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Diversifying Canada’s exports will not be easy. The gravitational pull of the United States is strong, given the size of its economy and our shared border. Many Canadian businesses have also spent decades gearing their products and services to the particulars of the U.S. market.
But there is hope. The energy transition, adaptation to climate change, the rise of artificial intelligence, a retreat from globalization, increased spending on defence and an aging population all create new risks, but also opportunities for Canadian firms.
As businesses develop plans to increase exports to non-U.S. markets, they should carefully consider these global trends. Markets where demand is expected to grow, or where other businesses face challenges, offer opportunities for Canadian companies to gain a foothold. But many businesses struggle to adequately plan more than five years in advance. They focus on quarterly returns, lack the capacity to plan or channel all their energy toward immediate competitive pressures.
Those that do plan may not have the finances needed to position themselves properly. And investors hate the uncertainty associated with being an early entrant in an untested area, particularly one that is capital intensive and where prospective payoffs are far in the future.
The government can do more to help overcome these gaps by providing information and analysis on long-term opportunities, expanding policies that help to address uncertainties that deter investors and improving support for promising small businesses.
Signs of major global transformation
The International Energy Agency has said that the world is entering an “Age of Electrification” in which transportation, buildings, data centres and industry demand for electricity rises and electricity generation increasingly comes from clean sources.
Demand for critical minerals is expected to rise dramatically in the coming decades along with spending on batteries and defence. Electrification and data centres will drive growth in demand for clean energy, as well as supply chain components, including transformers, cables, electrical steel, wind turbines, electric vehicle (EV) chargers and electrolyzers.
The Organisation for Economic Co-operation and Development (OECD) argues that artificial intelligence (AI) is a general-purpose technology akin to the computer or steam engine, which implies profound implications for the global economy. Its increased adoption will drive demand for products and technologies such as semiconductors, data centre cooling and photonics.
At the same time, globalization is slowing, the world’s climate is changing, the population is aging, defence spending is rising and trade relations are being restructured.
Increased frequency of heat waves, droughts, wildfires and floods due to climate change will drive demand for air conditioning, district cooling, water filtration and treatment, precision irrigation, wildfire management and flood barriers.
An aging population will mean greater demand for health care, health technology (medical devices, telemedicine and health apps) and travel experiences for seniors.
The question is whether companies have the information they need about these global trends, and whether they are adequately planning to take advantage of them.
A long-term planning and investment problem
Prof. Jan Oliver Schwarz argues that corporations often mistake awareness of short-term trends for long-term strategic planning. This lack of foresight could limit Canada’s ability to diversify its trade.
But even if companies are aware of trends and opportunities, they may still struggle to attract the investment they need to prepare for them.
Market uncertainty can deter investors. That uncertainty can come from rapid technological change, government policy or global competitors. Finding investors can be even more challenging when making a product is capital intensive and requires patience while waiting for a return.
It’s also harder to compete globally when companies struggle to grow in Canada. Foreign consumers often want to see a record of sales at home, while domestic public and private organizations are often unwilling to take a risk on a new product or technology.
The case of De Havilland
This past summer,ferocious wildfires in Europe exposed the harsh reality that demand for De Havilland’s water bombers is already higher (p. 67) than the Canadian company can supply. This chance for export growth could have been anticipated given that scientists have been warning fires are only going to increase and intensify with climate change.
One reason for the shortage is a production gap. Bombardier stopped building water bombers in 2015. There were no new Canadian amphibious scoopers built until 2022 when De Havilland launched the Canadair 515. In the interim, the supply chain for parts to build the planes evaporated.
De Havilland needs to build another production line to meet global demand, but the company wants a guaranteed buyer before it makes that kind of investment. It has said that a domestic order of 50 planes would be enough for it to move forward. If it doesn’t move quickly, however, international competitors could fill the gap.
In this case, the growth in global demand for wildfire management was anticipated, a strong Canadian product was available, but no one connected the dots to position De Havilland for export success.
Better support of business strategies
Since markets often fail to recognize long-term opportunities, government interventions may be needed. But those interventions should focus on specific barriers companies face by providing better information, reducing investment uncertainty and helping businesses grow at home.
The federal government already produces foresight analysis through Policy Horizons Canada, and various departments model future scenarios and economic trends. But the information is, for the most part, not in a format that is easily integrated into business decisions. Agencies such as Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) tend to focus their market intelligence on near-term trends, though EDC has published some insights into longer-term opportunities.
To help businesses with long-term planning, the government should develop a dedicated office that would combine foresight and scenario analysis with the capabilities of Canadian businesses. This type of information is costly for each firm to gather individually.
The information could include analysis from Policy Horizons, EDC, the BDC and other departments, as well as input from the provinces and territories. The office could connect insights on long-term global demand with areas of Canadian capability or potential. This could be provided in a format for businesses to use in planning and in attracting investment.
Effective trade diversification depends on small and medium businesses
But information will not be enough to overcome uncertainty. Much can change when planning 10 to 20 years in advance. Technologies, policies, prices or the competitive landscape may not evolve as anticipated. The government could reduce investment risk through innovative industrial policies that provide price certainty, guarantee a minimum product purchase or take equity stakes in projects.
The federal government already has the means to help companies expand into global markets through various Crown agencies and funds. But it will need to look further into the future to identify opportunities before they are obvious. For example, if someone had connected climate scenarios and De Havilland’s manufacturing capacity, the company might have received the support it needed to build a second factory much earlier.
Companies also need help to grow within Canada before they can be major players abroad. A report by the Canadian Council of Innovators calls for funding that grows along with the size of a sector, public purchasing that gives early-stage firms a chance, better co-ordination across government programs and more support for talent acquisition.
The federal government has taken several steps to motivate pension funds, insurers and institutional investors to allocate more capital within Canada. It also committed $750 million in the 2025 budget to support firms facing early-growth gaps and has introduced a Buy Canadian policy on government purchasing to help companies expand production. It will be critical to ensure that these measures look beyond the hot sectors of the moment to realize long-term potential.
A future-focus in trade policy
Much of the emphasis on trade diversification has been on near-term trends and existing capabilities. But with so many major changes globally, it’s important to focus more on long-term trends. Governments will need strong analytics that evaluate future demand by sector and product. Those scenarios will need to incorporate possible evolutions in technology, climate, policy, demographics and competition.
Done well, this reimagined approach will help Canadian companies expand at home, manage uncertainty and integrate long-term goals into their business plans. The payoff could not only be more diversified exports, but a stronger position for Canada in the global economy.
