Canada has a relatively small economy and depends on trade to grow and maintain its living standards. Most of that trade takes place with the United States. Traditional economic models show that trade follows “gravity.” It makes sense that Canadian firms would do most of their business with the world’s largest market next door. For many decades, free trade with the U.S. boosted Canadian living standards far above what they otherwise would have been.
The relentless trade shocks imposed by U.S. President Donald Trump starting in 2025 challenge Canada’s long-held assumptions about predictable U.S. market access. It is now urgent for Canada to expand trade across both traditional and new markets, and across different types of trade.
Canadian trade and trade diversification discussions largely remain, understandably, focused on physical products crossing borders. This is an important but narrow vision of trade. Recent advances in AI capabilities build on the digitization of the economy to create entirely new tradables. They change the economics of selling to distant markets, allow even the smallest companies to export, and reshape where value is created. The most valuable parts of trade are now the continuous flows of data, digitally delivered intelligence, AI models, and products and services that incorporate AI capabilities.
We are having two separate conversations in Canada: one about trade and trade diversification and the other about AI. There is only one mention of trade in the 2026 national AI strategy. The 2025 federal budget’s trade diversification strategy does not mention AI-related trade at all, and only briefly mentions digital services exports.
This paper examines how advanced AI capabilities are having profound impacts on Canada’s trade, outlines some of the implications, and argues that Canada’s trade strategy needs to change as a result.
Key Takeaways
- Canada has a relatively small economy and depends on trade to grow and maintain its living standards. Most of that trade takes place with the United States. Traditional economic models show that trade follows “gravity.” It makes sense that Canadian firms would do most of their business with the world’s largest market next door. For many decades, free trade with the U.S. boosted Canadian living standards far above what they otherwise would have been.
- The relentless trade shocks imposed by U.S. President Donald Trump starting in 2025 challenge Canada’s long-held assumptions about predictable U.S. market access. It is now urgent for Canada to expand trade across both traditional and new markets, and across different types of trade.
- Canadian trade and trade diversification discussions largely remain, understandably, focused on physical products crossing borders. This is an important but narrow vision of trade. Recent advances in AI capabilities build on the digitization of the economy to create entirely new tradables. They change the economics of selling to distant markets, allow even the smallest companies to export, and reshape where value is created. The most valuable parts of trade are now the continuous flows of data, digitally delivered intelligence, AI models, and products and services that incorporate AI capabilities.
- We are having two separate conversations in Canada: one about trade and trade diversification and the other about AI. There is only one mention of trade in the 2026 national AI strategy. [1] The 2025 federal budget’s trade diversification strategy does not mention AI-related trade at all, and only briefly mentions digital services exports. [2]
This paper examines how advanced AI capabilities are having profound impacts on Canada’s trade, outlines some of the implications, and argues that Canada’s trade strategy needs to change as a result.
- There is a reference to Canada’s negotiation of trade agreements, many of which advance co-operation on several different AI issues. Innovation, Science and Economic Development Canada. “Canada’s National Artificial Intelligence Strategy: AI for All” (2026). https://ised-isde.canada.ca/site/ised/en/canadas-national-artificial-intelligence-strategy-ai-all
- Department of Finance Canada. “Chapter 2: Shifting from Reliance to Resilience,” Budget 2025 (2025) https://budget.canada.ca/2025/report-rapport/chap2-en.html
