Trade Diversification Away from the U.S. or North American Customs Union? A Review of Canada’s Trade Policy Options

This study examines Canada’s key strategic trade policy options – whether pushing for further economic integration with the U.S., or diversifying to non-U.S. markets and reducing the degree to which Canada’s economy depends on the U.S. In particular, this study compares the economic benefits of implementing a North American customs union with those of increasing Canada’s trade with either emerging countries (e.g., India, China, Brazil) or with advanced partners such as Europe and Japan. The main conclusion of the paper is that there may be considerable benefit to Canada of diversifying some of its trade away from the United States provided that countries with more youthful populations and rapid growth, such as India, are targeted. The analysis is based on a series of recent policymodeling studies by the authors examining the economic impacts of diverse trade policies options in global economy models, taking also into consideration an important feature of the 21st century, the demographic changes around the world that accompany the globalization process for goods and services, capital and labor.