EXPANDED TRADE WITH CHINA WOULD PROVE SOUND STRATEGY FOR CANADA
But protectionist forces in Europe and U.S. could spell trouble, writes Gordon Isfeld.
Canada’s drive to recalibrate its post-recession export engine could be going south — figuratively but not physically — in the wake of the Nov. 8 election of anti-trade champion Donald Trump.
The incoming U.S. president’s economic policies closely follow the rise in protectionism that drove the U.K. to opt for leaving the European Union, and Canada will need to secure more and varied overseas customers to fill what could become a growing gap under the new U.S. economic order.
Perhaps the most obvious target for expanding Canada’s export market is already our No. 3 biggest customer — China.
While the EU is second and Mexico a distant fourth, both of those trading partners face uncertain futures in the aftermath of the Brexit vote on June 23 and Trump-inspired moves toward greater economic isolationism.
Besides, the much-trumpeted fiscal “Trump Bump” — primarily through tax cuts for businesses and high-income earners, along with infrastructure spending — will likely have little benefit for companies here.
“If you’re an export-orientated business in Canada, you’d have to look for another large market … and that’s China, obviously,” said Fotios Raptis, senior international economist at TD Economics, in an interview. “It offers a lot of opportunities for Canada,” added Raptis, the co-author of a new report that stresses the need to tap into China’s push to increase its goods and services sector.
“If we see our major trading partner entrenched in terms of the global supply chain and the global value-added chains, that’s an opportunity for Canada to reach out to some of the (other) economies that see less demand from the U.S,” added Raptis, who prepared the TD report with deputy chief economist Derek Burleton.
“That’s the upside, and then the downside is that we’re so entrenched in the U.S. supply chain that if you get a pullback in the U.S. and that negatively affects on Canada as well,” Raptis continued.
China is our third-most important country for exports and imports, after the United States and the 28-nation European Union.
In September, the federal government began “exploratory” discussions on a possible freetrade pact with China, said Alex Lawrence, a spokesperson for International Trade Minister Chrystia Freeland.
“Talks are essential for Canada to determine whether there is sufficient interest or economic benefit for us if we pursued a trade agreement.”
Earlier this month, Freeland tabled legislation to implement the Comprehensive Economic and Trade Agreement with the EU, which is expected to ratify the pact sometime in December — even though the U.K.’s planned exit from the trade bloc would leave a gaping hole in CETA.
Trump’s victory could complicate relations with Ottawa, given his displeasure with the North American Free Trade Agreement (NAFTA) but Freeland’s spokesperson said government officials “look forward to working very closely with the new administration and with the United States Congress, including on trade and investment.”
Two-way trade between Canada and the U.S. amounted to about $760 billion in 2015, while total shipments between this country and the EU was worth $92.5 billion last year.
Canada-China shipments were valued at $60.3 billion and trade with Mexico was $26.3 billion.
“Sure, Canada would gain market share if Mexican exports are heavily penalized and firms north of the border are exempted, but there’s no certainty right now on that outcome,” said Avery Shenfeld, chief economist at CIBC Capital Markets.
“Any doubts about where American trade policy is headed, even if they eventually prove to be unwarranted, could in the near term slow much needed business capital spending in Canada,” he said in a note to investors.
“The Trump Bump is one that risks bumping Canada in the wrong direction.”
Indeed, the president-elect spent much of the election campaign denouncing NAFTA, which took effect in 1994, and demanding that it be renegotiated.
It’s still unclear, however, what changes he would make.
As for the 12-nation TransPacific Partnership, still to be ratified, Trump has declared he will not sign off on it.
Meanwhile, the vice-president and chief economist at Export Development Canada, cautions against “breaking the (global trade) architecture that has created efficiency.”
“Let’s remember that we did have some very good times under the same architecture and now the architecture is being blamed for the bad times,” Peter Hall told the Financial Post.
“Does dismantling the architecture really take us to a point of prosperity?
“It actually increases costs, increases unemployment and it decreases investment.”
Instead, Canadian companies should capitalize on China’s “shift over to more of a consumer class.”
“So, there’s going to be an increased need and increased dependence on the rest of the world to fill that gap,” Hall said.
“When you have 1.3 billion mouths to feed that clearly has an impact of the food side of things. (But also) consider that China’s per capita consumption of things like vehicles, or washers and dyers, and fridges and stoves is far lower than what we would see here.”