The Fraser Institute has released a new essay highlighting the significant challenges Canada faces in diversifying its exports away from the United States. Despite the federal government's pledge to double exports to markets other than the U.S. by 2035, the size, strength, and close proximity of the U.S. economy make this goal extremely difficult to achieve.
Canada's Reliance on the U.S. Market
The study, titled "The Gravity Model and Efforts to Diversify the Markets for Canadian Exports," notes that Canada's export infrastructure and the focus of Canadian exporters have long been oriented toward the United States, the world's largest market and Canada's only neighbour. Jock Finlayson, senior fellow at the Fraser Institute and co-author of the essay, stated, "It is perhaps not surprising that Canada's export infrastructure and the main focus of Canadian exporters have for many years pointed largely towards the United States."
Historical Trends in Export Dependence
The research finds that Canada's reliance on the U.S. market for exports decreased slightly in relative importance from 1999 to 2011 but remained essentially unchanged from 2011 to 2024. The proximity and large size of the U.S. economy, along with its relatively strong economic growth compared to most other industrial countries, have reinforced Canada's dependence on the U.S. as an export destination.
Infrastructure and Policy Challenges
Much of Canada's trading infrastructure—including highways, railways, and pipelines—has been designed to facilitate trade with the United States. The existing regional Canada-U.S.-Mexico Agreement (CUSMA) further entrenches this relationship. To diversify trade away from the U.S., substantial investments would be needed to develop offshore markets and improve Canadian rail and port infrastructure. Reducing the cost of transporting products from Canada to non-U.S. markets is essential.
Role of Trade Agreements
Trade agreements with other nations that reduce or eliminate tariffs and non-tariff barriers to trade and direct investment could also help facilitate Canadian exports in non-U.S. markets. However, even with such measures, the favourable attributes of the U.S. market for Canadian exporters will make it very challenging to achieve Ottawa's goal.
Steven Globerman, Fraser Institute senior fellow and study co-author, emphasized, "Even with substantial investments in new trade infrastructure and new trade deals, the favourable attributes of the U.S. market for Canadian exporters will make it very challenging to achieve Ottawa's goal of doubling exports to non-U.S. markets by 2035."
About the Fraser Institute
The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, Montreal, and Halifax, and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life for Canadians by studying, measuring, and broadly communicating the effects of government policies, entrepreneurship, and choice on their well-being. To protect its independence, the Institute does not accept grants from governments or contracts for research.
