China has displaced Canada as the United States’s largest trading partner, a landmark shift that eliminates one of the defining characteristics of the Canadian economy.
Due in part to the crash in oil prices and the reduced value of Canada’s energy exports south of the border, U.S. year-to-date trade with China has edged past the total value of U.S. trade with Canada for the first time.
China’s trade with the U.S. for the nine months to the end of September was valued at $441.6-billion (U.S.), or 15.7 per cent of total U.S. trade, compared with the $438-billion value of Canada-U.S. trade, which has slipped to 15.5 per cent of U.S. trade, according to the U.S. Commerce Department.
Canada has long been defined – economically, politically and culturally – by its crucial trade relationship with the U.S. Those strong ties have shaped Canadian industrial development over the course of the past century and continue to heavily influence Canada’s economic and foreign policy priorities. But the shift in the Canada-U.S. trade relationship speaks to the growing influence of the booming Asia-Pacific region in the global economy – and in the trading relationships of both the U.S. and Canada
“It’s important in the historical context, but what it generally shows is that there has been an underlying shift going on for years around where the U.S. is getting its imports,” says HSBC Canada chief economist David Watt.
“When we think about the United States, we have to realize where our ranking is nowadays. We are nowhere near as predominant as we used to be. We have to realize that the market share we lost to China is not coming back. The market share we lost to Mexico … is probably not coming back.”
China long ago surpassed Canada as the top source of imports flowing into the U.S. – Canada in September ranked third, behind China and Mexico and ahead of Japan and Germany – but in terms of total trade, which consists of both imports and exports, Canada has historically still been Washington’s largest trading partner. Observers suggest this slip down the ranks means Canadian businesses and political leaders now need to step up and capitalize on Canada’s competitive advantages, particularly as trade barriers come down and countries sign more trade deals.
China’s eclipsing of Canada on U.S. trade, despite its root in lower energy prices, also speaks to the growing importance of China in the global economy – with the East Asian superpower now the largest or second-largest trading partner of roughly 100 countries around the world, including Canada.
“This has been a statistical outcome a decade in the making,” says University of British Columbia professor Paul Evans, the author of Engaging China: Myth, Aspiration and Strategy in Canadian Policy from Trudeau to Harper. “It will nevertheless be a psychological jolt to those who feel that we live in a privileged North American cocoon. This could produce a tipping point in Canadian consciousness about the centrality of China to the global economy and Canadian prosperity. There is no reason to be alarmed by being No. 2. But it does demonstrate that continental proximity is no longer economic destiny.”
Across the Prairies and in Western Canada, politicians and businesses have long been attuned to global shifts across the Pacific, such as the rise of new consumers in populous countries such as China, India and Indonesia, as well as the continuing importance of powerful industrialized Asian economies such as Japan and South Korea. Under Stephen Harper’s Conservative government, Canada signed a free trade with Seoul, and then-international trade minister Ed Fast criss-crossed Southeast Asia, trying to drum up trade.
But with the Trans-Pacific Partnership trade deal – between the U.S., Canada, Japan and other Pacific Rim economies – and trade barriers coming down more generally, Mr. Watt of HSBC suggests Canada’s new government needs to more aggressive in its trade relationship with China, a relationship he says has lacked clarity. He also says Canadian businesses have to realize the business landscape is changing.
“Canadian businesses have to step up in order to grab market share when trade barriers go down,” Mr. Watt says. “If we’re not prepared and competitive, we could lose market share – and foreign companies could move into Canada and steal domestic market share. It’s a more competitive market place that we know is coming.”
Editor's note: A previous version of this story included an error about the percentage of total U.S trade for China and Canada. The dollar value was correctly stated but the correct percentage is 15.7 per cent for China and 15.5 per cent for Canada.