Trade, Tariffs, and Turmoil
It’s been a T3 year: trade, tariffs and the resulting turmoil. It’s increasingly clear that the globalization era that has existed and provided global benefits for most of the past 40 years has now ended, replaced by a new era of rising protectionism. Witness the tariffs imposed on Canadian exports by China, India and the USA over the past year. Tariffs can be legally imposed provided there is robust evidence that importing any agricultural product could result in the import of unsafe food products. Canadian crop and food exports are among the safest in the world, meaning the tariffs that have been imposed on our exports are entirely political.
As a trade-oriented country rich in numerous natural resources with substantial crop and meat exports, the loss of key export markets makes it very difficult to transition these products to alternative markets. Regrettably, over the past decade, the federal government’s focus has been less on trade and more on complying with international climate agreements. The result has been that Canada has failed to negotiate and ratify any significant new trade agreements. While the North American Free Trade Agreement was renegotiated between 2015 and 2018, the lack of access to new markets has created challenges for exporters now that detrimental tariffs have been imposed on many Canadian goods. Earlier trade agreement negotiations led to Canada gaining substantial trade benefits through the adoption of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CETA gave Canadian exports improved access to markets with over 500 million people, while CPTPP gave improved access to markets with over 800 million people. These two agreements enabled Canadian exports to have greater access to countries accounting for 16% of the global population.
Resolving Current Trade Constraints
With exports in many agricultural products accounting for over 50% of total production, it’s vital that these barriers be resolved and resolved quickly. While Canada has filed complaints over these trade barriers with the World Trade Organization, which is the international organization with the mandate to resolve trade disputes between countries, the process often takes between 2-3 years, or longer. This is simply too long a period for key agricultural commodity exports to be harmed. The federal government needs to engage in meaningful dialogue to resolve the current tariffs.
Agri-food, energy, and mining exports accounted for 44% of Canada’s exports in 2024, worth just over $400 billion. All three of the sectors of the Canadian economy are facing export challenges. These export challenges reduce economic growth and employment in Canada. Defending non-existent electric vehicle production at the cost of tangible exports benefits no one.
Negotiating new trade agreements takes multiple years, so trying to pivot exports to alternative markets takes time as well as costing more money. Solutions are required for Canada’s existing export markets and trading partners.
What Might 2026 Bring?
It’s unlikely the terrors arising from the T3s will simply fade away or be resolved within the first few months of the new year. It should be expected that these tariffs and disrupted trade patterns will be in place for the first half of the year, if not the entire year. Publicly, the federal government appears unwilling to retreat from defending the billions in subsidies it has provided the Ontario auto sector to develop these mythical electric vehicles. Defending these unicorns will come at the expense of agricultural exports, which includes seafood exports as well.
Food prices are predicted to rise in the coming year, this time by 4-6%. Meat prices will be one of the food items with the largest price increase. The lack of normal rainfall in the key beef producing regions of the Prairies is reaching a decade in some areas. Even if normal rainfall returns for 2026, it will still take 2-3 years before herd sizes increase to the point of higher volumes of processed beef.
If the Canadian dollar remains above 70¢ compared to the US dollar, this will benefit food imports as wholesalers and retailers continue to seek imports from destinations other than the USA. The Canadian dollar started the year off in the 69-70¢ range, rising to a peak of 74¢ in the summer. As the year closes, the exchange rate is in the 71-73¢ range. When grocery items are imported from countries other than the USA, the contracts are priced in US dollars. When the Canadian dollar falls below 70¢, the impact on grocery item prices is noticeable.
Merry Christmas and Happy New Year!
While 2025 has had its share of challenges, there have been some bright spots. Many farmers reported higher yields than were expected and the price of fruit and vegetables fell by 1%.
As the year draws to an end, I would like to thank my staff for their amazing work and efforts! Chelsea, Claire, Luiza, Kate, Koal, and Savannah all contribute to making my team one of the best in both the research and communication streams. It’s a pleasure working with all of you and I look forward to reach new goals in 2026.
