We have reached a “What now? What next?” moment in Canadian trade 

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In January 2017, the U.S. inaugurated a new president who had campaigned on ripping up Canada’s most important economic arrangement: the North American Free Trade Agreement (NAFTA). A few weeks later, I surveyed Canda’s trade prospects in an op-ed in this paper, “Time for a third option in Canada’s trade strategy.” I argued that then-president Donald Trump’s overt “America first” protectionism signalled it was time to get serious about diversifying our trade relations to protect the Canadian economy from emerging risks in the U.S.

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Since then, much has happened. In perhaps its finest hour, the Justin Trudeau government managed to persuade Trump to pull back from the shredder and replace NAFTA with a new trilateral trade agreement, the acronymically sluggish U.S.-Mexico-Canada Agreement (USMCA). The USMCA contained just enough modification of NAFTA to allow Trump to brandish his signing Sharpie and claim to have patched up a lot of holes he felt egregious to U.S. trade interests.

Significantly, the entire agreement is up for review and renewal on Canada Day 2026. If one or more of the parties decides against renewal, it will launch the future of the USMCA into a state of critical uncertainty. In the U.S., this process will be presided over once again by Trump, who is returning to the White House in a much fouler mood on trade. During the election campaign, he threatened many protectionist measures, including an across-the-board 10-per-cent tariff (by his own admission, his favourite word) on all imports without any recognition that the very USMCA he negotiated may constrain him. On Monday, Trump threatened to slap a 25-per-cent tariff on all products entering the country from Canada and Mexico beginning Jan. 20, 2025.

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So, let’s return to Canada’s trade diversification imperative. Alongside the USMCA, Canada has continued down a parallel path by negotiating 14 bilateral trade agreements encompassing 47 countries. This campaign started with partners such as the European Union (in 2009) and now includes an eclectic mix of countries including Honduras and Jordan. Notable absentees in our collection are some very significant trading partners and prospects like China, India and the post-Brexit United Kingdom.

How is our trade diversification strategy working? Not well, I’m afraid. In 2017, the first full year of the Trump presidency, Statistics Canada recorded our exports to the U.S. as $411 billion or 74.7 per cent of total Canadian exports. By 2023, that number had jumped to $592.6 billion or 77.2 per cent of the total. In fact, since the USMCA came into force in 2020, Canada’s exports to the U.S. have increased by $200 billion — a fact that might be better left hidden from U.S. trade policy hawks. While our exports to non-U.S. markets have increased by 37 per cent since 2017, this has lagged well behind the 44.2 per cent increase in our exports to the U.S. At the same time, our economy has become more dependent on trade with our exports’ share of GDP rising from 31.5 per cent to 33.5 per cent.

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In short, since 2017 Canada’s economy has become more dependent on trade and our trade has become more concentrated on the U.S. market. Exports to the U.S. now account for a full 25 per cent of Canada’s GDP. Hence, increased protectionism will have a larger impact on Canada now than if we had managed to diversify rather than intensify our trade.

As a trading nation, this is a profound vulnerability that will be hard to address. Nevertheless, there are some actions we can take to advance our trade interests. The first is of a tactical nature involving some judicious ego-stroking of Mr. Trump’s self-image as the consummate dealmaker. We need to remind him that the USMCA is his agreement, negotiated by his team to rectify what he perceived to be real weaknesses in NAFTA. This calls for abandoning any niceties that such agreements represent a balance of interests negotiated in a fair process among participants. In this case, there is only one interest that matters. The USMCA status quo is likely to be the best we can hope for with Canadian programs such as the digital services tax and agricultural supply management in Mr. Trump’s retaliatory sights.

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At the same time, Canada should work with like-minded trading partners to resuscitate the World Trade Organization (WTO) as the guardian of global trade rules. Canadian leaders are fond of extolling the virtues of a “rules-based international order.” As comforting this may sound, at the end of the day we’re not going to be able to slogan ourselves out of this mess. One way Canada could transform words into action would be to sponsor a new Canada round of multilateral trade negotiations at the WTO.

As successor to the General Agreement on Tariffs and Trade, the WTO is a key part of the global economic architecture that has prevailed since the late 1940s. In its first decades, its member nations convened several rounds of multilateral trade negotiations to strengthen the rules governing world trade. While the WTO has grown to encompass 166 members accounting for 98 per cent of world trade, its progress has stalled — especially after it became a favoured target for the anti-globalization movement in the late 1990s. Since 2011, with the suspension of the Doha round, the WTO is now virtually inert.

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Much has happened in the world trade arena since the early years of this century. China has joined the WTO. Trade in digital goods and services has rapidly accelerated ungoverned by trade rules and delivered over an ungoverned internet. A carbon tariff has been launched in Europe. The WTO needs a transformative, modernizing boost so it can return to a role it effectively played for the first few decades of its existence.
Global trade has been chaotic over the past decade. Supply chains and trade patterns have spun into more unpredictable territory marked by accelerated protectionism and subsidy wars. Few countries would benefit more than Canada from an injection of stability into the system. While a recommitment to the WTO may not be enough to insulate us from the impacts of “America first” protectionism, it may lead to a stronger rules-based platform on which Canada could build a more diverse global trade profile.

The challenges are enormous and a potential U.S. exit from the USMCA must be treated as a very real possibility. Canada is nowhere near ready for an economic shock of this magnitude. With the USMCA’s renewal date fast approaching, we have just over a year and a half to figure this out and set a new direction in international trade.

Stuart Culbertson is a former deputy minister in the government of B.C. He served as B.C. trade representative during the Canada-U.S. Free Trade Agreement negotiations and previously worked as a trade policy specialist with the European Union.

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