MNI: Canada Will Struggle To Wean Off U.S. Trade Dependence

Canada needs years or even decades to lessen reliance on the U.S. as buyer of three-quarters of its exports, industry executives and a former official told MNI, suggesting little way of avoiding risks of recession or stagflation from Donald Trump's trade threats.

While Prime Minister Mark Carney pushed off talks with Trump ahead of a 25% tariff due April 2, saying he won't deal with the U.S. leader until he shows "respect" and a willingness to fix a comprehensive trade deal, experts told MNI Canada lacks proper transportation links even if new orders are won in alternative markets, while recent years have seen indifference or hostility from big markets like China, India and the UK. 

“Talking about trade diversification as a viable short-term strategy is sort of like telling a 95-year-old man about the virtues of compound interest,” said Adam Taylor, a former adviser to Canada’s prime minister and trade minister and founder of advisory firm Export Action Global. “We just don’t have the time.” (See: MNI INTERVIEW: BOC To Drop Rates In Trade War: Homebuilders)

Bank of Canada Governor Tiff Macklem told reporters last week a deep trade war could push the country into recession and he's worried one-time tariff price hikes will spark longer-term inflation expectations. Compared with those short-run problems, Taylor pointed to modest gains from trade pacts Canada signed with EU and Pacific nations, saying “diversification is probably a 20-year project.”

One challenge for expanding overseas sales is transport according to Manufacturers & Exporters President Dennis Darby. “We don’t have a very good transportation system to try to get goods to market,” he said. “We have trade agreements with the Pacific Rim and Europe, we take advantage of them for commodities but we don’t take advantage of them for value-added goods.”

ALWAYS CANADA'S BIGGEST PARTNER

Canada squandered an opportunity to sell natural gas to Germany and other parts of Europe after Russia's invasion of Ukraine according to Jack Mintz, a University of Calgary professor who has advised governments on economic policy. Talk of joining the EU is no solution because Canada produces similar products like autos and food, while Europeans would likely challenge Canada's dairy and poultry quotas, he said.

“It’s not particularly clear what we are going to offer them,” Mintz said. “I’m not even sure it’s feasible or a good idea.” 

Worries about overcapacity or lost jobs at home are more prominent when dealing with China. Canada's finance minister last week again accused China of dumping products like steel in North America. (See: MNI INTERVIEW: Canada Already Chilled By Trump Tariff Threat)

Some progress is being made in Asian markets, said Keith Currie, president of the Federation of Agriculture. "China, Japan, the Philippines, South Korea, those markets because their net incomes are coming up, the middle class is doing much better and when middle class succeeds and they move away from more plant-based diets and they start eating more meats," he said. "Unfortunately that takes time."

Grain Growers of Canada Executive Director Kyle Larkin said Canada's trade habits are hard to break. "At the end of the day, the U.S. because of our integrated economies and because they're our southern neighbor, they will always be our largest trading partner, no matter tariffs or trade wars."