Guest Author Terry Burton
The Fragility of Trade Relations: A Path Forward for Canada and the U.S.A.
In the modern, interconnected world, nations are continuously navigating complex relationships shaped by trade, economics, and geopolitics. For Canada and the United States, their economic ties are vast, with the U.S. and Canada being each other’s respective largest trading partner.
However, recent developments suggest that both countries face considerable challenges, particularly the vulnerabilities that Canada has exposed through its trade policies. The United States and Canada, despite sharing one of the world’s longest undefended borders and having deeply integrated economies, are not immune to the challenges posed by trade conflicts.
A potential trade war between these two close neighbors could have serious implications for both partners, especially for Canada.
This article explores the dynamics of these challenges and considers the weaknesses in Canada’s current policies that could amplify its vulnerabilities. It will also focus on Canadian leadership decisions, over many decades but in particular the last decade, which have made the country increasingly dependent on one major trading partner. Both countries, while allies and major trading partners, face risks in the event of a trade war that could disrupt their economic stability and growth.
The Strength of the U.S.-Canada Trade Relationship
The trade relationship between the U.S. and Canada is one of the most significant in the world. In 2024, close to $1.3 trillion dollars’ worth of goods and services flowed between the two nations, from oil and natural gas to machinery, agricultural products, and technology. For Canada, maintaining a strong economic relationship with the U.S. is vital. The American market represents not only a source of substantial demand but also helps drive much of Canada’s economic engine. Any disruptions in this trade, especially through punitive tariffs or trade barriers, could have lasting consequences on Canada’s prosperity.
Beyond mere statistics, the Canada/USA economic ties are bolstered by mutual investments, strong supply chains, and collaboration in industries like technology, energy, and agriculture.
The two countries share a long history of economic cooperation, built on agreements like the North American Free Trade Agreement (NAFTA), later succeeded by the United States-Mexico-Canada Agreement (USMCA). Make no mistake, both countries benefit immensely from the relationship and a trade war, if it materializes, will cause substantial pain on both sides of the border.
However, the nature of this relationship also creates a Canadian vulnerability: that is, Canada’s heavy reliance on the U.S. as a primary market for its goods. Should trade disputes arise or if U.S. economic policies shift in a more protectionist direction, Canada could find itself facing significant economic hardship. This scenario becomes all the more concerning considering the risks associated with Canada’s limited diversification and volume wise in international trade.
The Canadian Vulnerability: A History of Blocked Projects
Canada’s reliance on the U.S. market has grown in recent years, partly due to policies that have blocked or delayed critical Canadian infrastructure, and energy projects. The political climate in Canada has also hindered large-scale projects in other sectors. Stricter environmental regulations and a reluctance to move forward with resource development have created a perception that Canada is not as open for business as it once was. This reluctance has made it harder for Canada to build a more diversified and self-sufficient economy.
Projects like the Trans Mountain Pipeline Expansion, energy development projects in the oil sands, and various natural resource ventures have been halted or delayed, in part due to political opposition, environmental concerns, and regulatory bottlenecks. These decisions have exposed Canada’s economic dependence on its southern neighbor, making it extremely vulnerable in a potential trade dispute.
Again, some (and there are numerous) of the most notable examples is Canada’s failure to approve and build key pipeline projects, particularly the Northern Gateway and Energy East pipelines—in addition to dozens of other nation building projects in the energy and other fields. The decision to block pipeline construction has had broader implications, both economic and political. Both projects, which were intended to facilitate the transport of oil from Alberta to international markets, Canadian refineries and ports, have faced years of political opposition, regulatory hurdles, and delays. These stalled projects have limited Canada’s ability to diversify its markets, leaving it increasingly dependent on the U.S. for energy exports.
Again, with fewer alternatives for energy exports, Canada’s oil and gas sector faces constraints on its ability to reach global markets. This has meant that Canada has been forced to negotiate increasingly difficult terms with the U.S., and it remains vulnerable to shifts in American policy. Moreover, these delays and blocks contribute to Canada’s overall trade imbalance, negatively impacts its balance of payments, and creates lack of leverage with the U.S., as Canada is constrained and unable to diversify its energy exports sufficiently to lessen its dependence on the U.S.A.!!!
Without adequate diversification in energy and other exports, Canada is extremely vulnerable to fluctuations in U.S. policies and economic conditions. As U.S. policymakers continue to prioritize domestic energy production, including shale oil and gas, Canada’s energy sector is left in a precarious position. This potential trade war vulnerability is exacerbated by a reluctance to pursue trade deals with other nations in a manner that would reduce Canada’s overwhelming reliance on the U.S.
The Risk of a Trade War: A Shared Concern for Both Nations
A potential trade war between Canada and the U.S. would not only harm Canada’s economy, but it would also have a significant impact on the U.S., given the size of the bilateral trade relationship. Both nations would suffer from increased tariffs, barriers to cross-border trade, and disruptions in supply chains. The Canadian economy, with its reliance on U.S. exports, would be hit hardest, particularly in industries like automotive manufacturing, agriculture, and energy.
The risks are heightened by the fact that Canada’s trade policies have made it difficult to cultivate relationships with other global trade partners. By limiting its export options, Canada has positioned itself in a precarious situation where its economic interests are highly contingent on the stability and policies of its southern neighbor.
While a trade war is far from inevitable, the possibility of heightened tensions and economic friction remains a legitimate concern. Canada’s vulnerability to U.S. policy shifts underscores the need for a more resilient economic strategy that diversifies trade relationships and strengthens domestic infrastructure.
Canada’s federal and a number of provincial governments’ leadership must face the challenge of reconciling their environmental ambitions with the economic need to diversify its exports and trade partnerships. Although environmental sustainability must be a factor to consider, policies that inadvertently hinder economic development may inadvertently create vulnerabilities when facing major trading partners like the U.S.
Moreover, Canadian leadership should pursue active diplomatic efforts to bolster trade relations with other international partners, particularly in Asia, Europe, Latin America, the Middle East, and Africa, where growing demand for Canadian products could provide new avenues for diversification. Such policies would not only mitigate risk but also foster a more resilient Canadian economy that can weather the effects of trade disputes.
Solutions: Strengthening Canada’s Economic Position
1. Diversification of Trade Partners: Again, one of the most immediate solutions to Canada’s trade vulnerability is to pursue a more diverse set of trading partners. While one suspects the U.S. will remain Canada’s largest trading partner, Canada’s government should prioritize expanding trade relationships. Such diversification would reduce Canada’s dependence on the U.S. and provide a more balanced economic foundation.
2. Infrastructure Development: Canada must invest in critical infrastructure, particularly in the energy, forestry, agriculture and mining sectors. The country needs pipelines, railways, and port expansions to enable greater access to global markets. Efforts should be made to streamline regulatory processes, ensuring that infrastructure projects are not held hostage by political agendas.
3. Political Cooperation: At the federal level, Canada’s leaders must work toward a balanced approach to environmental regulations, economic growth, and resource development. Striking a commonsense balance between environmental protection and economic development is critical to moving forward with large-scale infrastructure projects. A national dialogue on the importance of these projects—backed by evidence—can help build a consensus that ensures both common sense environmental and economic goals are met.
4. Strengthening Domestic Manufacturing and Innovation: Canada should foster an environment conducive to the growth of domestic industries, particularly in high-value sectors such as technology, advanced manufacturing, and value-added resource development. By focusing on innovation and supporting Canadian businesses with incentives for research and development, the country can create new industries that will help buffer against external trade shocks.
5. Bilateral Diplomacy and Trade Negotiations: Finally, Canada must maintain open lines of communication with the U.S. through diplomatic channels and trade negotiations. This includes leveraging the USMCA and engaging in constructive dialogue to resolve potential disputes before they escalate into larger issues. By cultivating stronger political and economic ties, both countries can address challenges together and reduce the likelihood of a damaging trade war.
Conclusion: Building a Resilient Future
The trade relationship between Canada and the U.S. is vital to the prosperity of both nations. However, Canada’s current vulnerabilities—largely a result of policies that have blocked infrastructure and project development and limited trade diversification—highlight the need for a more robust and resilient economic strategy. Canada must work toward developing strategies to overcome political deadlock in the approval of major infrastructure improvements and other projects, ensuring that its resources can reach international markets beyond its southern neighbor.
The potential trade war between the U.S. and Canada, while a serious challenge, also represents a pivotal moment for Canada to address its vulnerabilities and restructure its economic policies. It is clear that Canada’s over-reliance on the U.S., particularly in resource and manufacturing industries, has left the nation exposed to external pressures. However, with strategic investments in infrastructure, regulatory reform, and diversification of trade partnerships, Canada can move toward a more secure and prosperous future.
By pursuing diversified trade partnerships, investing in infrastructure, fostering and enhancing domestic and international trade and political cooperation, Canada can reduce its dependence on the U.S. and better position itself in the global marketplace. At the same time, both nations must prioritize dialogue and diplomacy to ensure that trade conflicts do not undermine the mutually beneficial relationship they have built over many, many decades. The path forward must be one of collaboration, innovation, and a renewed commitment to shared prosperity.
Finally, as we face these turbulent times, it is crucial for Canadians to unite in the face of adversity. Rather than succumbing to the temptation of vitriol and divisiveness, we must focus on building a more resilient nation—one that is no longer dependent on a single trading partner, instead embraces a global vision of economic cooperation and growth. The road ahead may be difficult, but with the right leadership and collective will, Canada can emerge from this potential trade war stronger and more independent than ever before.
