Benjamin Tal, deputy chief economist at CIBC World Markets 10/04/25

Despite all the calls to diversify Canada’s trade, the country will end up more dependent on the United States once tariff negotiations have concluded, according to a well-known economist.

“We are in the midst of a global trade war, and in a global trade war, like in the Cold War, you have to choose sides,” Benjamin Tal, deputy chief economist at CIBC World Markets, said.

On Wednesday, U.S. President Donald Trump turned his global trade war into a faceoff with China after he announced a 90-day reprieve on higher reciprocal tariffs levied against other countries, but raised the rate on the world’s second-largest economy to 125 per cent in a tit-for-tat retaliation.

“The question is, if you have a Cold War trade war between China and the U.S. and you’re Canada, where do you go? There are many issues that (make) the choice clear,” including issues around democracy and human rights,” “but geography is definitely very important,” Tal said.

But there’s more to his outlook.

Tal said Canada has tried to diversify its trade to other countries for decades under various prime ministers, and has inked 15 trade agreements overall, but trade with the U.S. still rose during that time.

“To diversify our export machine away from the U.S., we have the 15 free trade agreements with 51 countries, and our dependence on the U.S.A. went up despite all that,” he said. “It’s very difficult to break.”

Tal believes that during negotiations for a new Canada-United States-Mexico Agreement (CUSMA), the U.S. will demand that Canada increase purchases of American defence products and natural gas, among other things and run contrary to the current national mood.

Canadians are angry with Trump’s attacks on Canada’s sovereignty and economy, with tariffs currently in effect on steel, aluminum and autos. Liberal Leader Mark Carney has tapped into that angst, arguing that Canada can no longer rely on the U.S. and will have to forge new economic ties around the globe.

“The system of global trade anchored by the United States that Canada has relied on since the end of the Second World War … is over. Our old relationship of steadily deepening integration with the United States is over,” Carney said in remarks after Trump announced his reciprocal tariff plan on April 2. “Canada must be looking elsewhere to expand our trade, to build our economy and to protect our sovereignty.”

He said Canada is actively “strengthening” trade relationships with other “reliable” countries.

But Tal thinks the sheer force of geography and the existing interconnectedness between Canada and the U.S. will ultimately override any national aspirations to even weaken existing trade ties, never mind eliminate them.

“When you talk to people in the field, you realize that it’s not so easy to do,” he said, pointing to the proximity, infrastructure and the cost of trying to break away.

He added that Canada will wind up sourcing more from the U.S., not less, after CUSMA is renegotiated.

Tal said if Canada manages to get a new deal on CUSMA, then the final tariff rate won’t be very significant, somewhere in the neighbourhood of five per cent to seven per cent, with some industries, such as energy products, exempted altogether.

“Five years from now we will wake up and realize that our dependence on the U.S. has risen, not fallen,” he said.

Stocks soared after President Donald Trump said he’d pause some tariffs on dozens of countries for 90 days, signalling a tentative reprieve in trade hostilities that has wiped out trillions from global markets and ignited fears of a United States recession.

The euphoric reaction lifted stocks after four sessions of volatile, high-volume trading pushed the S&P 500 to the brink of a 20 per cent bear-market plunge. The benchmark measure surged as much as 8.3 per cent with almost every company gaining. While bonds eased an earlier selloff, they remained down across maturities for a third day.

“The market cares because 90 days gives you much more significant time to negotiate — that’s all the market wants,” said Art Hogan, chief market strategist at B. Riley Wealth. — Bloomberg