Trade

Planet Earth is running low on many easy to reach natural resources & Canada, though well blessed, is running out of some too.

We do not yet know of the balance of effects should things like global warming & population be factors but initially we are positive on all culture except aquatic culture that past experience shows to be negatively affected with warmer sea water.

To prosper as in past years Canada is increasing both in skill & quantity the education of younger people & research which should increase repeatable trade in that both external & internal.

NB Canadian manufacturing was in a slump even before rail blockades (18-02-2020)

After a period of broad-based and synchronized growth that lasted throughout 2017 and into early 2018, the global economy started to ease up. Global trade tensions combined with waning cyclical forces reduced economic momentum worldwide. Deceleration was widespread, even in countries like China and India. A notable exception was the United States, where tight labour market conditions and broad-based expansion bolstered the economy.

Against this backdrop of weaker economic growth, the expansion in global merchandise trade volumes slowed across both developed and emerging markets. Global merchandise trade value grew 10% in 2018, a slight slowdown from the 11% increase in the previous year. However, annual world merchandise trade still grew faster than at any time between 2012 and 2016, and global commercial services trade expanded by 7.4% in 2018, a little more than an extra one percentage point over 2017.

This backdrop coupled with global trade tensions, political uncertainty and U.S. tax reforms had an important impact on global foreign direct investment (FDI) flows. FDI flows declined by 13% in 2018, with developed European economies experiencing the largest regional decrease at 55%.

As with most major economies, Canada’s growth cooled to 1.9% in 2018, after reaching 3% in 2017. A major factor was the slowdown in household consumption growth, weighed down by household debt. Non-residential business investment made a very small positive contribution, while residential investment negatively impacted growth due to tighter mortgage guidelines. An acceleration in the growth of real exports along with a deceleration in real imports allowed trade to contribute marginally to growth in 2018, after being a drag in 2017. The Canadian labour market continued to display tight conditions, with the annual unemployment rate (5.8%) reaching record lows dating back to at least 1976, while inflation stood at 2.3% for 2018, its highest level since 2011.

On the trade front, Canada’s exports of goods and services increased 6.2% in 2018, while imports rose 5.4%. The total value of trade in goods and services reached a record high of $1.5 trillion. Canada’s goods exports played an important role in the increase, growing at 6.5% in 2018 to reach $585 billion. Energy led the way, advancing $14 billion (15%) to $111 billion, followed by consumer goods ($3.6 billion) and forestry, building and packaging products ($3.4 billion). By destination, goods exports to the United States climbed 5.4% to $433 billion in 2018. However, exports to non-U.S. destinations grew even faster, up 9.8% to $153 billion. Canadian services exports grew for the ninth consecutive year, up 5.8% to $121 billion.

Canada’s goods imports rose 5.8% to $607 billion in 2018, with increases in all sectors, led by metal ores and minerals, energy products, and aircraft and other transportation equipment. Regionally, goods imports from the United States were up 5.4% to $391 billion in 2018, while imports from non-U.S. sources grew 6.5% to $216 billion. Since Canadian goods exports expanded at a faster rate than Canadian goods imports, the goods trade deficit narrowed by $2.7 billion to $22 billion. Services imports expanded by 4.2% to reach $146 billion. Canada continued to run a services trade deficit with every broad region and most major trading partners; nearly half of the deficit was due to the United States.

Total inflows of FDI into Canada for 2018 increased by 70% to $55 billion, in contrast to the decrease experienced by most other developed economies, due to a $24-billion increase in FDI from non-U.S.  sources. Strong inflows of investment in Canada’s manufacturing sector (+45%) made up for declines in trade and transportation (-41%) and finance and insurance (-13%).

By contrast, Canadian direct investment abroad (i.e. FDI from Canada to other countries) fell by 38% to $64 billion, notably due to investment in the United States contracting by 60%. CDIA flows to the rest of the world increased by 48% or $10 billion. Overall, Canadian investors favoured the energy and mining, and manufacturing sectors, which were up by $13 billion and $10 billion, respectively.

Looking forward, continued weakness in Western Canada’s resource sector, elevated household debt, and a backlash against trade and globalization are factors that could dampen Canadian economic, trade, and investment growth. However, the Bank of Canada expects economic growth to pick up in the second half of 2019 and be sustained into 2020.

Whether the global economic context is stable or uncertain, having multiple export destinations and/or many different products to export can certainly help Canadian companies prosper by hedging risk and taking advantage of high-growth markets. This year’s State of Trade report also takes stock of research undertaken by the Office of the Chief Economist on trade diversification, both in its conventional sense as well as from the angle of diversity among exporter firms. It also features results from Export Development Canada’s research.

In terms of geographic diversification (e.g. destinations of exports), Canada has room to further diversify, as Canadian exports are currently considered to be concentrated. In fact, data show that Canada’s exports are the fourth most concentrated by destination out of 113 countries, principally due to a large share of exports going to the United States. This is not particularly surprising given Canada’s close trade connections with its Southern neighbour. Recognizing the country’s high export concentration, the federal government has set a target of increasing Canada’s overseasFootnote1 exports by 50% to $284 billion by 2025. This objective requires an annual average growth rate of 5.2% from 2017, which is higher than the trend from recent years (2011-2017).

Free trade agreements (FTAs) are one way the government can help and encourage Canadian exporters to diversify into new markets as FTAs open opportunities by reducing trade barriers such as tariffs, quotas, and non-tariff barriers. Analysis shows Canadian exports increase after FTAs come into effect, especially for products benefiting from higher tariff declines. While Canada already has an extensive list of FTA partners,Footnote2 signing new agreements and deepening existing FTAs could help further diversify Canadian trade, particularly in faster-growing emerging markets. Preliminary research results indicate that a one percentage point increase in the growth rate of an import market caused the level of Canadian exports to expand by 0.11%, with an additional gain of 0.16% if Canada was already active in that market prior to the growth. That said, encouraging Canadian firms to first export to emerging markets may not always be appropriate. A large majority of new exporters start with the U.S. and only later expand beyond that market. It is estimated that 20% of exporters to the United States expand or move into new markets each year on average. Therefore, encouraging firms to explore overseas markets might require them to first test the waters of the closer and more familiar U.S. market. Incidentally, some sixteen American cities are projected to be among the top 40 cities worldwide for Canadian business opportunities by 2030.

Although some traditional destinations will remain, the ways firms can sell their goods and services are changing with the Internet and digital technologies. Digital technologies facilitate transactions and reduce costs, for example, by optimizing route planning, reducing storage time, and improving distribution networks. Such improvements reduce the distance barrier for exporters. On the other hand, the Internet is increasingly being exploited for cross-border delivery of digital products.

Encouraging the use of these technologies could further advance the diversification agenda. This could be particularly important for small and medium-sized enterprises (SMEs). Despite accounting for 99.8% of employer businesses and 89% of all private-sector jobs, only 12% of SMEs exported goods and services outside of Canada. Government programs aimed at helping SMEs navigate international markets could be another way to reach Canada’s 2025 overseas exports exports goal.

As mentioned above, diversity in who exports is also worth paying attention to. Diversification in ownership of Canadian exporters is important to ensure that gains from trade are spread throughout Canada to all Canadians. One dimension is women-owned exporting firms. Research shows that the proportion of women-owned exporting SMEs in Canada doubled from 7.4% of all SME exporters in 2011 to 15% in 2017. Furthermore, within women-owned SMEs in Canada, the share of firms that export rose from 8.4% in 2014 to 11% in 2017. The other ownership dimension explored is that of Indigenous-owned exporters. The results of a survey of Indigenous entrepreneurs show that in 2014, the proportion of Indigenous exporting SMEs was twice that of Canadian non-Indigenous exporting SMEs—24% versus 12%, respectively. Diversity thus exists within the exporting community and this diversity is slowly growing.

Diversification hedges risks from shocks to Canada from abroad and allows Canadian businesses to take advantage of opportunities in fast-growing markets. There are various avenues to greater geographical diversification. These include using free trade agreements to give Canadian exporters better access to foreign markets; accessing fast-growing markets early; using the U.S. market as a stepping stone to overseas markets; leveraging digital technologies; increasing SME participation in international trade; and focusing on the future growth of cities to identify new export opportunities. Moreover, the gains from trade can be spread more evenly throughout Canada, notably through diversification of exporter ownership.