Trade, Power, and Pragmatism

For Canada, trade is a cornerstone of our global relevance. While we lack the population and scale to dictate geopolitical outcomes, we can exert influence through economic integration, through the strength of our key institutions, and through our network of global relationships. Connecting Canada’s trade and foreign policies into a single strategic framework will be essential if Canada is to navigate an increasingly volatile and transactional international environment.

Today, we rely on trade for approximately one-third of our income. It represents almost two-thirds of Gross Domestic Product (GDP) and supports nearly one in six jobs. With a population of just over 40 million, Canada’s economic prosperity depends on our ability to buy and sell goods and services far beyond our borders, making trade critical to our foreign policy thinking. Trade agreements, investment relationships, and participation in global institutions aren’t just economic levers; they are also the channels through which a “middle power,” like Canada, builds alliances and influence.

Despite this reality, too often, trade policy is treated solely as a commercial driver untethered from our standing in the world. That is necessarily changing. Canada is increasingly recognizing that economic relationships are inherently strategic. Trade flows, supply chains, and investment decisions are all shaped by geopolitical considerations, and in turn shape geopolitical outcomes. Tariffs, sanctions, and regulatory controls are now wielded by governments as tools of statecraft.

For Canada, the implication is clear. Trade policy is foreign policy. Market access and diversification are strategic assets, while economic vulnerabilities create geopolitical risk.

Canada needs a more integrated approach that aligns trade and investment strategy with diplomatic priorities. Prime Minister Mark Carney’s pivotal Davos speech made this point in spades. “The old order is not coming back,” he said, arguing that a country like Canada must build strength, resilience, and partnerships across the world as it is. That means embracing trade diversification by building or strengthening partnerships with countries around the world, including the world’s three mega-economies of the future: the U.S., China, and India. Together, they account for almost 43% of GDP, based on purchasing power parity (PPP).

Trade diversification is not simply an economic objective; it is now a foreign policy imperative that must be pursued pragmatically. As recent analysis highlights, diversification that ignores geopolitical realities or supply chain dynamics can simply shift risk rather than reduce it.

The Limits of the Current Model

For decades, Canada has relied on multilateralism to extend its influence. Institutions such as the World Trade Organization (WTO), and frameworks like the Comprehensive Economic Trade Agreement (CETA) with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have allowed Canada to anchor itself in a rules-based trading system that provides predictability and access to global markets.

This remains a critical pillar of Canadian foreign policy. However, multilateralism is under immense strain. The erosion of institutional dispute resolution mechanisms and the rise of economic coercion highlight the limits of rules alone. Today, Canada has 15 active trade agreements that provide Canadian exporters with access to 1.5 billion customers in 51 countries, representing more than 60 percent of global GDP.

Yet the results have been uneven. Despite significant policy ambition and an extensive trade agreement network, Canada’s exports remain heavily concentrated in the United States, which accounted for 75.9% of total merchandise exports in 2024, while recent growth in overseas exports has not always been broad-based or clearly sustainable. The Canada-United States-Mexico Agreement (CUSMA) remains a cornerstone of Canada’s economic prosperity and is critical to maintaining what is one of the most integrated trading partnerships in the world. The United States is and will continue to be Canada’s most important trading partner. But, in an increasingly uncertain global environment, Canada must continue to broaden its range of trading relationships with other markets around the world. Underpinning one of the most integrated and productive trading relationships in the world. Diversification is not about replacing our key trading relationship; it’s about strengthening our economic security and creating new opportunities for more Canadian businesses to compete and grow.

A more pragmatic approach, one that recognizes the world as it is, requires Canada to align its trade priorities with geopolitical realities, focus on sectors where Canadian firms can compete globally, deepen engagement with other middle powers as growth markets, and ensure that trade agreements translate into sustained commercial presence rather than simply improved market access.

Fortunately, the Government of Canada has prioritized better alignment of our trade priorities with today’s geopolitical realities. But there are additional steps that can be taken. Yet strategy alone is not enough. Canada’s foreign policy ambitions ultimately depend on companies capable of competing internationally. A critical gap in Canada’s approach is the limited integration of corporate strategy into foreign policy thinking. Globally competitive firms, particularly those operating at scale, are essential to translating trade policy into real influence.

Corporate “global champions” are not simply beneficiaries of trade policy; they are strategic assets. By anchoring Canada in global value chains, building durable relationships in key markets, projecting Canadian standards and governance practices, and diversifying international operations, they help extend Canada’s economic influence while strengthening its long-term resilience.

Canada has historically produced too few firms with the scale and international reach to shape markets beyond its borders. That is not a failure of government alone, nor is it something the private sector can solve in isolation. Companies need the ambition and discipline to invest, innovate, take risks, and stay committed in priority markets. Governments, for their part, need to create the conditions that allow Canadian firms to grow at home and compete abroad.

The task now is to bring those responsibilities together in a more deliberate partnership, one that links corporate ambition with clear national priorities, coherent policy and sustained execution. Four priorities stand out.

Competitive Long-Term Growth Capital

Ensuring high-potential Canadian firms can access patient, market-disciplined capital to scale globally is essential, while preserving the independence of institutional investors and avoiding support for firms that lack clear commercial promise. The goal should be to close real financing gaps, not politicize pension investment or subsidize weak business models.

Strategic Deployment of Trade Diplomacy

Canada should build on the work of the Trade Commissioner Service by deploying trade diplomacy more selectively and strategically, focusing on priority markets, sectors and firms with credible global potential, and coordinating those efforts with broader foreign policy objectives. The aim should not be to replicate routine export support, but to ensure Canada’s diplomatic and trade tools are aligned behind opportunities that materially advance both commercial and national interests.

Disciplined Sector and Market Prioritization

Public and diplomatic support should focus on a limited number of sectors where Canada has credible strengths, clear global demand and firms capable of scaling internationally, such as financial services, energy transition, infrastructure and advanced manufacturing. The same disciplined approach should apply to markets where the growth opportunity is greatest, including China, India, Indonesia, and Vietnam. Prioritization should be transparent, commercially grounded, and reviewed regularly to avoid protecting incumbents or turning industrial strategy into regional politics.

Embedding Canadian Firms in Global Value Chains

Canada should support outward investment, partnerships and market access that position Canadian companies as indispensable providers of goods, services, capital, expertise and standards in priority markets, not merely as exporters of commodities or finished products. This should include a deliberate focus on services where Canada has global strengths, including financial services, insurance, asset management, engineering, education, professional services, digital technologies, AI and clean technology. Outward growth should strengthen, not hollow out, Canada’s domestic base by anchoring global headquarters, intellectual property, talent and decision-making at home.

Trade as Statecraft

Critically, this agenda must be tightly integrated with foreign policy. Supporting Canadian firms abroad is not simply export promotion. It is a means of strengthening Canada’s geopolitical presence, reinforcing partnerships and shaping global standards.

Canada’s identity has long been rooted in its support for a rules-based order, human rights and international cooperation, all of which remain important sources of credibility and soft power.

But a more fragmented and transactional global system requires a different approach. Pursuing trade and foreign policy in isolation risks undermining both. Likewise, prioritizing values without considering economic interests, or prioritizing economic interests without considering values, can weaken Canada’s position.

A more effective approach is one of “principled pragmatism,” as Prime Minister Mark Carney argued in Davos. That means defending Canada’s core values where they matter most, while engaging broadly to maintain the country’s economic and strategic relevance. It also means recognizing trade as both an economic and geopolitical tool, and better aligning foreign policy, trade strategy and corporate capability.

For Canada, the path forward is not to choose between trade and foreign policy, or between values and interests. It is to integrate them. A successful middle power strategy for the current environment requires treating trade as a central instrument of foreign policy, strengthening multilateral institutions while building pragmatic partnerships, diversifying economic relationships in a targeted and strategic way, and enabling Canadian firms to operate as true global champions.

By more deliberately linking its economic and diplomatic tools, Canada can move from reacting to global shifts to shaping them, preserving both its prosperity and its influence in an increasingly competitive world.