive approach.

Despite these frictions, the review of CUSMA remains critically important to Canada’s overall trade regime. Canada’s position could be jeopardized by the appearance that the federal government is placing significant new emphasis on alternative markets. One of the key issues the U.S. has already signalled as a priority is closer cooperation between the U.S., Canada and Mexico on economic security, which would mean greater alignment on tariffs, export controls and investment screening, especially against China. This is likely to create tensions, given Canada’s recent pursuit of closer trade relations with the Chinese. The apparent U.S. demand in the August discussions for some kind of oversight on Canada’s free trade negotiations with other countries reflects the tension around these issues.

Differences are also likely to arise over specific issues such as U.S. efforts to expand its critical minerals marketplace, which could constrain Canada’s efforts to expand into other markets.

Opportunities in diversifying trade

Despite these challenges, the shift to a more diversified trade regime ultimately represents a substantial opportunity for the Canadian economy. PPF’s Super Sectors report has provided valuable guidance on how to focus on those “mission-critical sectors” of Canada’s economy that exhibit both economic and strategic centrality. This “dual lens” evaluates both quantitative and qualitative factors to identify the most promising economic sectors for investment, government support and expanded trade — sectors that can generate not just economic benefits but strategic value for national security, international relations and global influence. The four sectors that meet both criteria most fully are: energy and natural resources; manufacturing and advanced industrial production; transportation, warehousing and communications infrastructure; and professional, scientific and technical services.

Canada’s first efforts to diversify its trade already exhibit an emerging focus on energy and natural resources, including oil and gas, critical minerals and precious metals. Canada’s agriculture, agri-food and fish and seafood sectors, which are already well-established in foreign markets beyond the U.S., have also demonstrated a strong potential for growth.

Canada’s defence industries, which are seeing dramatic changes in priority and disposition toward markets beyond the U.S., should find significant new trade opportunities as substantial new investments are being made in Canada and worldwide. Major new infrastructure projects in Canada will also provide a boost to the manufacturing sector. These gains can be leveraged to improve the manufacturing sector’s position as it enters other markets.

With targeted support to attract investments, these and many of Canada’s manufacturing sectors can overcome anticipated challenges and take full advantage of emerging opportunities in new markets.

PART THREE: Recommendations

Charting the best course for Canadian trade

Canada has tried to go down the diversification path many times before, including efforts such as Pierre Trudeau’s efforts to advance a “third option” and Stephen Harper’s “Global Markets Action Plan,” both of which experienced only limited success. The crucial difference today is that the U.S. under the Trump Administration has become an unreliable and even hostile trading partner, generating unprecedented popular support for diversifying trade.

By providing targeted support and close collaboration with key business sectors, governments can maximize the opportunities for success as Canadian firms navigate these new trade winds.

The recommended policy interventions include measures both to address internal issues and to overcome challenges in other markets. Canada needs to pay particular attention to positioning itself for the economy of the future. The autos sector is a notable example, where Canada has begun to renew signals of moving forward on electric vehicles. While the U.S. has been moving backwards on this and other climate-change related initiatives, the rest of the world is moving forward quickly, with China taking a significant share of world markets.

Build Domestic Capacity for Trade Diversification

1. Unlock investment capital in major projects to build the resource and manufacturing capacity Canada needs to boost productivity, expand exports and diversify markets.

Governments should make catalyzing private sector investment and project execution a core pillar of trade diversification by accelerating mission-critical projects that expand production and processing of resources, expand manufacturing, strengthen supply chains and connect Canadian resources to global markets. This requires governments at all levels to take a coordinated approach to address four pillars outlined in PPF’s Build Big Things report: 1) coordinated public financing; 2) efficient and effective regulations; 3) alignment with enabling infrastructure; and 4) Indigenous economic participation.

With sufficient support, Canadian firms should be able to access the capital needed to diversify trade. A recent RBC report noted foreign direct investment rose to $100 billion in 2025, its highest level in a decade. The report identifies several key export-oriented sectors where the greatest growth opportunities are emerging, including oil and gas, metals and minerals, electricity, agriculture and food processing, defence, and space. This list overlaps significantly with the “super sectors” that PPF’s analysis has found to be the best strategic investments for Canada’s economy.

2. Develop a national trade-enabling infrastructure strategy to prioritize and accelerate infrastructure needed to reach non-U.S. markets.

Diversifying trade will require a significant and durable commitment to providing the vital enabling infrastructure Canadian firms need to efficiently reach markets outside the U.S. This infrastructure support can range from physical requirements such as new equipment and transport infrastructure to legal and policy supports. Governments can also provide assistance when required to help firms — particularly companies in manufacturing sectors — to make the necessary adjustments to meet standards and practices in new markets.

The federal government should collaborate with provincial, territorial and Indigenous governments and the private sector to develop a comprehensive National Trade-Enabling Infrastructure Strategy. This should include: an assessment of Canada’s existing infrastructure, identifying priority gateways and corridors needed to get products to market; a multi-year implementation plan; and the identification of legislative, regulatory and other administrative barriers to building new or improving the efficiency of existing infrastructure.

3. Apply a ‘competitiveness test’ to public policy decision-making affecting export-oriented sectors.

Canada needs to pursue an aggressive agenda on competitiveness. This must include actions to ensure that taxes faced by Canadian companies and investments are comparable to or better than U.S. terms and that the regulatory processes faced by businesses are streamlined to eliminate as much red tape as possible. To implement this approach system-wide, governments should develop and apply a “competitiveness test” for major policy, regulatory and tax decisions that affect export-oriented sectors. This test should be applied as part of the analysis undertaken for Cabinet decision-making processes.

In addition, provincial and territorial governments should accelerate the removal of internal trade barriers, including those related to labour mobility, credential recognition, regulatory duplication and permitting delays.

Canada cannot credibly pursue new export markets while maintaining unnecessary barriers within its own domestic market that are hindering competitiveness.

As the U.S. retreats on its own competitiveness by trying to incentivize the reshoring of manufacturing behind tariff walls, there is an opportunity for Canada to position itself as a more competitive player in world markets. The U.S. position on clean energy, electric vehicles and other climate-related technologies in particular is creating openings for Canadian firms and technologies.

Secure market access and commercial deals

4. Pursue a two-track strategy that preserves as much market access as possible with the U.S. while diversifying Canada’s global export markets.

Although the U.S. will remain Canada’s largest and most closely integrated trading partner, governments should aggressively pursue opportunities to reduce overreliance on a single market and build resilience, while preserving preferential access to the U.S. wherever possible.

Canada should adopt a two-track strategy to meet this goal.

On the first track, Canada needs to pursue these objectives for the CUSMA review: preserving preferential access; defending integrated supply chains; protecting exposed sectors such as autos, steel and aluminium; and above all ensuring that Canada is not locked into unfavourable positions in the North American market relative to the U.S. For integrated manufacturing sectors, the objective needs to be to preserve North American integration while building resilience over time.

More broadly, for energy and critical minerals, separate chapters should be pursued to ensure trade access is preserved and to set the stage for strengthening institutional collaboration for achieving mutual objectives with the U.S., if those can be agreed. Of primary importance, Canada should preserve its ability to negotiate trade agreements with trading partners outside of North America. We need to ensure that any “Fortress North America” doesn’t become more effective at locking Canada in than in locking other competitors out.

On the second track, Canadian governments should work to expand trade diversification by better leveraging existing trade agreements and pursuing new agreements where they are commercially realistic and strategically valuable, while ensuring both existing and new agreements are actively converted into private-sector deals, investment, and export growth.

Canada also needs to be strategic about where it can most effectively build new partnerships. The relationship with the EU, assisted by new defence cooperation initiatives and shared concerns about overreliance on the U.S., should be a clear priority. Markets in Asia and Latin America, including members of the CPTPP and other countries with which FTA negotiations are already underway, also show significant promise.

At the same time, though, Canada needs to keep in mind the lessons learned at the WTO about the lack of effectiveness of existing trade rules to address distortions caused by non-market economies (NMEs). Trade with NMEs can be problematic not only because of likely negative U.S. reaction, but also because of damages that can be caused to domestic industry from unfair trade practices. Canada should be cautious in its next steps with China, as well as with countries where China is driving increased production. The approach outlined in recommendation 7 below is particularly important in this context.

5. More efficiently translate trade agreements into private-sector deal flow, investment, and export growth.

Canada already has an extensive network of bilateral and multilateral trade agreements that provide Canadian firms with preferential access to many of the world’s largest and fastest-growing markets. But these agreements are often under-used by Canadian businesses (Global Affairs Canada reports, for example, that only 60 percent of the potential value in Canada’s trade deal with the EU is being harnessed). To further diversify Canada’s trade, the federal government should ensure that the newly announced Strategic Exports Office becomes the disciplined back office function needed to convert market access, trade missions and senior-level engagagement into “deal flow.”

The creation of the Strategic Exports Office is an important step in the right direction. Its mandate to identify and track strategic export opportunities, manage a pipeline of major opportunities, coordinate diplomatic, ministerial and financing support, and lead whole-of-government “deal teams” directly responds to the need for a more systematic approach. The key now is execution. The Office should have a clear mandate, senior-level authority, dedicated capacity, and strong links to the Major Projects Office, Export Development Canada, the Trade Commissioner Service, Invest in Canada, the Business Development Bank of Canada, federal departments, provinces and territories, and industry.

The federal government should also draw on the Saskatchewan government’s methodical approach to trade diversification as an effective delivery model. That approach involves: premier-led missions to signal political commitment; follow-ups by deputy ministers and industry leaders to convert relationships into opportunities; a dedicated trade team on the ground to support firms and provide a “full concierge service”; permanent trade offices in priority markets to maintain relationships, identify opportunities and resolve issues; and a disciplined follow-through that tracks opportunities from mission participation to buyer engagement, contract negotiation and deal closure.

Applied nationally, this means that trade missions are not treated as stand-alone events but as the first steps in a sustained commercial strategy. Missions should be linked to priority sectors and measurable outcomes, and they should include provincial officials, industry representatives, identified buyers or investors, as well as follow-up by senior officials and on-the-ground market support by Canada’s Trade Commissioner Service. The Strategic Exports Office should track progress after each mission and ensure that federal tools are brought together to help Canadian firms win contracts, attract investment and grow exports.

6. Continue to pursue both targeted sectoral agreements and comprehensive free trade agreements, with an emphasis on speed and efficiency.

Canada is well-positioned to capture new market opportunities, but it is not alone in the hunt. As more countries seek to diversify their trade relationships, competition for new markets is intensifying. This more competitive global trade environment emphasizes the need for speed and efficiency. Canada should follow the approach recently taken by the EU in securing its new trade deals with India and MERCOSUR, by pursuing more targeted and pragmatic trade arrangements focusing first on areas where there is clear commercial value and leaving more complex issues to be addressed over time.

7. Create an economic security framework to guide trade diversification and protect Canada from unfair trade practices.

As Canada pursues new markets, the federal government will need to ensure that it has effective provisions to address the threat of unfair trade practices from other countries. While the vigilant employment of existing Canadian trade remedy laws is important, no instrument currently exists in Canadian trade law to address threats to economic security.

Canada should develop a formal economic security framework for trade diversification to identify the ways in which trade relationships, new investments and supply chains could expose Canada to unfair trade practices from other countries. These practices could include foreign subsidization; overproduction and dumping; coercive trade action; export controls; and strategic dependence on unreliable suppliers.

The economic security framework should also assess how new commitments in the CUSMA review could affect existing trade agreements and future diversification efforts, particularly on tariffs, investment screening, export controls, and China-related economic security measures.

CONCLUSION: Strong Winds, Big Opportunities

To channel the tumultuous trade winds of this era in a way that puts the best opportunities within reach, Canada will need to navigate increasingly treacherous waters in the U.S. and many other markets. This will involve managing the expansion of trade to markets around the world while preserving as much access as possible to the vital U.S. market. This presents an ongoing and very delicate balancing act for the foreseeable future.

This balance could shift in either direction, with significant consequences. If Canada can successfully get Canada-U.S. trade relations on a better track and negotiate a successful outcome to the CUSMA review, this should create greater stability in its access to the U.S. market. Negotiating such an outcome would almost certainly include significant risks, in particular through U.S. pressures for new obligations on economic security, including alignment on investment screening, export controls and tariffs for some products. U.S. efforts to pursue even further limitations on Canada’s free trade negotiations with other countries in the August discussions are particularly concerning. Going too far in these areas would likely not only breach existing obligations with other countries but also threaten future progress towards diversification.

More importantly, Canada needs to avoid the very real threshold threat of being drawn into an agreement with the U.S. that constrains Canada’s diversification efforts but also locks Canada into an unbalanced arrangement within North America. Any remaining U.S. tariffs against Canada in key strategic sectors like steel, aluminum and autos risks would have negative impacts on investment decisions and Canada’s economic position in the long term.

If the balance tilts in the other direction — further away from the U.S. — and Canada establishes significant new trade commitments with other countries to expand market access, particularly in relation to non-market economies such as China, there will almost certainly be a negative response from the U.S., including further threats to Canada’s existing access to that market.

Canada needs to be particularly cautious in how it approaches future negotiations with NMEs. Quick attention to the development of the economic security provisions mentioned above can be an important tool in providing assurances both to the U.S. and to domestic industries concerned about competing against unfairly traded imports.

Identifying the best opportunities and diversifying Canada’s trade as much as can be managed while maintaining a careful balance with existing relationships is a top priority for Canadian policymakers that will pose constant challenges. The current upheaval in global trade obliges swift and decisive action — but that action must be carefully targeted and continually recalibrated if we are to build a durable new trade regime to navigate these very rough waters.