Canada’s reliance on the United States as its primary export market is both a vulnerability and a strength. With over CAD 458 billion in exports to the U.S. in 2022, accounting for 76.88% of our total exports, this close relationship has been a cornerstone of our economy since much before the signing of the Canada-United States Free Trade Agreement in 1988. However, the threat of U.S. tariffs of up to 25% looms large over Canadian exporters and the trusted partnership between Canada and the U.S., making it of critical importance to address its potential impact.
Tariffs, by their nature, impose a twofold threat. Firstly, they reduce the competitiveness of Canadian goods by directly increasing their cost in the U.S. market. A 25% tariff means Canadian products are automatically priced higher than comparable American or other international goods. This increase could drive consumers to seek alternatives, cutting into Canadian exporters’ market share and reducing demand. Even if local U.S. competitors adjust their prices upwards in response, Canadian companies face narrower profit margins and a challenging road to sustaining demand.
Canada has insufficient buffer to withstand a large decline in demand because of its heavy reliance on exports to the United States. Thus the economic effects of such tariffs ripple beyond individual businesses and could lead to employment losses and slower economic growth in sectors like agriculture, forestry, and automobiles where cross-border commerce is extremely important.
From Challenges to Opportunities
Canadian exporters have the chance to reconsider their approaches and expand into international markets in order to mitigate the impact of tariffs rather than give in to the challenges they present. History provides a valuable lesson here. When the United States imposed steel tariffs in 2018, the European Union pivoted quickly, redirecting its exports toward Asia and Africa. Germany, in particular, took a proactive approach by combining retaliatory tariffs with aggressive market diversification. These efforts ultimately increased the EUs power in the negotiation and led to a renegotiation of U.S. tariffs into a more manageable quota system.
Canadian businesses can take similar action by enhancing their competitiveness and exploring new trade partnerships. For instance, focusing on product innovation can help exporters stand out in global markets. As tariffs artificially inflate the cost of Canadian goods, businesses that develop unique, high-value offerings are better positioned to retain customers despite higher prices. Similarly, improving production efficiency can offset costs, enabling companies to absorb some of the tariff impact while maintaining their appeal in foreign markets.
Beyond innovation and efficiency, strong branding and marketing efforts can allow businesses to position their products as premium or culturally unique, justifying higher prices and appealing to a broader audience.
Exploring New Markets
Diversification is the cornerstone of resilience. The global market offers Canadian exporters the chance to decrease dependence on the U.S. market by turning their attention to growth in other areas such as Europe, Asia, and Latin America. In these and other regions, Canadian businesses can have a competitive advantage in reaching these markets thanks to trade agreements such as the Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Exporting not only allows companies to reach new customers but also has a profound positive impact on businesses. According to data from Export Development Canada (EDC), exporters tend to significantly outperform non-exporters across multiple dimensions. Due to their access to more diversified markets and larger populations, firms that export generate 121% more income on average than their non-exporting counterparts. Exporters also experience faster growth as shown in a study by Industry Canada which detailed that between 2009 and 2011, 10% of exporters grew at an annual rate of more than 20%, compared to the 8% of non-exporters which experienced the same level of growth.
Beyond revenue and growth, exporting means greater productivity and competitiveness. The EDC claims that exporting Canadian manufacturers are 30% more productive than non-exporting ones. Becoming exposed to international markets helps businesses scale their operations, achieve economies of scale, and reduce costs. Moreover, entering international markets exposes businesses to cutting-edge procedures, technologies, and innovative practices that boost their productivity and competitiveness both domestically and internationally.
Another advantage of exporting is that it also provides a safety net against economic fluctuations. Businesses reliant on a single market are highly vulnerable to local economic downturns or policy changes, such as tariffs in this case. By spreading risk across several regions, companies can weather economic fluctuations more effectively. Diversification can also help create global networks of distributors, suppliers, and partners, offering a wealth of resources, more bargaining power, and connections to help businesses identify and capitalize on new opportunities.
Crucially, the benefits of exporting are not confined to companies that are new to exporting. SMEs and larger businesses that expand into additional markets beyond their initial export markets benefit in the same ways. By targeting multiple markets, exporters further reduce risk, develop deeper market knowledge, and enhance their resilience. For example, expanding into markets like Asia and Latin America builds on existing North American or European relationships and positions businesses to adapt to shifting global demand.
Lastly, innovation is fueled by exporting. Businesses are compelled by global competition to spend in R&D, embrace cutting-edge technologies, and improve their products. The EDC also explains that exporters are three times more likely to invest in new technology, training, and equipment, as well as being 25% more innovative. In addition to promoting success overseas, these advances provide companies with a competitive advantage domestically.
The evidence is clear: whether through first time exporting or new market entries, exporting transforms businesses into more robust, innovative, and competitive entities. By embracing global opportunities, Canadian exporters can achieve sustainable growth while strengthening their long-term resilience.
The Role of Prime Target
The entry into new markets can be perceived as challenging, but it is not a task that every Canadian SME has to face alone. Prime Target has considerable experience in helping businesses identify the right markets and strategies to achieve sustainable growth. Our data-driven market ranking reports provide actionable insights, ensuring that Canadian exporters can navigate the complexities of international trade with confidence.
Prime Target has aided over 350+ companies make complex international market selection decisions. For example, when a company hesitates as to where their best export potential lies in Asia they often struggle to choose between countries such as Vietnam, Malaysia, Thailand, Indonesia and the Philippines. Our market ranking reports provide clear, data-driven insights, customized to each organization’s unique needs, empowering companies, whether SMEs or large businesses, to develop detailed, actionable plans for success.To learn more about how Canadian SMEs can be supported in their global expansion, see our article “Export Government Support & Prime Target Help for Canadian SMEs“. In this article, we detail the tools available for Canadian exporters seeking to expand internationally.
The Global Market Is Calling
The challenges posed by U.S. tariffs, while significant, can serve as a wake-up call for Canadian exporters to embrace the global stage. The world is vast, dynamic, and full of opportunities where Canadian products can compete on their true merits, unburdened by artificial price inflation.
Now is the time for Canadian businesses to take action—diversify, innovate, and thrive. With the right strategies and support, the future of Canadian exports can be one of resilience and growth. Let Prime Target be your partner in this journey.
