A decade ago, Canada’s key exports included autos and parts, pulp and paper, electronics and wood products. Today, we export less of all of them. In their stead, exports of oil and gas, mineral products, chemicals, primary metals and food products are growing in importance. Canada has also developed new-found export strength in professional and financial services.
This wholesale change at the top of the list of Canadian exports shows how some of our traditional trade strengths are fading, while we are simultaneously developing new ones. There is every reason to expect this trend to continue.
Canadian policy makers need to adapt to this changing environment. They need to understand and promote our new trade strengths. They must aim to craft trade agreements that that will be open to our future trade strengths, including services. And they should focus on helping struggling industries to adjust, rather than protect dwindling markets.
The Conference Board of Canada’s recently published report from its Global Commerce Centre, Walking the Silk Road: Understanding Canada’s Changing Trade Patterns, identifies two broad forces that have driven the shift in export strengths. The first is the growing importance of emerging markets in the world economy. The second flows from changes in the relative prices of goods and services.
In 2001, the 34 members of the Organisation for Economic Co-operation and Development represented 81 per cent of global gross domestic product. In 2011, this club of developed countries held just 66 per cent, an astounding shift in such a short period of time. Led by China, emerging markets have captured a growing share of the global economy, while growth slowed in the United States, the European Union and Japan.
Not surprisingly, emerging markets account for a growing share of Canada’s exports, while our trade with the United States has all but stagnated since 2000. And what we export to the rest of the world is very different than what we send to the United States. Products such as minerals, professional and financial services, and agri-food products figure much more prominently in our non-U.S. exports.
Even if volumes of commodity-related exports had remained flat in the past decade, they would have grown in importance because of price trends. And commodity export volumes have risen as Canadian businesses “follow the money” – they are investing in industries that provide the best returns. Since 2001, Statistics Canada’s index of raw material prices has risen by 74 per cent, while its price index for manufactured goods has risen by just 15 per cent.
Along with global forces, changes in Canada’s export strengths can be attributed to industry-specific factors. On the downside, exports of paper products have plummeted over the past decade as consumers have switched from print to digital media. The housing bust in the United States decimated Canadian exports of wood products.
But exports of mining, oil and gas machinery from Canada nearly tripled over the past decade. Canadian businesses have parlayed their domestic experience and knowledge to take advantage of strong global demand for minerals and energy products. As well, Canadian agri-food production and exports are growing to meet the needs of rising global food demand.
Financial services and insurance also have been key sources of export strength for Canada in recent years. The Canadian banking system is widely considered the safest in the world – the World Economic Forum has ranked it No. 1 for the past five years. Canadian banks have taken advantage of their relative health to make more than 100 acquisitions globally since the economic crisis. Similarly, some of Canada’s largest insurance companies are targeting Asia, owing to the region’s increasing wealth and underserved insurance market.
This shift in trade patterns needs to be incorporated into Canada’s economic and trade policy. Instead of being sheltered, businesses in struggling industries need to adapt to their new competitive environments. Trade missions and promotion should focus on key strengths and new areas of growth. The next generation of Canada’s trade agreements should cover a broader spectrum of goods and services. Aligning our economic policies to the new reality of Canada’s trade is critical if we are to seize the full potential of the global economy and raise our living standards at home.
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