The America First saga continues, and so do U.S. tariffs on Canada. Even after the U.S. Supreme Court clipped the President’s wings on certain uses of the International Economic Emergency Powers Act (IEEPA), uncertainty remains. Tariffs of material importance could well (likely will) persist beyond the Canadian-United States-Mexico Agreement (CUSMA) review this summer.

The debate about what this means for Canada has been framed in dramatic terms. At Davos, President Trump declared that “Canada lives because of the United States.” Prime Minister Carney’s counter is that middle powers can chart a “third path.” Is Canada fundamentally dependent or more resilient than assumed?

The answer lies in unpacking the numbers.

The headline figure most Canadians know is 75 per cent. This is the share of Canadian exports that go to the United States. Another familiar statistic is that exports to the U.S. amount to roughly 25 per cent of Canada’s GDP. At first glance, those numbers suggest extreme vulnerability. If Washington squeezes, Ottawa must comply.

But those figures are misleading.

Exports are typically reported in gross value terms. Yet GDP is a value-added concept; it counts only the domestic contribution to production. Gross export figures include imported inputs, including a substantial amount from the United States itself.

Statistics Canada calculates the value-added content of exports. On that basis, exports to the U.S. account for about 15 per cent of Canadian GDP on average in recent years. That is still important, but not fully existential.

Even more telling are the insights from formal modelling exercises. Simulations by the Bank of Canada and Oxford Economics of worst-case trade-war scenarios suggest that Canadian GDP would end up about 1.8 to 2.4 per cent lower than otherwise projected. With Canada’s potential growth rate near two per cent per year, that implies the loss of roughly one to two years’ growth — not a permanent decline in income, and not a collapse in living standards.

A second oft-overlooked factor is what the composition of Canada’s exports implies for our economic vulnerability.

Much of Canada’s value-added trade with the U.S. consists of primary and basic industrial commodities: potash, oil, natural gas and aluminum. These are not discretionary imports for the U.S. economy; they are needs.

Consider potash. When the Trump administration imposed tariffs under the guise of fentanyl enforcement, potash was quickly exempted after U.S. agricultural interests objected. Canadian potash is effectively irreplaceable. Similarly, Canadian oil and natural gas continue to flow south because existing infrastructure — pipelines and refineries — ties the two markets together.

Aluminum provides another instructive case. The U.S. depends heavily on Canadian unwrought aluminum. Even when tariffs were raised to 50 per cent, imports resumed after briefly stalling as U.S. domestic supply constraints pushed up prices. U.S. industry cannot easily conjure up new smelters, new electricity supply, or new raw material inputs. Tariffs raise prices, but they do not change underlying resource endowments.

This matters because while primary and basic products account for perhaps 30–40 per cent of Canada’s gross exports, they constitute a much larger share of Canada’s value-added exports. In these sectors, almost all the value added is Canadian. By contrast, advanced manufactured exports, such as autos and electronics, contain significant imported components.

The upshot is that only about half of Canada’s value-added exports to the U.S. are meaningfully at risk of disruption. Since total value-added exports to the U.S. equal roughly 15 per cent of GDP, the genuinely exposed portion is closer to 7.5 per cent of GDP.

Trade theory reinforces this perspective. Most people are familiar with comparative advantage. Fewer know Abba Lerner’s symmetry theorem: a tax on imports functions as a tax on exports. U.S. tariffs that suppress American imports reduce U.S. exports, which opens space in third markets for Canadian producers.

This dynamic has been seen in aluminum and scrap markets. U.S. restrictions redirected domestic flows, altering global supply patterns and creating opportunities elsewhere. Diversification, in part, happens automatically as markets reshuffle in response to new barriers.

Finally, it is worth remembering that roughly 80 per cent of Canada’s value-added production is consumed at home. Canada is its own largest customer. In sectors such as autos, Canada imports roughly as much from the United States as it exports southward. If access remains restricted, Canadian production, which today is predominantly from Japanese-owned plants, will inevitably be redirected toward the domestic market, replacing imports.

None of this minimizes the disruption that firms and workers would face in the short term. Adjustment is real. Regional impacts would be uneven. Policy would be required to cushion shocks. But here, Canada has agency. Internal trade liberalization, accelerated housing construction, an infrastructure corridor, critical minerals development and productivity-enhancing reforms could generate gains that rival or exceed the estimated losses from U.S. protectionism.

Canada’s economic geography ensures that the U.S. will remain its largest trading partner. But geography is not destiny, and dependence runs both ways. Canada is the largest export market for dozens of U.S. states.

Canada should attempt to negotiate a new trade deal, using its leverage and protecting its interests to achieve a fair, win-win outcome — a possibility that looms much larger following the U.S. Supreme Court’s ruling on the (il)legality of the Trump administration’s reliance on the IEEPA to threaten Canada with 35 per cent across-the-board tariffs in the event of CUSMA lapsing. What Canada should not do is run scared based on exaggerated fears raised by misleading headline statistics.

Remember 7.5 per cent, not 75 per cent.

Dan Ciuriak is a senior fellow at the Centre for International Governance Innovation (CIGI) and Paul Samson is president of CIGI.

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