Trump tariff threats reveal Canada’s trade dependency on U.S.: experts – National

Canada failed to cultivate new trade corridors that could have helped to mitigate the potential impact of Donald Trump’s tariff threats ahead of his return to the White House, experts tell Global News.

The U.S. president-elect lobbed the first salvo of his incoming administration’s efforts to reshape North American trade this week, promising to levy 25 per cent tariffs on all goods entering the country from Canada and Mexico unless the countries meets his demands on the border.

That’s sent politicians and industry players scrambling at the prospect of disruptions in getting Canadian goods to the U.S. market, Canada’s largest trading partner by a wide margin.

Some 77 per cent of the value of all Canadian exports heads to the U.S., according to Statistics Canada data from 2023. China is the closest export market for Canada at only four per cent, followed by Japan (2.1 per cent) and the United Kingdom (two per cent.)

Dennis Darby, the CEO of Canadian Manufacturers & Exporters, says that Canada’s close ties to the juggernaut U.S. economy have only intensified since renegotiating the Canada-U.S.-Mexico Agreement (CUSMA) under the last Trump presidency.

Trade volumes between the three neighbours have grown roughly 30 per cent since CUSMA was signed, according to Darby. That’s appropriate, he says, given the history between the trading allies and the significant supply chains that have built up across North America.

“They are a huge economy and a huge pull for our products,” Darby says of the U.S. specifically. “So changing that won’t be something you can do in a few months.”

Darby and other experts who spoke to Global News say that while there are opportunities to diversify Canadian trade in the face of a possible disruption at the southern border, Canada did not sufficiently build out new trade corridors since the last Trump presidency to get out ahead of the renewed threats.

According to the federal government’s latest State of Trade report, in 2023, Canada’s overall export levels declined amid falling trade volumes with the U.K. (down 23.9 per cent), South Korea (down 20 per cent) and Japan (down 12.4 per cent). Export volumes had broadly increased to these nations in the previous year.

A modest decline from the U.S. (down 0.4 per cent), thanks largely to weaker energy trade, contributed to the downturn in 2023 while China’s reopening economy helped to boost exports by six per cent last year.

Meredith Lilly, a Carleton University professor and former foreign affairs and international trade adviser to then-prime minister Stephen Harper, tells Global News that Canada has tried to diversify its trade away from the U.S. “for decades,” but has had limited success.

It’s natural for Canadian companies to focus on the U.S., Lilly said in an email to Global News, given the geographic convenience of living above the world’s biggest economy.

But she said diversifying trade with more partners is important, in part because it gives Canada more “leverage” in negotiations with the U.S.

But shifting supply chains from the U.S. to other markets is easier said than done.

Darby says Canadian supply chains are so tightly integrated with the U.S. — automotive parts and products cross the border multiple times before the finished product rolls off the assembly line, for instance — that extricating those manufacturing processes to overseas markets has been prohibitively costly.

The same is true for Canada’s other major sector for U.S. exports: energy.

Darby says that Canada’s oil, gas and chemical infrastructure is set to largely run north to south. Despite the addition to the Trans Mountain pipeline earlier this year, he argues that Canada has not done enough to get energy products like liquefied natural gas to Canadian ports in recent years, limiting the country’s ability to diversify outside of North America.

“It would take some time to build those trade corridors,” he says. “We haven’t really done a sufficient job.”

That’s not to say there aren’t opportunities out there for Canadian goods.

Jim Simard, the president of the Aluminum Association of Canada, tells Global News that metal manufacturers ought to look to Europe in light of possible disruptions with the U.S.

Widespread sanctions on Russian commodities have left a gap in Europe for Canadian metals and minerals, says.

“Everybody wants our metal, but Europe is certainly the key market. … they’ll take everything we can send there,” Simard says.

Normally, the margins on shipping aluminum overseas mean the dollars and cents don’t make sense to ship more widely to Europe, Simard says. But if the U.S. imposes hefty tariffs on aluminum, that equation starts to shift.

Darby says there’s global demand for Canadian food inputs, as well as automotive, aerospace and other machine parts, but, like with oil and gas, “tilting those to sell abroad will take some time.”

“We need to look at our competitiveness and our ability to trade in our trade corridors because if this persists, Canada is going to have some hard years as we try to transition,” he says.

Canada might find it more challenging to expand its trade relationships now than it might have before Trump’s re-election, Lilly also warns.

There may be a “spillover effect” on Canada if the U.S. cracks down on other trade partners, she says. If Canada is seen as a back door for imports from other countries targeted by Trump’s tariffs, it could affect access to the lucrative U.S. market for those products.

“For these reasons, during the next Trump presidency, Canada’s trade diversification project may actually become more challenging – not more likely,” she said in an email.

Finance Minister Chrystia Freeland has tried to position Canada’s aligned tariffs with the U.S. on Chinese steel and aluminum as a sign of good faith with the U.S.’s trade priorities.

“We are perfectly aligned with the United States and that means we are not a back door to unfair Chinese traded goods,” Freeland said during a press conference last week.

Darby says it’s critical that Canadian stakeholders work together to prevent the threatened tariffs from coming down as advertised to avoid substantial disruption to both Canada’s manufacturing sector and the American economy, which in turn relies heavily on Canadian inputs.

But he says threats like these are a good time to ask whether Canada has invested enough in technology and equipment to give it the ability to pivot its supply chain when disruptions do occur.

“We’ve been trailing our trading partners for years, relying an awful lot on the U.S.,” he says.

“Are we doing everything we can to be as competitive as possible in a world (where) you can’t always be assured you’re gonna have access to those markets?”

— with files from Global News’s Uday Rana and the Associated Press