In recent years, domestic policy debates in Canada have focused on the country's profound trade reliance on the United States. Under the United States-Mexico-Canada Agreement (USMCA), Canada enjoys highly integrated supply chains and tariff-free access. However, some economists advocate for aggressive trade diversification towards emerging markets in the Indo-Pacific and the European Union (via CETA), arguing that excessive reliance on a single partner exposes Canadian exporters to sudden protectionist policy shifts, regulatory changes, or unilateral tariffs. Conversely, industrial leaders warn that any deterioration in US trade relations would result in immediate non-tariff barriers, logistical bottlenecks, and a loss of geographic advantage, severely impacting Canada's key export-led sectors.
Fig. 1.1 – Destination of Canadian Goods Exports
| Year | % of exports to USA | % of exports to Rest of the World |
|---|---|---|
| 2011 | 74.5 | 25.5 |
| 2023 | 63.5 | 36.5 |
Using Fig. 1.1 and the information in Extract 1, explain whether Canada's balance of payments on the current account is likely to worsen as a result of a rise in trade barriers imposed by the United States.
