Canada’s latest trade data provides an indicator of the diversification away from U.S. dollar-denominated assets as tariff tensions continue to simmer between the longtime trade partners.
In March, Canada’s merchandise exports to countries other than the U.S. surged by 24.8 per cent on a month-over-month basis—the second largest increase in recorded history. At the same time, exports to the US declined 6.6 per cent, the largest drop since the height of the COVID-19 pandemic in 2020.
These changes align with the implementation of U.S. tariffs on Canadian imports and are expected to continue over the coming months after additional tariffs, including on autos and auto parts, took effect in April.
Canada’s merchandise exports overall decreased by 0.2 per cent while imports dropped by 1.5 per cent in March—reflecting slowing global economic activity and lower oil prices.
Recent trade tensions were a stark wake-up call for Canadian businesses to diversify their trade partnerships abroad and pursue more domestic opportunities.
For decades, Canada’s economy collectively put all its eggs in U.S. consumers’ basket. Exports to the U.S. consistently account for three-quarters of Canada’s total exports, while a staggering 97 per cent of Canada’s oil exports are directed to the U.S.
It’s worth noting the increase in the amount of goods that are compliant with the Canada-United States-Mexico Agreement (CUSMA) as Canadian businesses strive to avoid tariffs. CUSMA-compliant goods are currently exempt from the 25 per cent broad-based tariffs, resulting in an effective U.S. tariff rate of mostly 10 per cent on Canadian goods; this is lower than the U.S. tariff rate for goods from other countries entering the U.S.
Canada still faces significant risks from trade uncertainty due to its deep trade integration with the U.S.—and these diversification efforts are necessary for the country’s economic viability and are in keeping with broader global trends.
Should U.S. tariffs remain in effect on Canadian goods, entire new trade patterns could emerge while existing global relationships could expand to trade around, rather than with, the U.S.
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