It's hardly a secret that the hangover from the global slump will make 2010 another tough year for Canadian exporters, with more than 70 per cent of foreign sales still going to the reeling U.S. market.
December trade data comes out Wednesday, and a second-straight deficit - a higher value of goods imported into the country than sold abroad - could push simmering worries about the future of Canada's export-dependent economy into overdrive, especially since the loonie is expected to hover around 95 cents (U.S.) for the foreseeable future.
Still, trade deficits in Canada often have a silver lining because they show that companies are taking advantage of the strong currency to buy advanced machinery and equipment that they can then use to produce their own goods more efficiently or, better yet, develop more sophisticated products for niche markets.
And that's exactly what economists say must keep happening for Canadian companies to survive and thrive in a world where Americans are buying less, Asians are buying more, and competition for that purchasing is becoming more intense.
Industry Minister Tony Clement said last week that the key is to marry research and innovation - the so-called knowledge economy - with industries ranging from manufacturing and forestry to agriculture, through partnerships between firms and universities that translate good ideas into marketable goods, without lags. He cited the tight links between Research In Motion Ltd. and University of Waterloo.
"We've got to do the same across the country, and we will do that," Mr. Clement said at a Canadian Manufacturers & Exporters conference, rhyming off tax credits and government-backed venture capital programs aimed at speeding some new partnerships along.
So far, it's questionable how successful the government's effort has been. The Conference Board of Canada gave the country a "D" in innovation last week in a report that placed us 14th among 17 peer nations. Without better innovation, Canada's economy will stay vulnerable to swings in commodity prices, the Board said, not to mention shocks such as the U.S. downturn, which in late 2008 fuelled Canada's first trade gap in more than three decades.
Moreover, as Toronto-Dominion Bank economist Derek Burleton observed in an interview, the weaker U.S. dollar and lower factory wages spawned by the crisis are allowing American exporters to recover years of lost ground, putting a revival of U.S. manufacturing within striking distance. That's all the more reason for Canada's goods-producing industry, which still employs more than 10 per cent of the population, to redouble efforts to retool and make things that are more unique and "value-added."
"The more we can lay the foundation for innovation, the better the long-term prospects for the sector," and for Canadian exports, he said.
This means working faster to spread trade more broadly, said Peter Hall, chief economist for Export Development Canada, who says Canada's growth would accelerate almost automatically if the "trade pie" were carved up and spread "more equitably" among rapidly expanding economies such as China, India and Indonesia.
"There's this fixation with survival right now, but we can't take our eyes off the structural risks," he said.