The share of Canadian exports shipped to the United States fell to 66 percent in July, down from recent levels of roughly 75 percent and marking the lowest reading since 1997 outside the pandemic. This significant shift, detailed in a new report by the Public Policy Forum (PPF), signals a critical juncture for Canada’s economic strategy, prompting a call for a proactive and comprehensive approach to global trade diversification. The report, authored by Steve Verheul, a distinguished PPF fellow and former chief negotiator for landmark trade agreements like the Canada-United States-Mexico Agreement (CUSMA) and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), underscores the urgent need for Canada to move beyond its deep-seated reliance on the U.S. market.
From Reliance to Resilience: A Strategic Imperative
Verheul’s report, titled "From Reliance to Resilience," meticulously outlines seven actionable recommendations designed to reorient Canada’s trade landscape. The core argument is that simply signing trade agreements is insufficient; Canada must actively cultivate the infrastructure, investment capacity, and commercial strategies necessary to translate market access into tangible economic benefits, including robust exports, increased foreign investment, and job creation. This initiative comes at a time when global economic dynamics are increasingly volatile, and geopolitical shifts necessitate a more resilient and diversified economic foundation for Canada.
The report highlights a concerning trend: the proportion of Canadian imports from the U.S. also saw a slight decline, standing at 59 percent of Canada’s total imports. While this might appear as a balanced shift, the underlying reality is that Canada’s economic destiny remains disproportionately tied to its southern neighbor. Verheul’s analysis suggests that a more strategic and intentional approach is required to foster genuine diversification, rather than passively observing market share fluctuations.
Key Pillars of the Diversification Strategy
The PPF report’s recommendations are multifaceted, addressing both the immediate challenges and the long-term strategic imperatives for Canada’s global economic engagement. These seven moves aim to create a more dynamic and less vulnerable Canadian economy.
1. Competitiveness Test and Strategic Sectoral Focus
A fundamental recommendation involves implementing a rigorous "competitiveness test" for key Canadian industries. This test would identify sectors with the highest potential for global growth and assess their readiness to compete on the international stage. The report, citing recent analysis from RBC, points to sectors such as oil and gas, metals and minerals, electricity, agriculture and food processing, defense, and space as prime candidates for export-oriented growth. By focusing resources and policy support on these areas, Canada can maximize its chances of success in non-U.S. markets.
This approach acknowledges that not all sectors are equally positioned for international expansion. A targeted strategy allows for more efficient allocation of government support, research and development funding, and trade promotion efforts. The aim is to nurture "export champions" that can drive significant economic gains for the nation.
2. Ambitious Non-U.S. Export Target: A $300 Billion Goal
A cornerstone of the proposed strategy is an ambitious goal set by Ottawa: to double non-U.S. exports over the next decade. This translates into generating an additional $300 billion in trade with countries beyond the United States. This target is not merely aspirational; it is backed by the establishment of a new Strategic Exports Office within Global Affairs Canada. This office is tasked with coordinating interdepartmental efforts to facilitate and promote Canadian exports across various global markets.
The creation of this dedicated office signifies a heightened commitment from the federal government to actively manage and enhance Canada’s export performance. It suggests a move away from a more laissez-faire approach towards a more interventionist and strategic management of trade policy.
3. Leveraging Existing Trade Agreements: Unlocking Untapped Potential
The report critically points out that existing trade agreements, negotiated at considerable effort and expense, remain under-utilized. Global Affairs Canada data indicates that only 60 percent of the potential value within Canada’s trade deal with the European Union is currently being harnessed. This highlights a significant gap between market access and actual commercial activity.
Canada’s extensive network of trade agreements, which includes pacts with all other G7 countries and 15 additional agreements covering 51 nations, presents a substantial opportunity. The PPF report emphasizes the need to move beyond mere ratification and actively support Canadian businesses in leveraging these agreements. This could involve enhanced trade missions, targeted market intelligence, and streamlined regulatory processes to help companies navigate the complexities of international trade.
4. Strengthening the Canada-EU Relationship and CPTPP Opportunities
The report identifies the evolving relationship between the European Union and the 12 parties to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as a particularly promising avenue for diversification. Together, these blocs represent over 30 percent of global trade, more than double the share involving the United States. This presents a substantial opportunity for Canada to deepen its economic ties with a significant and dynamic global market.
The CPTPP, in particular, offers a framework for enhanced trade and investment among its member nations, many of which are key trading partners for Canada. Fostering stronger collaboration within this bloc, alongside strengthening the Canada-EU economic partnership, can provide Canadian businesses with greater market access and reduce their dependence on the U.S. market.
5. Catalyzing Investment: The $1 Trillion Commitment
Attracting foreign direct investment (FDI) is another crucial component of the diversification strategy. The PPF report notes that FDI into Canada rose to $100 billion in 2025, reaching its highest level in a decade. This positive trend is supported by initiatives such as the federal Canada Strong Fund, which carries a commitment to catalyze $1 trillion in new investment across Canada over the next five years. Furthermore, an upcoming investment summit in Toronto, scheduled for September 14-15, aims to bring together domestic and international investors to explore opportunities within Canada.
This focus on investment is critical for building the productive capacity and infrastructure needed to support expanded export activities. Increased FDI can bring not only capital but also technology, expertise, and access to global supply chains, further enhancing Canada’s competitiveness.
6. Addressing Structural Challenges in Key Sectors
The report also delves into specific challenges within critical Canadian industries. The automotive manufacturing sector, for instance, faces fundamental ongoing challenges if Canadian partners are expected to serve primarily as suppliers to U.S. firms. The report notes that some vehicles cross the Canada-U.S. border as many as eight times before final assembly, highlighting the intricate and often complex integration within the North American supply chain.
Verheul’s assertion that "we need to ensure that any ‘Fortress North America’ doesn’t become more effective at locking Canada in than in locking other competitors out" underscores the need for Canada to maintain its own strategic autonomy within the North American trading bloc. This involves fostering Canadian-led innovation and value-added activities, rather than simply acting as an appendage to U.S. manufacturing.
7. A Long-Term Vision for Competitiveness and Resilience
Ultimately, Verheul emphasizes that trade diversification is not a quick pivot but a long-term endeavor. "It is a long-term effort to make Canada more competitive, more resilient and better able to protect its economic interests in a much less predictable world," he stated. This strategic shift requires sustained commitment, adaptability, and a willingness to make difficult choices, potentially involving a greater initial emphasis on natural resource exports and a more measured approach to manufactured goods in the early stages of diversification.
Broader Implications and the Path Forward
The implications of Canada’s reduced reliance on the U.S. market are far-reaching. A more diversified export base can lead to greater economic stability, insulating Canada from economic downturns or policy shifts in its largest trading partner. It also presents opportunities for Canadian businesses to tap into new markets, innovate, and enhance their global competitiveness.
However, the transition will not be without its challenges. Canadian businesses will need to adapt to new market demands, navigate different regulatory environments, and build new supply chain relationships. Government support in terms of market intelligence, trade finance, and diplomatic engagement will be crucial to facilitate this transition.
The PPF report’s call for action serves as a timely reminder that economic prosperity in an increasingly interconnected and unpredictable world requires strategic foresight and deliberate action. By implementing the seven recommendations outlined in "From Reliance to Resilience," Canada can chart a course towards a more robust, diversified, and ultimately more resilient economic future. The coming years will be critical in determining Canada’s ability to successfully navigate this strategic imperative and solidify its position as a competitive player on the global economic stage.
