Cultivating new trade relationships is a good idea in the face of American tariff threats, but trying to diversify away from the US remains a tall task, says BMO Financial Group chief economist Douglas Porter.
Speaking as part of a Chamber of Marine Commerce webinar earlier this month, Porter said the potential for US tariffs has created plenty of momentum toward moving trade away from the US, momentum that will hopefully continue. However, the sheer size and proximity of the American market makes it extremely difficult to reroute shipments to other parts of the world, notwithstanding the obvious logistical and political hurdles.
“I think we have to be clear-eyed and realistic about what we can accomplish over a short period of time,” Porter said.
“There is the gravity theory with trade. And that suggests trade is like gravity: it gets pulled toward the largest and closest market. It’s basically history and geography that means we’re always probably going to have a large share of our trade driven by the US. That is almost inescapable.”
Approximately three-quarters of all Canadian exports find a home in the US, and Porter said that share has remained relatively constant for decades, regardless of smaller ebbs and flows.
“You go back 50 years, and it was a roughly similar calculation.”
In practical terms, Porter said it also remains a major challenge to establish new trade deals and relationships.
Just last summer, for example, the UK broke off free trade negotiations with Canada, mainly due to a disagreement over how much tariff-free access UK producers should have to the Canadian cheese market.
“Should we do everything we can to strengthen our relationship with other economies? By all means, let’s try to open up exports elsewhere,” Porter said. “But I wouldn’t hold my breath that anything can change quickly on that front.”
American President Donald Trump has threatened 25% tariffs on all Canadian exports to the US, a move that would send shockwaves through the Canadian economy. Trump originally intended to levy the tariffs in late January but later delayed that until March. It remains uncertain if he will follow through.
