Diversifying Trade Comes at a Heavy Economic Cost for Canada

The Canada-US Free Trade Agreement, signed in 1988, aimed to provide Canadians access to the larger US market. The North American Free Trade Agreement (NAFTA) followed in 1994, creating one of the largest trading blocs worldwide.

Despite occasional trade frictions, all three countries benefited from higher economic growth and more jobs by removing many trade barriers. However, NAFTA made Canada even more dependent on the US for trade than before.

Today's world is more nationalistic, with protectionist policies like trade barriers and business subsidies in the name of 'industrial policy.' This led to Donald Trump's promise to impose tariffs to counter trade deficits and deindustrialization during his 2016 election campaign.

With the US president's aggressive behavior toward Canada starting in 2025, Prime Minister Mark Carney argued that Canada should diversify its trade to lessen dependence on America. However, trade diversification is not simple, and it can come with a major cost to the Canadian economy.