Canada's Economy
Living Next to the US: Trade Dependence
How around three-quarters of Canada's exports go to the US, the Auto Pact and free trade agreements, and how 2025 US tariffs tested the relationship.
Canada’s economy is deeply tied to the United States.
Dependence
Around 75 percent of Canada’s exports go to the US.
Auto Pact
The 1965 Auto Pact created integrated car production across the border.
Free trade
- Canada-US Free Trade Agreement (1989).
- NAFTA (1994) with Mexico.
- USMCA (2020) replaced NAFTA.
Integrated supply chains
Car parts can cross the border several times before a vehicle is finished.
2025 tariffs
- In 2025, the US imposed tariffs on some Canadian goods, like steel, aluminium and cars, citing various reasons.
- Canada retaliated and Canadians boycotted US goods and travel.
- The tensions showed the risks of dependence on one partner.
Diversification
Canada signed trade deals with the EU (CETA, 2017) and the CPTPP, seeking to diversify.
The border-crossing part
A car part made in Ontario is shipped to Michigan for assembly, returned to Canada, then sent back to the US in a finished car.
Thinking free trade protects against all trade disputes
2025 tariffs showed the risks of dependence.
Key takeaways
- About 75 percent of Canadian exports go to the US.
- The 1965 Auto Pact integrated car production.
- USMCA replaced NAFTA in 2020.
- 2025 US tariffs strained the relationship.
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