\u201cOverseas trade growth would largely be driven by energy and commodities shipped via port, and higher-value manufactured goods shipped by air,\u201d the Scotiabank report says. (Photo by Liang Sen\/Xinhua via Getty Images) \u00b7 Xinhua News Agency via Getty Images <\/p>\n
Developing the infrastructure necessary to make Canada\u2019s economy less dependent on trade with the U.S. \u201cwill not be easy, fast, or cheap,\u201d and will require refocusing investment priorities, a new report from Scotiabank Economics says.<\/p>\n
The report by senior policy advisor John McNally points out that government infrastructure programs launched long before the current trade tensions with the U.S. began to unfold have \u201cnot been able to keep up with existing demand, let alone support growth.\u201d They also focus largely on road and rail infrastructure, while increasing exports to other countries would necessarily require a focus on marine and air.<\/p>\n
\u201cTackling this issue would require private and public sector pushes to invest additional capital, advance deregulatory efforts, and overcome the inefficiencies causing national headaches,\u201d the report said.<\/p>\n
Tariffs and the upheaval of global trade relationships have been among the defining narratives of U.S. President Donald Trump\u2019s second term, with the need for trade diversification becoming a central talking point in response. Prime Minister Mark Carney recently signed on to a security and defence partnership<\/a> with the European Union, while Bank of Canada governor Tiff Macklem told an audience in Newfoundland<\/a> that \u201cdiversification adds resilience.\u201d<\/p>\n The Scotiabank analysis modelled the impact of shifting away exports to the U.S. and found that redirecting 10 per cent of trade away from the U.S. would increase the share of goods leaving Canada via ports by five per cent and via airports by three per cent. Due to the realities of geography, air and sea transport accounts for less than 10 per cent of Canadian exports to the U.S., but virtually all exports elsewhere.<\/p>\n \u201cOverseas trade growth would largely be driven by energy and commodities shipped via port, and higher-value manufactured goods shipped by air,\u201d the report said.<\/p>\n Yet the second-order effects of the trade shock\u2014namely uncertainty brought about by trade tensions\u2014are further dulling investment, worsening an underlying problem.Scotiabank Economics<\/p>\n<\/blockquote>\n However, current government estimates for long-term capital expenditures \u201cforecast road and rail to account for over 80 per cent\u201d of infrastructure spending, the report points out. Given this, McNally writes that \u201ca rebalanced portfolio is needed,\u201d as well as additional spending. Canada would need to invest in marine and air infrastructure in addition to \u201cstrengthening east-west investments in rail, road and intermodal capacity.\u201d<\/p>\n The report says Canada\u2019s airports may be reasonably well equipped for an increase in cargo shipments, but the same is not true for the country\u2019s major ports. Two of Canada\u2019s three largest ports were ranked in the bottom 15 per cent<\/a> in the world for container port performance by the World Bank in 2023, Scotiabank observes. Rail infrastructure investment, furthermore, would need to be around 2.5x current annual expenditure to meet requirements forecast<\/a> by a federal government task force.<\/p>\n Story Continues <\/p>\n The report notes that the impact of the trade war thus far has been far better than modelled in worst-case scenarios, and the direct economic impact could be muted. \u201cYet, the second-order effects of the trade shock\u2014namely uncertainty brought about by trade tensions\u2014are further dulling investment, worsening an underlying problem,\u201d the report added. \u201cHere, diversification can help.\u201d<\/p>\n However, Scotiabank cautions that a significant overhaul of infrastructure priorities will not have immediate effects, nor will it solve all of Canada\u2019s economic problems \u2014 again because of the realities of geography.<\/p>\n \u201cSelling into different markets would require investments and relationships that typically take years to bear fruit, likely offering little to offset volatility in the coming months,\u201d the report said.<\/p>\n \u201cExpectations should also be clear around degrees of diversification sought. Given the geographic proximity of U.S. markets, Canadian trade flows will likely remain integrated with our southern neighbour, with diversification offering a hedge (or marginal benefits) to reduce overall risk.\u201d<\/p>\n John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf<\/a>.<\/p>\n Download the Yahoo Finance app, available for Apple<\/a> and Android<\/a>.<\/p>\n \n