This article originally appeared in the Financial Post. Below is an excerpt from the article.
By Philip Cross, March 6, 2025
It is a natural reflex in the face of U.S. tariffs on Canadian exports to seek to diversify our exports to other markets. And it makes sense, but only when done in accord with market forces and on the understanding that diversification is limited by the importance of regional trading blocs in global trade.
It is well documented that limiting our oil and gas exports to the U.S. has depressed our export price and cost Canada tens of billions of dollars in lost revenues. There is clearly an overseas market for our oil and gas that has been taken out of play by the federal government’s refusal to allow pipeline construction. The government’s own Trans Mountain Pipeline helps prove pipelines’ profitability, despite being 500 per cent over budget.
Some of Canada’s exports are already diversified to overseas markets. Almost half of mining exports go to non-U.S. markets, while many of our agricultural products would be hard to sell in the U.S., since it already grows many of the same crops we do.
Diversification is well and good. But we should not pursue overseas markets when they are not as profitable as selling domestically or in the U.S. — even with tariffs. And often these markets don’t exist. As Richard Baldwin demonstrated in his 2016 book, The Great Convergence, despite all the talk about globalization most international trade occurs within three large regional trading blocs, which he calls Factory Asia, Factory Europe and Factory North America. This leaves only limited opportunities to develop trade with Latin America, Africa, the Middle East and the Indian sub-continent.
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Philip Cross is a senior fellow at the Macdonald-Laurier Institute.
