After nine free trade deals, countless trade missions and endless talk of global diversification, Canada remains as wedded as ever to the U.S. market.
Efforts to broaden and grow the country's exports apparently aren't working, committing Canada to a "lost decade" in trade, according to a report Wednesday by CIBC World Markets Inc.
Merchandise trade figures for February, due out Friday, are expected to show that Canada continues to run a small trade deficit, but the gap has been narrowing in recent months thanks to rebounding energy exports and a lower dollar.
The CIBC report points out that the volume of Canadian exports to all countries is back to the same level it was a decade ago. The share of non-U.S. exports peaked at 25 per cent last year and is now falling again.
China and Britain accounted for virtually all the recent diversification. In Britain's case, the main driver was a 300 per cent rise in the price of gold – "hardly an inspiring diversification story," argue CIBC economists Benjamin Tal and Andrew Grantham.
"This uni-diversification is certainly not what the architects of Canada's nine free trade agreements with non-U.S. partners envisioned," Mr. Tal and Mr. Grantham write.
"This was a lost decade for Canadian exports. And for a small, open economy, this is not a positive trajectory."
Canada's share of non-U.S. exports rose to 25 per cent from 13 per cent between 2001 and 2009. But it's been stuck at roughly that level since.
"Despite intensifying efforts, Canadian export diversification is losing momentum" the report says.
The strength of the Canadian dollar in the early 2000s is only partly responsible for the poor export performance, according to CIBC. Just as important have been weak U.S. demand, diminishing returns from the North American free trade agreement, competition from emerging markets and cost-cutting by U.S. manufacturers.
CIBC cautions that while the U.S. economy is showing signs of life, it likely won't be a long-term answer for Canada's export woes, due to U.S. fiscal restraint and more cautious consumers.
So the promise of trade lies in China and beyond. Mr. Tal and Mr. Grantham conclude that Canada's modest success penetrating the Chinese market suggests that despite a strong currency, Canadian companies can "win and compete in a very competitive emerging market environment."
Since 2003, China has accounted for half of the export growth to developing countries.