Trade Uncertainty and Investment Risks in Canada

Goldy Hyder, the CEO of the Business Council of Canada, has expressed concerns that ongoing trade uncertainty could discourage investment as Canada seeks to diversify its economic partnerships. He emphasized that the aim to strengthen trade relationships globally shouldn’t be viewed as distancing from the U.S. In fact, he warned that a lack of clarity regarding North American trade might lead to a “capital chill,” adversely affecting investment levels.

Even amidst a pivot towards attracting investment and expanding trade ties with countries in Europe and other regions, Canadian businesses still regard the U.S. as their primary market. As Hyder put it, “Even a kid with a lemonade stand would know, it’s not good for business to just have one customer.” This reflects Canada’s approach, which he refers to as a “U.S. Plus” strategy. “The United States is and will be our most important trading partner,” he affirmed.

This comes during a phase where the relationship between Canada and the U.S. has soured, with nearly 68% of Canadian exports directed to the U.S. this year. Reports indicate that around 80% of these goods are transported without tariffs due to the provisions of the U.S.-Mexico-Canada Agreement (USMCA).

Trade dynamics have been disrupted, with new restrictions emerging after recent negotiation failures, fueling doubts about the future of USMCA. Although the agreement remains active, it hasn’t been renewed in its existing format following a review in July, and negotiations continue among the three North American partners.

Hyder pointed out that businesses thrive on certainty, and the current level of uncertainty is a deterrent. He remarked, “The key here is the uncertainty can create capital chill; it will lead to hesitancy because we just can’t be sure of the environment in which we’re operating.” This sentiment resonates with the U.S. Chamber of Commerce, which is urging governments to swiftly resolve these issues.

For business leaders and investors alike, restoring certainty in the North American economic landscape is crucial, especially considering that 13 million jobs in the U.S. are tied to this partnership, according to Neil Herrington from the Chamber. He expressed the hope that negotiations could eliminate tariffs and trade restrictions while maintaining strong trilateral relations.

Prime Minister Mark Carney’s government is aiming to position Canada as a more attractive destination for global capital, with a goal of catalyzing 1 trillion Canadian dollars in investment over the next five years. This initiative will focus on various sectors like energy, mining, technology, and infrastructure.

Canada is also looking to strengthen its connections with Europe, which stands as its second-largest trading partner after the U.S., accounting for approximately $178 billion in total trade last year. Ottawa aims to uphold a “fair and stable economic relationship” with the U.S. while concurrently diversifying its trade connections.

Hyder cautioned against interpreting Canadian efforts to connect globally as a move away from North American integration. He believes it’s improbable for Canada to pursue deeper ties with Europe that might complicate its competitive stance compared to what exists under the USMCA framework. He emphasized that this framework is foundational to Canada’s trade strategy.

Furthermore, he dismissed worries that separate negotiations between the U.S. and Canada or Mexico suggest a breakdown in trilateral cooperation. “All roads point to a merger. All roads point to this coming together trilaterally,” Hyder remarked, underlining that businesses strive for a straightforward, tariff-exempt renewal of the USMCA.

Global Affairs Canada has echoed similar sentiments, arguing that restoring greater certainty would benefit all three nations involved in the free-trade arrangement. Looking forward, Hyder pointed out significant areas like energy, food security, and critical minerals where enhanced cooperation could fortify North American supply chains.

He concluded by emphasizing the importance of a unified approach, stating, “It shouldn’t be… America at the expense of Mexico and Canada. It should be America, Mexico, and Canada thinking as North Americans working together to compete globally.”