With the advent of the current trade policies of the United States, many countries are now shifting exports away from tradition trading partners. An example of this is the U.S.’s closest neighbor.
Canada’s trade landscape is changing, and the numbers tell a story that’s more nuanced than the headlines suggest. The country’s merchandise trade deficit narrowed in May 2025, a sign that Canadian exporters are adapting to a world where the United States is no longer the only game in town.
In May, Canada’s merchandise trade deficit shrank to $4.34 billion (CAD$5.9 billion), down from a record $5.6 billion (CAD$5.9 billion) in April. This improvement came even as exports to the U.S. continued to slide, reaching one of the lowest proportions on record. The narrowing deficit was driven by a combination of rising exports to other countries and a rebound in certain commodity prices, particularly gold.
The U.S. has long been Canada’s top trading partner, but that relationship is cooling. Canadian exports to the U.S. have been falling, both in absolute terms and as a share of total exports. In May, exports to the U.S. dropped by 6.6 percent, a decline that’s been attributed to ongoing tariffs and a voluntary boycott of U.S. goods by Canadian retailers and households. This is a significant shift for a country where, as recently as 2024, more than three-quarters of exports went south of the border.
What’s interesting is where Canadian goods are going instead. Exports to countries other than the U.S. jumped by 24.8 percent in May, a record high. China, the United Kingdom, Japan, Mexico, South Korea, and the Netherlands are all playing a bigger role in Canada’s export story.
While the U.S. still dominates, the growth in exports to other countries is notable. For example, exports to China and the U.K. have both topped $20 billion, and Japan, Mexico, and South Korea are all seeing increased trade volumes.
However, Canada’s recent shift toward diversifying its export markets mirrors a global movement among major economies to reduce reliance on a single trading partner and build economic resilience. For example, China has made trade diversification a central pillar of its economic strategy. Facing ongoing trade tensions with the United States, China is actively seeking new markets in Southeast Asia, Africa, and Latin America. Through initiatives like the Belt and Road Initiative, China is investing in infrastructure and forging new trade relationships, aiming to stabilize its economy and access untapped regions. This “China Plus One” approach means China maintains traditional partnerships but also builds new ones to spread risk and fuel growth.
Similarly, many Western companies and other countries are adopting dual supply chain strategies to hedge against geopolitical risks and region-specific disruptions. About 32% of surveyed businesses globally are establishing parallel supply chains, one connected to China and another independent, to ensure continued access to lucrative markets while protecting themselves from shocks. Non-aligned countries such as Vietnam, the United Arab Emirates, and Mexico are emerging as increasingly important trade partners in this new landscape, benefiting from the efforts of larger economies to diversify their trade relationships.
These global examples highlight that Canada is not alone in its efforts to diversify exports. As supply chains fragment and new trade corridors emerge, countries and businesses worldwide are rethinking their trade strategies to adapt to a rapidly changing economic environment.
