Taking Stock: The state of trade in Canada

Key Concepts

• Trade Friction: Economic challenges arising from tariffs and geopolitical tensions affecting export volumes.
• Technical Recession: A period of economic decline characterized by two consecutive quarters of negative growth.
• Commodity-Dependent Economy: Canada’s reliance on raw materials (crude oil, gold, wood) for a significant portion of its export value.
• Service-Sector Exporting: The growing importance of non-tangible exports like finance, insurance, and professional/scientific/technical services.
• Market Diversification: The strategic shift of Canadian businesses to reduce reliance on the U.S. market by expanding into Europe, the Indo-Pacific, and Latin America.

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1. State of Canadian Trade: By the Numbers

The Canadian trade landscape is currently undergoing a period of adjustment characterized by the following data points:

• U.S. Dependency: The U.S. remains the primary partner, accounting for 71.7% of exports—the lowest share since the 1980s.
• Export Values: Total exports reached approximately $556 billion in 2025. Of this, $400 billion went to the U.S., $34 billion to the U.K., and $24 billion to China.
• Sector Performance:
  • Growth: Gems and precious metals (+30.1%), aircraft/spacecraft (+4%), and machinery/computers (+2.3%).
  • Decline: Wood exports fell by 9.7%.
• Trade Agreements: While Canada has 15 free trade agreements, 90% of total exports are funneled through just four: CUSMA, the Canada-UK deal, the Trans-Pacific Partnership, and CETA (EU).

2. Economic Resilience and Market Shifts

Pedro Antunes, Chief Economist at Signal 49, provided an assessment of the Canadian economy:

• Economic Status: Canada experienced a "technical recession" in late 2024 and early 2026. The economy is currently described as "flat," with stagnant labor and employment performance.
• Resilience: Despite trade wars and initial projections of a 6% decline in export volumes, the actual decline has moderated to approximately 2%. Antunes notes that the U.S. continues to purchase Canadian goods (notably aluminum) due to a lack of domestic production capacity, demonstrating a forced interdependence.
• Regional Impact: The economic downturn is not uniform; Ontario and Quebec are experiencing the most significant hits to economic activity and employment.

3. The Rise of the Service Sector

A critical shift in the Canadian economy is the transition toward knowledge-based exports:

• Growth Metrics: Professional, scientific, and technical services (accounting, engineering, etc.) have historically created jobs at four times the pace of other business sectors.
• Economic Contribution: Services now account for approximately 25% of the total value of Canadian trade.
• Future Outlook: Antunes highlights that while this sector has been a pillar of success, 2025 saw a softening in employment growth. He identifies Artificial Intelligence (AI) as a double-edged sword: it is a key driver for future productivity but also a potential source of labor market disruption.

4. Business Strategy and Diversification

Canadian businesses are actively attempting to pivot away from total reliance on the U.S. market:

• Global Ambitions: Of the 53,000 Canadian businesses trading globally, 65% plan to enter new markets within the next two years.
• Diversification Targets: 43% of businesses are now exporting to multiple global markets. The preferred non-U.S. destinations are:
  • Europe (45%)
  • Indo-Pacific (30%)
  • Latin America and the Caribbean (20%)
  • Mexico (18%)

5. Synthesis and Conclusion

The Canadian economy is currently in a fragile state, balancing the effects of a technical recession with a slow recovery in export volumes. While the country remains heavily reliant on commodity exports and U.S. trade, there is a clear, data-driven trend toward diversifying into new global markets and expanding the service-based economy. The primary challenge moving forward is maintaining this momentum in the face of regional economic disparities and the potential labor disruptions posed by AI, while continuing to leverage the 15 existing free trade agreements to reduce the historical over-reliance on the U.S. market.