What AI Advances Mean for Canada's Trade Strategy

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’s trade headlines are, understandably, focused on trade in goods. But there is a growing gap between this narrow view of trade and what global trade looks like today.
Recent dramatic advances in artificial intelligence (AI) systems — especially general-purpose AI that can perform a variety of tasks across many domains — are disrupting trade. The most valuable parts of trade are now the continuous flows of data, digitally delivered intelligence, AI models, and the products and services that incorporate AI capabilities.
These AI advances lower the cost of entering and operating in global markets, allowing even very small firms to export. They enable existing tradables to become more intelligent and make it possible to trade new types of products and services.
Since distance matters less for digital and intelligent tradables, expanding Canada’s non-U.S. exports is more achievable than at any previous moment in the country’s history. By growing its AI-integrated, higher value exports, Canada can diversify not only where but also what it trades, derisking the country’s overall trade portfolio.
Canada is a trade-dependent country, but the country’s firms and policymakers are operating with major blind spots during today’s frequent trade and geopolitical shocks. To make the economy more resilient, the federal government should leverage these advances in AI capabilities to create an AI-based real-time trade intelligence system that can reallocate resources or reroute traffic as conditions change.
Policymakers need to reorient the country’s trade strategy towards more intelligent, higher-value tradables and continually adjust the strategy as general-purpose AI becomes more capable.