Canada has conducted the majority of its international trade through a single dominant relationship for over a century. The United States has consistently absorbed between 70 and 80 percent of Canadian exports, and Canada has structured much of its economic policy — from energy infrastructure to agricultural supply chains — around the assumption of relatively frictionless access to American markets. That assumption is no longer as reliable as it once was, and the policy consequences are beginning to be felt.
The US Uncertainty Factor
The CUSMA agreement (the successor to NAFTA) provides a legal framework for Canada-US-Mexico trade, but framework and practice are not the same thing. The past several years have seen repeated instances of US trade actions — tariffs on Canadian softwood lumber, restrictions on Canadian dairy access, and energy sector disputes — that have created real uncertainty for Canadian exporters regardless of the treaty's nominal protections. Canadian business leaders consistently identify US policy unpredictability as a top strategic risk, and the federal government has explicitly acknowledged in budget documents that diversification away from dependence on the US market is a policy objective.
The Indo-Pacific Pivot
Canada's Indo-Pacific Strategy, announced in late 2022, committed $2.3 billion over five years to deepening relationships with countries in the Asia-Pacific region. The strategy is not primarily a trade document — it encompasses defence, security, development, and diplomacy — but its trade implications are significant. Japan, South Korea, Australia, and India are the primary targets for expanded trade relationships, each offering different opportunities aligned with Canadian export strengths.
Japan and South Korea represent established markets for Canadian LNG, agricultural products (particularly canola, wheat, and pork), and forestry products. The Canada-Japan LNG partnership has accelerated since Russia's invasion of Ukraine created urgency around European energy security and demonstrated the strategic vulnerability of commodity dependence on single suppliers. Canada's west coast LNG capacity, long stalled by permitting and financing challenges, has received renewed attention as a result.
India represents a more complex and potentially larger opportunity. The Canada-India Comprehensive Economic Partnership Agreement (CEPA) negotiations have been ongoing for over a decade with limited progress, reflecting the genuine complexity of aligning two very different economic structures. But the underlying trade potential is substantial: India's growing middle class, demand for agricultural commodities, and need for Canadian expertise in mining, infrastructure, and clean technology create natural complementarities that both sides have an interest in realising.
European Diversification: CETA in Practice
The Canada-European Union Comprehensive Economic and Trade Agreement (CETA), which entered into force in 2017, has produced meaningful trade increases in several sectors — particularly Canadian agricultural exports to Europe and European manufacturing exports to Canada — but has underperformed its potential in others. Canadian exporters frequently cite the complexity of European regulatory requirements, particularly in food safety and geographic indications, as persistent barriers that the agreement's legal provisions have not fully resolved in practice.
The European Union's Carbon Border Adjustment Mechanism (CBAM), which began phased implementation in 2023, creates a new dynamic for Canadian exporters of energy-intensive goods. Products entering the EU will face a carbon price equivalent to what they would face under EU carbon market regulations if they were produced domestically. For Canada, which has its own carbon pricing system that is broadly comparable in ambition if not identical in design, this creates both a challenge (proving equivalence to European regulators) and an opportunity (Canadian producers may be better positioned than competitors from countries without comparable carbon pricing).
What This Means for Canadians
The practical effects of Canada's trade diversification efforts will take years to fully materialise. Trade relationships are built on infrastructure, trust, and regulatory alignment — none of which changes quickly. In the near term, Canadian businesses with export potential would be well-served to explore the market access opportunities created by CETA and the CPTPP (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which Canada has been a member of since its inception), both of which continue to offer access advantages that many Canadian companies are not yet fully utilising.
For workers and communities, the shift in Canada's trade geography will create both disruption and opportunity. Sectors aligned with Asia-Pacific demand — LNG, critical minerals, agricultural commodities, clean technology — are likely to see investment and growth. Sectors dependent on unimpeded US market access will face ongoing uncertainty that no trade agreement can entirely eliminate.