Canada's Economy: Facts and Outlook

The Struggling Economy Was Why Justin Trudeau Became Prime Minister

Justin Trudeau
••• Photo by Samir Hussein/WireImage/Getty Images

Canada's economic output as measured by gross domestic product (GDP) was $1.77 trillion in 2020. That's less than one-tenth that of its primary trading partner, the United States ($20.95 trillion), and slightly less than its other primary partner, Mexico ($2.38 trillion).

These measurements use purchasing power parity to take into account the discrepancy between each country's standard of living. You really shouldn't compare countries or economies without it. 

In 2020, as Canada dealt with the onset of COVID-19, the GDP growth rate was -5.2%, slower than the United States (-3.4%) but higher than Mexico where the economy shrank by 8.3%. Canada's standard of living, as measured by GDP per capita, was $43,295. That's lower than that of the United States ($63,593) but higher than that of Mexico ($8,329). 

Canada is roughly the same size as the United States, at 3.85 million square miles. But it only has one-ninth the people, about 37.7 million. It's about five times the size of Mexico, with just over a quarter of the people. Why is Canada so sparsely populated? Climate. Its northern half is so cold for so much of the year that the ground remains permanently frozen. As a result, roughly 90% of the people live within 100 miles of the U.S. border.

Almost 50% of Canada's land is locked up in permafrost. That may change with as a result of global warming.

Canada has more freshwater than any other country. It has around 2 million lakes. Most of it cannot be used for productive uses, such as hydropower or even irrigation. Only 6.5% of Canada's land is agricultural, compared to 44.4% of land in the United States and 55% in Mexico.

Trudeau and Trump

On April 24, 2017, the Trump administration announced new tariffs on Canadian lumber of up to 24%. That would affect around $5.8 billion in exports. Western provinces allow loggers to cut trees on government-owned land. The U.S. Commerce Department says the reduced rates allow for trade dumping.

The threat alone has reduced imports of Canadian softwood lumber. The tariff would be retroactive. Many companies would hesitate to purchase lumber that could face such a large surcharge.

The Commerce Department must prove to the U.S. International Trade Commission that Canada's actions injure the American lumber industry. In 2004, a NAFTA panel said the United States did not prove the dumping had harmed the American lumber industry. 

Canadian lumber tariffs have increased and decreased several times since 2017. In 2021, tariffs were doubled from nearly 9% to nearly 18%. In 2022, Canadian lumber tariffs fell to under 12%.

On April 26, 2017, President Trump signaled the United States may withdraw from NAFTA before backtracking just hours later. That follows his administration's stated intent to renegotiate NAFTA. The President argues that the current agreement gives too much away to Mexico. Canada's Prime Minister Justin Trudeau said he would be willing to negotiate a separate bilateral agreement with the United States. ​

Trump also withdrew the United States from the Trans-Pacific Partnership. Trudeau and the other signatories moved forward on the deal without the United States under the new name "Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP)."

Canada's Economy Depends on the United States

Canada is the 14th largest exporter in the world according to the World Bank. In 2020, it exported around $483 billion. Trade with the United States and Mexico has tripled since 1994, thanks to NAFTA. Canada is America's largest supplier of energy. That includes crude oil, petroleum products, natural gas, and electricity.

Canada struggles to overcome another geographic handicap. It doesn't border any countries other than the United States. This makes shipments of goods to other markets more expensive.

Canada benefited from the discovery of oil sands in Alberta. That gave it the third-largest oil reserves in the world at 167.7 billion barrels. It's behind Saudi Arabia and Venezuela. It ranks 13th in the world in recoverable shale oil and fifth in shale gas, according to the U.S. Energy Information Administration. Canada is the world's fifth-largest oil producer and it has the third-largest proven oil reserves.

Future Outlook

Longer growing seasons already allow farmers to grow crops such as corn that they never could before. Average temperatures in Canada have warmed by 1.7 degrees Celsius between 1948 and 2016, and northern Canada heated up by 2.3 degrees. This extends the growing season.

A 2019 government study found that Canada is warming twice as fast as the rest of the world. It warned of coastal flooding, droughts, and wildfires.

Despite the heightened risk of natural disasters, over the next 40 years, climate change might also benefit Canada. Over the 20th century, the area of the Arctic's largest ice shelf fell by 90%. Over the past 30 years, the Arctic has warmed at twice the rate of the rest of the world. As a result, the Northern Sea Route and the Northwest Passage may open to commercial traffic as ice continues to melt. Analysts predict it could become a major trade route by 2050.

Article Sources

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  2. World Bank. "GDP Growth (Annual %)."

  3. World Bank. "GDP Per Capita (Current US$)."

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  5. The Canadian Encyclopedia. "Lake."

  6. World Bank. "Agricultural Land (% of Land Area)."

  7. Federal Register. "Certain Softwood Lumber Products From Canada: Preliminary Affirmative Countervailing Duty Determination, and Alignment of Final Determination With Final Antidumping Duty Determination."

  8. Office of the United States Trade Representative. "United States Rejects WTO Dispute Report Shielding Canada’s Harmful Lumber Subsidies."

  9. Congressional Research Service. "Softwood Lumber Imports From Canada: Current Issues," Page 12.

  10. Customs and Border Protection. "Decisions of the United States Court of International Trade," Page 90.

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  13. The White House. "Trade Deals Working for All Americans."

  14. Office of the United States Trade Representative. "The United States Official Withdraws From the Trans-Pacific Partnership."

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  16. The World Bank. "Exports of Goods and Services (Current US$)."

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  18. Energy Information Administration. "Canada is the Largest Source of U.S. Energy Imports."

  19. Energy Information Administration. "World Shale Resource Assessments."

  20. Government of Canada. "Crude Oil Industry Overview."

  21. Climate Central. "Climate Change Brings New Crops to Canadian Farms."

  22. Government of Canada. "Temperature and Precipitation Across Canada," Page 116.

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