NAFTA and its successor CUSMA have been instrumental in growing Canada’s trade and its economy by helping us find markets that have grown our export sector. These agreements have helped cement an economic relationship with the United States such that by 2024 “ the combined value of Canada's imports and exports of goods traded with the United States surpassed the $1 trillion mark for a third consecutive year. In 2024, the United States was the destination for 75.9% of Canada's total exports and was the source of 62.2% of Canada's total imports.” (Source: Statistics Canada, https://www150.statcan.gc.ca/n1/daily-quotidien/250205/dq250205a-eng.htm)
However, interestingly enough, the importance of the United States as a merchandise export market has actually declined somewhat and the composition of our exports to them has shifted also. Since 1999, the total value of Canadian merchandise exports to the United States grew by over 90 percent but the value of our merchandise exports to all other countries aside from the United States grew by nearly 280 percent. As a result, the US share of our exports declined from 87 percent in 1999 to 76 percent at present. As well, there has been a compositional shift.
In 1999, 30 percent of the value of our merchandise exports to the United States was motor vehicles and parts but this share declined to 11 percent by 2022. The greatest growth in the value of our merchandise exports to the United States since 1999 was energy products, followed by metal ores and then farm, fish and food products. Over the period 1999 to 2022, the energy share of our exports went from 9 to 34 percent, metal ores from 1 to 2 percent and farm, fish and food products went from 2 percent to 4 percent. On the other hand, the share of forestry products declined from 13 to 8 percent, electronic and consumer goods declined from 8 percent to 3 percent, aircraft and transportation products from 3 percent to 2 percent. In many respects, the long-term effects of NAFTA/CUSMA appear to be a decline in our export share of value-added manufacturing products and an increase in less value-added resource products.
This is of course all rather odd when viewed in the context of the Trump Administration’s desire to impose tariffs on Canadian exports. If the goal is to move auto manufacturing out of Canada, it’s importance as a Canadian export driver has already been in decline. If the goal is to make Canada hewers of wood and drawers of water to the American so to speak by having it specialize in resource inputs to the American economy – that is already happening. While there have been some increases in Canada’s exports of consumer goods, metal products and industrial equipment, by far the largest increase has been in energy products.
President Trump seems hell-bent on tariffs and applying them to everything - including energy. Why the Americans would subject such an important input into their economy to tariffs seems rather incomprehensible. Given our share of their energy needs, one suspects their demand is quite inelastic meaning that energy tariffs will have few output and employment effects in Canada and the tariff will be borne primarily by the American consumer. There may be an incentive for Americans to try and negotiate energy prices downward to compensate for the tariff impact on their consumers but that essentially means that Americans want to have cheaper Canadian energy and use tariffs on our energy as a revenue source and ultimately have us pay for both these goals. Why Canada would want to subsidize American energy consumers in this manner is an interesting question. It will be crucial for Canada to quickly find alternate energy markets to forestall such a scenario.
