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Canadian Trade Diversification and Sanction

Executive summary

This policy brief will discuss Canada’s more proactive approach to trade diversification and sanctions as the best option for action. To that end, I will discuss how Canada relies on the U.S. for trade has been a major contributing factor to the economy’s decline over the past two decades. I will outline three distinct policy options that Canada can use to Trade diversification and sanctions, including the pursuit of free trade agreements (FTA) with emerging economies, the imposition of unilateral sanctions against states that violate international law, and Canada’s potential to be a leader in international human rights. I will conclude by outlining how these policy options would benefit Canada. However, Canada should choose FTA with emerging economies in that it will provide Canada with more market access, more investment opportunities, and a more substantial trading bloc for future trade negotiations.

Under Prime Minister Chrétien in 1989, NAFTA was signed, and its effects have had devastating consequences on Canadian manufacturing. In general, I will discuss the impact of Canada’s trade with the world as a percentage of GDP fell. Finally, I will conclude with how Free trade agreements (FTA) with emerging economies in Canada can pursue to diversify its trading partners and increase its international standing.


Canada has made significant strides to diversify its trading partners in the last few years. In 2016, the top five of Canada’s trading partners were China, the U.S., Mexico, and Germany. Canada’s current free trade agreements (FTA) with 17 countries cover 45 percent of world GDP and are worth $813 billion in annual trade. Since ancient times, provisions for sanctions between states have been a part of international relations. They are means to pressure other states into changing their policies on issues that the sanctioning state deems significant, usually human rights violations or actions deemed to be contrary to international law or morality. However, when considering Canada’s trade diversification, the Canadian sanction regime has covered a broad range of activities, including the freezing of assets and economic resources, the Creation of export restrictions, Suspension of diplomatic relations, and Prohibition against military sales.

Nonetheless, it is in the most significant interest for Canada’s trade diversification and sanction future to pursue the FTA Policy as a critical instrument to help Canadian trade diversification. This policy will mitigate the adverse effects of the economic sanctions on the Canadian economy by concentrating on the economic and political gains that would be garnered to build a long-term trade diversification plan effectively. Canada’s trade diversification policy is in line with its foreign policy and national interests, as it is a means to ensure that Canada remains an influential player amongst the international community. In addition, it ensures that Canada maintains a strong economy domestically through increased employment rates, which in turn strengthen Canada’s ability to invest in its human capital and resources. The following sections will examine Canada’s foreign policy objectives and how they relate to trade diversification. Finally, this paper will conclude by examining how FTA could potentially be used as a tool for pursuing Canada’s trade diversification goals.

  • Free trade agreements (FTA)

With emerging economies, Canada’s trade diversification strategy has been underwhelming. This is because Canada relies heavily on the U.S. market for trade, with exports to the U.S. accounting for over 90% of all Canadian exports and approximately half of GDP. In addition to this, the U.S. is Canada’s top destination for both foreign direct investment and portfolio investment. This has resulted in a significant trade imbalance where Canada imports more than twice as much from the U.S., instead of what it exports to the U.S. Consequently, this leaves Canada vulnerable to any changes in economic conditions in the U.S., such as recessions or unexpected changes in interest rates. Therefore, Canada is well-positioned to adopt a universal policy in scope, multilateral in nature, and directed at promoting the rule of law. This policy is the pursuit of free trade agreements (FTA) with emerging economies, particularly the U.S. FTA with emerging economies will provide Canada with more market access, more investment opportunities, and a more substantial trading bloc for future trade negotiations.

  • The implementation of unilateral sanctions against states

In recent years, the implementation of unilateral sanctions against states has been a significant part of the United States’ foreign policy. The United States has imposed sanctions on countries such as Iran, North Korea, and Russia to limit their military and economic power. Sanctions have been used to force countries into complying with international norms. They are one of the few tools that can be used by the international community against rogue states such as North Korea. The United States has also used sanctions to comply with its trade policies. In line with that, Canada should also adopt unilateral sanctions against states that violate international law. As a member UN, Canada is expected to uphold the UN Charter and its principles. The Agreement of the United Nations states that all UN members will refrain from using or threatening force against each other. It is, therefore, Canada’s duty to impose sanctions against any state that threatens to use force against another state. This can be done through economic sanctions, such as freezing assets and restricting trade with a violating state’s economy. However, Canada cannot impose these sanctions on its own; it must work in concert with other states to create an effective deterrent for violating states. In addition, some states may violate international law but not pose a threat to other countries; in these cases, Canada should not impose unilateral sanctions on them.

Leadership Policy

The potential to be a leader in international human rights is an area that Canada should overlook because it will have tangible benefits. These benefits include expanding exports, enhancing the economy, and increasing Canada’s international image. There is also evidence that being a leader in international human rights has a positive effect on trade flows with other countries and improves diplomatic relations.

Currently, the U.S. is the largest Canada’s trading partner, accounting for nearly 70 percent of all Canadian imports and exports. This disproportionately high level of trade dependence on the U.S. has contributed to Canada’s declining economic performance over the past two decades. This decline can be attributed partly to the strength of the Canadian dollar due to low-interest rates and partly due to more extensive U.S. productivity growth. Therefore, for Canada to remain competitive globally, it must find new trading partners and diversify its exports.


From a critical perspective, I highly recommend (the FTA) policy for Canadian Trade diversification and sanctions that responds to the problem of Canada’s trade despondency on the U.S. This is because the FTA will provide Canada with more export opportunities, and Canadian companies will have an easier time exporting their products and services to other countries. With an FTA in place, Canadian companies are expected to expand their businesses into new markets and increase their exports to these countries. This will create more jobs and encourage further economic growth in the country. Furthermore, it is anticipated that this type of growth will benefit not only Canadian companies but also those who export to Canada and those within the country who operate exported businesses.

Additionally, Canada’s trade diversification will be aided by the FTA. First, FTA will improve Canada’s access to other markets. The U.S. is the biggest Canada’s trading partner, and it accounts for more than half of all Canadian imports and exports. Therefore, any trade deal that opens new markets for Canadian products and services would help the country diversify its trade. The FTA will also provide Canada with preferential access to U.S. markets by eliminating tariffs on various goods and services traded between the two countries. This is expected to result in profitable trade between Canada and the U.S., which should lead to more incredible economic growth for both countries and exporters who export their products to both countries and importers who import from both countries.


In conclusion, Canada’s resource advantage has shaped the country’s economic development in the twentieth century, generating rapid economic growth, rising incomes, and rapidly declining poverty rates. In 2000, however, the growth rate in non-resource sectors stalled, and Canada’s poor productivity performance relative to other countries led many to question whether the new economy would find Canada wanting in the twenty-first century. Under the prime minister’s leadership, the federal government responded by launching negotiations on several significant regional FTA with Canada’s most important trading partners, Chile, Singapore, Jordan, and many Central American nations, concluded by 2005. While sure to enhance Canadian exports and improve access to foreign markets, these efforts have fostered speculation about a more ambitious goal: creating a North American common market via NAFTA’s successor pact. Adding Mexico to NAFTA was intended not only as a means of gaining greater bargaining power vis-à-vis U.S. interests but also reflected an underlying conviction that eliminating barriers to trade among continental partners would lead them into deeper cooperation on a variety of fronts such as labor mobility, environmental regulation, and corporate taxation. Consistent with his Conservative Party’s historical pro-trade stance, Prime Minister Harper sought expanded FTAs with Colombia and Peru.


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Free, A. Canadian, and Open Indo-Pacific Vision. “Indo-Pacific Resilience, Prosperity and Stability: Canada’s Capabilities-led Approach to Strategic Free and Open Indo-Pacific Engagement.” (2021).

Laurens, Noemie, Zachary Dove, Jean Frederic Morin, and Sikina Jinnah. “NAFTA 2.0: The greenest trade agreement ever?.” World Trade Review 18, no. 4 (2019): 659-677.

Likhacheva, Anastasia B. “Unilateral Sanctions in a Multipolar World.” Russia in Global Affairs 17, no. 3 (2019): 109-131.

Lim, Preston. “Sino-Canadian relations in the age of Justin Trudeau.” Canadian Foreign Policy Journal 26, no. 1 (2020): 25-40.

MacGibbon, Duncan. “The Canadian Grain Trade 1931-1951: Heritage.” (2020).


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