Can Carney reduce Canada’s U.S. trade dependence? 50 years of history says ‘no’

Currently, nearly 80 per cent of Canada's merchandise exports currently go to the United States. Photo by Geoff Robins/AFP via Getty Images/File

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Federal governments have for decades failed to reduce Canada’s dependence on U.S. trade, according to a new report, suggesting that Prime Minister Mark Carney faces an overwhelmingly steep climb in his effort to pivot the country away from its southern neighbour.

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In a new report, the Fraser Institute studied the last 50 years of Canada’s trade diversification efforts, which included the signing of 16 free trade agreements with non-U.S. countries between 1988 and 2020. For all that work, however, Canada hardly increased its exports to non-U.S. trade partners, particularly in the last 25 years. Meanwhile, China — seemingly the sole benefactor from Canada’s diversification push — has gobbled up virtually all of what was diverted away from the U.S. in recent decades, the report found.

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Today, nearly 80 per cent of Canada’s merchandise exports currently go to the U.S., and Carney has made it his key campaign promise to redirect a big chunk of those sales to Europe, Asia and other regions in the face of U.S. President Donald Trump’s trade threats.

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In a sharp pivot away from his predecessor in January 2026, Carney announced a trade deal with China, under which Canada agreed to cut restrictions on some Chinese EV imports in exchange for reduced tariffs on Canadian exports of canola seed and other products. The Carney government has also sought to revive trade talks with India, and Carney has expressed interest in expanding trade relations with Europe, particularly in energy, tech and defence. Included in Carney’s diversification efforts was a promise to fast-track the development of a new port in Churchill, Man., to permit exports of natural resources and other goods to Europe.

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Still, those efforts could collide with the 25 years of history that suggest diversifying away from the U.S. is easier said than done.

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Between 1990 and 2011, an average of 17.5 per cent of Canada’s exports landed in non-U.S. countries, according to Fraser Institute data. By the 2012-2024 period, Canadian governments and companies boosted that figure by a modest seven per cent, to an average 24.2 per cent of exports.

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“Canada’s merchandise and services exports and imports have become slightly more diversified away from the United States,” the report’s authors, Jock Finlayson and Steven Globerman, wrote. “However, the extent of such incremental diversification has been limited.”

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The reasons for the inability to diversify are many, but primarily revolve around the U.S. being Canada’s only neighbour, and the lack of alternative markets that equal the U.S. in terms of scale and, before Trump, shared values on free trade.

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“The main insight from this study is that there are and will continue to be substantial frictions that limit the geographical trade diversification sought by some Canadian political leaders and policy makers,” the authors said.

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Essentially all of that non-U.S. export growth was redirected to China, which accounted for 10.4 per cent of Canada’s exports in the 2012-2024 range, up from 4.2 per cent in 1999-2011. Exports to Japan, meanwhile, fell from 8.2 per cent to 5.4 per cent, and U.K. exports rose from 5.3 per cent to 7.8 per cent. Merchandise exports to India grew moderately from 0.7 per cent to 1.7 per cent.