Technical issues delayed the delivery of your Business Brief this morning. Apologies to our readers.

Good morning. Uncertainty over Canada’s trade relationship with the United States is spurring calls for the country to diversify its trade partnerships. Today, we look at why that’s not as simple as it sounds.

The federal Competition Bureau has confirmed it is investigating real estate companies’ use of software that gathers data on rental rates, a practice that critics argue allows landlords to collude on pricing.

Canada’s annual inflation rate ticked upward last month but remained below the Bank of Canada’s target, as higher energy prices offset the lingering effects of the federal tax holiday on the price of food and other goods.

The federal deficit will likely increase in the coming years as Ottawa stares down a potential trade war and faces pressure to increase defence spending, a new report says.

The saga of a New Brunswick bridge highlights how interprovincial trade barriers can hold back economic progress.

• Earnings include Canadian potash giant Nutrien Ltd. and Manulife Financial Corp., which report after close. Gildan Activewear Inc. this morning reported a fourth-quarter profit of US$132.3-million and raised its dividend.
• British inflation data showed a rise in January. We’re not alone!

Expanding trade beyond North America sounds great – on paper. (And in pixels.) Diversification makes Canadian companies less dependent on the U.S., which has suddenly become a less reliable trade partner than the world had come to expect.

But for most businesses, it’s not as simple as signing a few deals and shipping their products overseas. The process is slow, expensive, and fraught with regulatory and diplomatic hurdles. That’s not to say it isn’t happening! It’s just harder than some have made it sound.

Ottawa’s influence

The federal government plays a key role in building trade networks and supporting companies at home and abroad, but domestic policy alone can’t fully offset the disruption of Canada’s decades-long partnership with the U.S. And shifting to new markets isn’t something businesses can do overnight.

“You can’t just suddenly turn from what you’re doing in one day or one month or even one year in a meaningful way,” said Jack Shinder, chief executive of Ottawa-based door manufacturer Ambico Limited.

Since Canada and the U.S. forged their first free-trade agreement in the 1980s, companies such as Ambico have built entire business models around the American market. While Ambico’s global facilities could help offset some tariff costs, moving into entirely new regions isn’t easy.

“We established an international business based around serving that market in the U.S.,” Shinder said. Canadian businesses are being encouraged to look to the European Union and Asia, but the challenge isn’t just finding customers. “There are different standards over there. Just as we have our unique standards for certifications, they have theirs.”

A world of unknowns

That’s just one hurdle among many. Expanding trade means running a labyrinth of tax policies, clashing regulations, uneven professional standards, fierce competition, and political uncertainty. It doesn’t help that many of those barriers exist within Canada itself.

Deborah de Lange, an associate professor at Toronto Metropolitan University, said businesses are stretched as they weigh shipping costs, foreign exchange rates, and regulatory differences – all while managing language and cultural challenges. “Businesses need the human resources to deal with all of this and be confident that these extra costs will pay back relative to domestic sales,” she said. Leaders likely feel the pressure to explore all these avenues, but many don’t have the time or expertise.

For small and mid-size enterprises already bracing for uncertainty with the U.S., Ottawa has a crucial role to play, de Lange said. Through trade missions – such as the one Trade Minister Mary Ng is leading to Australia this week – the government can help businesses connect directly with local firms and officials.

Sectors knotted tight

None of this changes one indisputable fact: Canada is very close to the U.S. In fact, it can’t get any closer without absorbing it (now there’s an idea!) – and unless the tectonic plates grow restless, that’s not changing any time soon.

That very proximity was one of the reasons policymakers on both sides of the border saw fit to eliminate barriers. As they came down, Canadian industries became increasingly intertwined with their American counterparts. That was partly by design.

Now, any shift away from this relationship would be a challenge – and not just in terms of trade volume, said Sui Sui, a professor at TMU. Cross-border investments and corporate strategies built over decades aren’t easily untangled. “Transitioning sectors to alternative markets would require significant restructuring,” Sui said. “That would take years.”

Sui’s research has long highlighted the risks of over-reliance on a single trade partner. But Canada’s dependence on the U.S. has only deepened in recent years.

It might have taken former U.S. President Donald Trump’s musings about annexing Canada to push these vulnerabilities into the public sphere, Sui said, but it’s an “important and welcome” debate. “Suddenly, you know, people are shocked.” (And booing.)

Small companies, big risks

Breaking into new markets isn’t just about willingness – business leaders and experts say it requires sustained effort, investment, and government support. In addition to an emergency fund such as the one implemented during COVID-19, Shinder said Canada should better plan to support procurement from coast to coast – and introduce a tax regime that improves access to capital.

While Ottawa can help companies forge global connections, businesses are still left with a long road to travel. “Once trading relationships are established, businesses need to devote human resources to maintain the international business and deal with any issues that arise,” de Lange said. “This is more difficult from afar and may involve costly, time-consuming travel.”

Large corporations can absorb the costs of exploring new markets, but smaller businesses often struggle to sustain exports beyond a year, Sui said. With limited resources, many find it easier to stick with the U.S. – even with added tariffs.

“Forty percent of small to medium-sized companies export once and then stop.”

Asking a different question

Maybe we’re looking at diversification the wrong way.

Sui, whose research focuses on how ethnicity and gender influence entrepreneurship, said many Canadian firms struggle to expand abroad – but immigrant-led businesses naturally forge trade ties with their countries of origin.

“We have lots of immigrants from China, from India,” she said. “The natural choice for them is to export there.”

With built-in knowledge of foreign markets, language, and business customs, these entrepreneurs can navigate barriers that deter others. Over time, their businesses could help create trade corridors that benefit the broader economy.

Caught in Trump’s crosshairs on the eve of a federal election, Canada is becoming more aware of its economic pain points, Sui said. “It seems a good opportunity for us to work on all those things.”

Federal spending on outsourcing reached a record high of $17.8-billion last year, despite the Liberal government’s vow to cut back on the use of outside help. Read the full story here.

On the road: The ABCs of winter driving are all about doing one thing at a time.

On the road again: How to plan an epic trip with your furry best friend.

On time: In small-town Germany, a watch lover’s haven.

Global markets edged downward as traders cautiously assessed U.S President Donald Trump’s latest tariff threats on auto, semiconductor and pharmaceutical imports. Wall Street futures and TSX futures pointed lower.

Overseas, the pan-European STOXX 600 was down 0.7 per cent in morning trading. Britain’s FTSE 100 fell 0.63 per cent, Germany’s DAX declined 1.07 per cent and France’s CAC 40 gave back 0.84 per cent.

In Asia, Japan’s Nikkei closed 0.27 per cent lower, while Hong Kong’s Hang Seng slipped 0.14 per cent.

The Canadian dollar traded at 70.40 U.S. cents.