What is the impact of global trade patterns on Canada's economy?

Global trade patterns have shaped the Canadian economy since Confederation and continue to dominate Canada's growth prospects. Canada is the most trade-dependent G7 economy: total trade in goods and services (exports plus imports) equals about 65 per cent of Canadian GDP, compared with about 25 per cent for the United States and 70 per cent for Germany. Canada has free trade agreements with 51 countries representing about 60 per cent of global GDP, the most extensive trade-agreement network of any G7 country.

The pattern of Canadian trade has shifted markedly over the last fifty years. In 1965 about 30 per cent of Canadian exports went to the United Kingdom and Europe; today the share is closer to 9 per cent. The United States now takes 75 per cent of Canadian merchandise exports under CUSMA. China is Canada's second-largest single-country trading partner with two-way trade of about $115 billion in 2023, although diplomatic tensions over the 2018-2021 Meng Wanzhou-Two Michaels dispute have constrained growth. The European Union, Japan, the United Kingdom, South Korea, and Mexico round out the top markets.

Trade in services has grown faster than trade in goods. Canada exports more than $200 billion of services annually, including financial services, engineering and architectural services, software and IT services, broadcasting, education, and tourism. Canadian banks, accounting firms, and engineering consultancies operate worldwide. Canadian universities recruited more than 800,000 international students in 2023, generating about $30 billion in spending and attracting future skilled immigrants.

Recent global trade shifts pose challenges. The COVID-19 pandemic exposed fragile global supply chains. The U.S.-China trade and technology disputes, the Russia-Ukraine war, the Red Sea shipping crisis, and rising protectionism have forced Canadian businesses to diversify. Federal trade policy responses include the Indo-Pacific Strategy launched in November 2022, the Critical Minerals Strategy of 2022, the Tech Talent Strategy, and the Strategic Innovation Fund's Net Zero Accelerator. Friend-shoring, the diversification of supply chains toward trusted partners, has become a guiding theme of Canadian trade policy.