Diversifying Canada’s Trading Partnerships: Opportunities and Challenges Beyond China
Yasmin Abdul-Malik, University of Ottawa
The geopolitical landscape of the last three years has certainly emphasized the imperative for Canada to diversify its supply chain market. As tensions with China escalate, the necessity of reducing reliance on single-source suppliers and expanding trade partnerships becomes glaringly apparent. This period has served as a stark reminder of the vulnerabilities inherent in concentrated supply chains, prompting a strategic reassessment of Canada’s trade policies and economic dependencies. Canada must position itself better in the realm of trade to properly address supply chain issues and prepare for possible disruptions in international trade. As Christine Tremblay, the Executive Director of the Trade Portfolio and Strategy division at Global Affairs Canada, said, “Canada’s economy is more robust and inclusive when our trade engages the full diversity of our exporters, talent, sectors, and innovation.”
This raises the following question: with which countries should Canada endeavour to engage in trade? To explore this, let’s first examine one of our most significant trade partners: China. The value of imports in 2022 was $100.03 B, up 16.36% from 2021, making up almost 14% of total imports from all countries. Despite these staggering statistics, a poll conducted for Global News reveals that a majority of Canadians believe that Canada should reduce its trade with China. Moreover, 38% believe that Canada should sever its trade ties with China completely. According to other polls, it seems the majority of Canadians and Americans believe that Canada and the United States should further strengthen economic ties to lessen their dependence on China. These sentiments seem to be in line with Chrystia Freeland’s speech on “friendshoring”. In October 2022, the former Deputy Prime Minister delivered a speech about the idea “that democracies must make a conscious effort to build our supply chains through each other’s economies,” a concept first described by U.S. Secretary of the Treasury Janet Yellen. The main takeaway of “friendshoring” is that politics must be at the center of trade decisions, as opposed to economic interests only, and that Canada must focus its trade efforts on countries it considers its “friends” to create, in Ms. Freeland’s words, an “alliance of democracies.” Consequently, Canada’s relationship with China should be approached with careful consideration while closer ties with the United States should be evaluated in order to support “friendshoring”.
Friendshoring has many benefits. First, trade may strengthen alliances and deepen political and diplomatic ties with nations that share democratic institutions and ideals. This alignment can encourage collaboration on a variety of international problems, including security, human rights, and environmental preservation. Also, by concentrating on nations with stable political systems and the rule of law enforcement, Canada may lessen the possibility of abrupt policy changes or economic shocks that might hurt trade relations.
Nevertheless, friendshoring is not a perfect solution. Concentrating only on trading partners who share similar values may restrict access to potentially lucrative countries with diverse political systems or cultural norms. For example, “only about nine percent of [Canadian] trade is with faster-growing emerging economies like China, India, South Korea, Mexico and Brazil”. It is more difficult to penetrate new markets compared to maintaining conservative strategies with our neighboring markets; “emerging markets and Asian markets, in particular, are often seen as distant and less familiar. They are seen as risky and more expensive to penetrate.” However, it is important to look beyond what Canada has done in the past and think long-term, “Canada is losing share in the U.S. market that itself is losing share globally. Canada should instead be focused on gaining share in markets that are gaining share. This means diversifying our trade towards emerging market economies, particularly in Asia.” In addition, dependence on a small number of trading partners who share similar views can lead to economic weaknesses. In times of regional economic downturns or disruptions, a broad variety of trade relations might provide more stability. Canada recently experienced this during the pandemic, it is very difficult to imagine where Canada would be had we limited trade with China during that time. As a result, friendshoring, while with distinct benefits, may also limit some of Canada’s trade potential, and runs counter to the diversification of trade call that was made at the outset of this work.
A controversial point on friendshoring is whether it will increase Canada’s reliance on the United States, and whether that is a good or bad thing. Certainly, Canada has been dependent on the United States because there are many advantages. To begin, because of Canada’s proximity to the United States, our economies are highly entwined. By strengthening ties with the United States, Canada’s market can benefit from streamlined supply chains and lower transportation costs. As well, one cannot ignore the economic prospects, by being one of Canada’s main trading partners, the United States with its large size and purchasing power, encourages the creation of jobs and growth of the market. Thirdly, by strengthening economic ties, we can strengthen political and diplomatic ties and work even more closely in a bilateral sense on international issues. On the other hand, being tied to the United States’ economic prosperity also means being tied to its economic downfall. If Canada is too reliant and dependent on the United States, then its economy will inevitably suffer when theirs do. However, if Canada has diverse trading partners, then if the U.S. goes through economic downturns, we will have other countries to rely on. Furthermore, it will be difficult for Canada to assert its sovereignty and pursue independent foreign policy goals if it is too reliant on the United States, with such a dependency, Canada would have to largely align its interests with that of the U.S.
Ultimately, relying more heavily on the United States can have a positive impact on diplomatic relations, economic prospects, and integration. However, Canada must exercise caution in putting all of its economic eggs in one basket. In addition to seeking out and building alliances with nations that share similar foreign policies and democratic values, Canada should make deliberate measures to diversify its trade relationships, lessen economic vulnerability, and preserve its independence to pursue its national objectives. For Canada’s long-term prosperity and security, a well-balanced approach that considers both economic and strategic factors is crucial.
