Canada will remain aligned with the U.S., despite recent diversification efforts: CIBC
Reducing reliance on the U.S. is becoming increasingly important in a more uncertain global trade environment, but the diversification strategy has not yet made significant gains, says a CIBC report.
“Diversifying Canada’s export base is a prudent policy objective in the current global setting, although achieving that at a scale that materially shifts the trade landscape remains a significant challenge,” according to the report by CIBC economists Benjamin Tal and Katherine Judge. “Nonetheless, today’s environment adds urgency to that goal, and any incremental progress in the area delivers tangible benefits — reducing profit volatility, enhancing margins, and encouraging capital investment.”
They added: “The current climate presents a unique opportunity for Canadian businesses to realign their strategies, reducing dependence on the U.S. market while strengthening their financial performance. Achieving this, even at the margin, will require sustained, deliberate efforts to diversify exports by both destination and product, recognizing that diversification is no longer optional, but a necessity.”
Canada already has 15 free trade agreements covering 51 countries, giving businesses access to more than 1.5 billion consumers and economies that represent over 60% of global GDP. It is also the only G7 country that has a free trade agreement with each of the other G7 members.
The report finds, however, that trade patterns have been slow to change. The U.S. still accounts for a large share of Canadian exports, although that share has fallen from 76% in 2024 to 69% over the past year, with some gains in exports going to China and Europe.
Only limited progress has been made in shifting away from the U.S. in certain sectors. “The only sector facing U.S. tariffs that has meaningfully been able to diversify is aluminum,” while other industries have struggled to find new markets or have redirected goods within Canada.
It also finds that Canada’s export mix is still heavily shaped by energy, which has grown from 13% of exports in 2000 to 25% today, even as some manufacturing industries have become more varied over time.
Although there is some progress in diversifying, “it falls short of transformative change,” the report says. “The reasons are clear: as Professor Paul Krugman put it, Canada is closer to the U.S. than to itself, while the sheer scale of the American market is difficult to resist. While the initial diversification efforts have addressed the low hanging fruit, maintaining this pace will become increasingly challenging. To provide context, we are currently navigating a global trade war. Much like during the Cold War, countries such as Canada will ultimately be compelled to align with one of the major powers. Despite recent developments, it is clear that Canada’s alignment will remain with the United States.”
