International trade is central to Canada because access to foreign customers allows companies in a relatively small domestic market to expand production and employment. Imports also broaden the range of goods and services available to businesses and households.
Open trade can keep prices lower by allowing countries to specialize, providing products Canada does not produce and increasing competitive pressure on domestic suppliers. Those gains developed over decades in which barriers generally fell and cross-border production became more integrated.
That environment is now changing. Tariffs and other restrictions are altering where goods and services are produced, forcing Canadian companies and workers to adjust supply chains, markets and investment plans rather than treating established trade patterns as permanent.
China’s rise is one structural force behind the shift. It now accounts for about one-third of global manufacturing and competes in complex products such as aircraft and electric vehicles, while the share produced by advanced economies including Canada has declined.
The United States has used tariffs to encourage more manufacturing at home. Its imports from China have fallen sharply since broad measures began in 2018, and wider U.S. tariffs are now extending the adjustment beyond the bilateral U.S.-China relationship.
Canada has faced lower tariffs than many other countries, giving some exporters a relative advantage in reaching the U.S. market and an opportunity to replace international competitors. That advantage is uneven: tariffs still damage many Canadian firms and weigh on investment and activity overall.
Uncertainty about the future of the Canada-U.S. relationship is itself a cost, even where trade-exposed sectors have held up better than initially feared. Companies must decide whether to redirect exports, reorganize production or postpone capital spending without knowing how durable current rules will be.
The Bank of Canada cannot reverse structural changes in global trade through monetary policy. Its stated contribution is narrower but important: keeping inflation low, stable and predictable while businesses and workers adapt to a less efficient and more fragmented trading system.
