VANCOUVER — A new Fraser Institute report is zeroing in on Canada’s trade dependence with the United States, and how difficult it will be to move away from it.
The report is titled Assessing Canada’s Trade Dependence on the U.S., and is co-authored by senior fellows Steven Globerman and Jock Finlayson.
The study takes a historical look at trade patterns from 1999 to 2024. Finlayson said the report sets the stage for a larger series of studies, coming in the wake of moves by Prime Minister Mark Carney and his government toward increased diversification.
“He and his government have really made diversifying trade a strategic priority. So we at the Fraser Institute decided we would look at various aspects of this in a series of essays that we're producing in 2026. And the essay that we released yesterday is the first one, sort of sets the stage for the larger series.”
What they wanted to do with the first paper is “just document the recent history of Canada's, of Canada-U.S. trade, and particularly export dependence on the United States, focusing on the last 25 years in particular, and to see to what extent there is any evidence of diversification occurring in our trade, both on the export and the import side. So that, we're just sort of laying out the facts, focus on the last 25 years, and then exploring some of the factors that, you know, relate to the challenges around diversification.”
One of those challenges, said Finlayson, is the “sheer size of the U.S. economy. It's the biggest in the world. The fact that we live right next door to it, so we have geographic proximity.”
He pointed to the “long history of economic integration across the border between the U.S. and Canada, as reflected in the original, you know, Canada-U.S. free trade agreement in 1988, the NAFTA agreement that brought Mexico into the fold in 1994, and then, of course, the current Canada-U.S.-Mexico agreement that was negotiated during President Trump's first term. So we have this existing free trade or regional trade architecture in place, which further kind of reinforces the orientation of Canada toward the American market.”
Based on that history, Finlayson says it will be very difficult to achieve diversification from the U.S. market.
“I would say it's a very, very steep uphill climb to diversify in a significant way. I mean, marginally, you know, there has been a little bit of diversification over time, particularly in the decade kind of up to about 2011. We did see, and that coincided with China's rise within the overall global economy, we did see some diversification in Canada's exports of goods and services during the decade up to 2011. And we attribute that mainly to China's rapid economic growth, and its integration into global supply chains.”
But since 2011, Finlayson said there has been “very, very little evidence of any diversification in terms of Canada's merchandise exports, or indeed our service exports… And I think that attests to the difficulty of meeting the goals that have been set.”
One issue he points to is that the economies of Canada and the United States are “very integrated, particularly our manufacturing industries. Some of our resource industries are quite heavily integrated into the U.S. marketplace.”
He said Canada is still dependent on the U.S. for about 75 per cent of its merchandise exports, and more than half of its service exports, amounting to hundreds of billions of dollars annually.
He also pointed to the traditional ease for Canadians to do business with Americans.
“It's easy, at least before Trump, it was easy to do business in the U.S. You know, similar business culture, similar legal system, same language. A lot of companies have operations on both sides of the border, which further facilitates trade across the 49th parallel. There's a lot of movement of people, lots of Canadians familiar with the United States. Lots of Canadians have property in the United States. Lots of people have investments in the United States. Some Americans invest here.”
Finlayson also noted that with Trump in the White House there is now uncertainty about that relationship.
“And I think the Prime Minister's right to emphasize that,” he said.
“But a political goal is one thing. Actually executing on it in a market economy where actually it's businesses and companies and investors that are making the relevant decisions, not politicians in Ottawa, is going to be very kind of challenging.”
This is the first Fraser Institute study examining the trade relationship. A second essay will be more of an academic paper that “tries to explain, using, you know, economic theory and economic logic, why the Canada-U.S. trade relationship is so extensive and so dense and so sticky,” said Finlayson.
A third upcoming essay will look at offshore markets where there may be opportunities for Canada to expand trade. Finlayson said the focus will likely be on India and China, given their projected economic growth.
“Canada, we can't pick every market that we're going to try and expand trade in," Finlayson said. "There has to be a focus on the biggest and most promising markets outside of North America. And we think China and India are number one and two. So we explore that in more detail.”
