Long-sought push to diversify trade partners gathers momentum under threat of tariffs

Shipping containers are seen at the Atlantic Hub container terminal in Halifax on Monday, February 3, 2025. THE CANADIAN PRESS/Darren Calabrese

TORONTO — Finding a new partner is never easy, but the threat of U.S. tariffs has brought the need to diversify Canada’s trade relationships into the spotlight like never before.

Not that leaders haven’t been pushing on this for years. From Pierre Trudeau to Justin Trudeau, from Tiff Macklem as an academic to his current role as Bank of Canada governor and from Mark Carney during his time as governor to now as Liberal leadership candidate, there have been calls for the country to find new trading partners to reduce Canada’s stubborn one-market dependency.

More than three-quarters of Canadian exports go to the U.S. in a trend that’s persisted for decades. But President Donald Trump’s threat of 25 per cent tariffs on Canadian goods with no clear justification has experts hoping businesses will make a bigger push in other markets.

“We’ve talked about diversification for a very long time,” said Todd Winterhalt, senior vice-president of international markets at Export Development Canada.

“But it feels like we have a moment here to really recognize the benefit to individual companies, and to the broader Canadian economy.”

The federal government has already done significant groundwork since Trump’s last tariff scare to help make it easier for businesses to branch out.

Canada now has free trade agreements covering more than 50 countries, including one signed just last week with Ecuador, that together cover two-thirds of the global economy and about 1.5 billion consumers.

It’s still hard to pull away from the gravitational pull of the world’s largest economy, though. After all, it’s next door, with the same language as well as similar laws and ties that go back centuries.

But it’s not about abandoning Canada’s largest trading partner, just building up more of a buffer, said Winterhalt.

“The diversification benefit is really in resilience.”

It’s also about increasing ties with faster-growing economies, especially in Asia where the middle class is expected to grow by some 1.5 billion people by 2030.

Trade agreements are already showing some results. Canadian exports to members of the Trans-Pacific Partnership went up 38 per cent to $66 billion in its first five years, according to the Asia Pacific Foundation of Canada.

“We’re actually on a pathway to improve diversification, and the numbers are there to show it, but we’ve got a long way to go,” said Glen Hodgson, an economist and C.D. Howe senior fellow.

Canada’s also working to add still more trade agreements, especially in the Indo-Pacific region with countries like Indonesia, the world’s fourth most populous country.

Relations with the biggest markets in the region — China and India — have become more tense in recent years, but Winterhalt said there’s still lots of potential without trade agreements in place.

“Business finds a way,” he said.

Canada’s seafood exports to China, which have more than tripled in the past decade to $1.44 billion, offer a recent example of what’s possible.

Looking further back, Canada’s lentil exports also show the results of focused efforts. It’s a crop Canada hardly produced until researchers developed new strains in the 1970s that would grow well in the Prairies, and now Canada ships out more than $2.3 billion a year worth of the staple.

However, Hodgson said more is needed to improve Canada’s export infrastructure, something the government has woken up to as well with announcements like last week’s $80 million in funding to complete the Churchill, Man. export terminal on Hudson Bay.

Canada’s hardly alone in trying to break into new markets, so the calls for innovation, better productivity, and spending on better tools are also needed for competition.

Baffin Fisheries’ new ship, the Inuksuk II, is just that kind of investment. Going out for its first test run last week, the 80-metre trawler is Canada’s largest fishing vessel and is full of automated and computerized operations that process, freeze and pack up Greenland halibut and cold-water shrimp so they’re ready to ship directly to restaurants.

The vessel will mean fewer boats needed and fewer fishing runs out to sea, said chief executive Chris Flanagan.

The company, co-owned by five Inuit hunters associations, already ships around 75 per cent of its product to Asia, but is looking to break further into Europe, he said.

There were also plans to try and sell more into the U.S., but those are on hold, he said.

“With tariffs, or pending tariffs, why would we invest in a market that prices might shoot up 25 per cent overnight when we have no control over it, so all our work could be for nothing,” said Flanagan.

“You know, the big Boston seafood show is coming up. Are we going to have a big sales presence there? Well, we’ll go there to meet our European buyers.”

And while most people picture exports as haulers full of fish, coal or machine parts, Canada could also see growth on the service side, said Hodgson.

Canada can export financial services and insurance products that, while it gets a little fuzzy on the counting at times, are already proving themselves with companies like Manulife Financial and Sun Life Financial focusing expansion on Asia.

Service exports totalled $208.5 billion in 2023, including big chunks from education and travel, while about half of service exports were into the U.S. market, according to Statistics Canada.

It’s also important to fix internal trade barriers, said Hodgson, something else that is getting momentum from the tariff threats.

But it’s also up to companies to not just take the easiest route anymore, said Hodgson.

“We put free trade deals in place, we’ve done really aggressive trade promotion, but business now has to step up.”

The days are counting down to when Canada will hear about what Trump next decides on tariffs, but the push is on to make the country less vulnerable to his whims.

As Macklem warned in 2018 while a professor at the University of Toronto: “Instead of waiting for a crisis, let’s make trade diversification the priority it should have been for at least the last decade.”

This report by The Canadian Press was first published Feb. 9, 2025.

Ian Bickis, The Canadian Press