Exports on the move
Canada steadily reducing reliance on U.S. for trade
While Canada may still be in a committed trade relationship with the United States, that evidently hasn’t stopped the two countries from seeing other people in the past decade, a new report from TD Economics said Wednesday.
Derek Burleton, deputy chief economist with TD Economics, said Canada’s reliance on the U.S. to import its goods has been in decline in the past 10 years, and is likely to continue in the years ahead.
“Strikingly, exports to the U.S. directly contributed an annual average of 0.5 percentage points to Canadian nominal GDP growth over the last decade, compared with an average annual contribution of 2.3 percentage points over the prior two decades,” Mr. Burleton said.
And while the recent rebound in U.S. economy activity will provide a brief upswing for Canadian ex- porters, by 2020 the United States will account for about 66% of direct Canadian exports, down from 85% in 2002.
Canada’s economic
prosperity will increasingly be driven by trade with other non-u.s. economies
Meanwhile, direct U.S. exports to Canadian GDP will stabilize at 20%, almost half its share of 10 years ago.
“Over the long term, Canada’s economic prosperity will increasingly be driven by trade with other non-u.s. economies,” Mr. Burleton said in a report.
There are several factors driving a wedge in the relationship, including the surge to parity between the loonie and greenback, greater imports from China into the U.S., new free trade agreements with other countries booming at the expense of the now 20-year-old NAFTA agreement, as well as a significant downturn in automotive, machinery and equipment demand following the financial crisis.
“At the same time, Canadian exporters began to set their sights on the European Union and rapidlygrowing emerging markets, which presented new opportunities especially for the nation’s resource exporters,” he said. “We anticipate that the U.S. share of Canadian exports will continue its recent descend. This is because many of the factors cited above are structural in nature.”
The multiple trade missions by Prime Minister Stephen Harper to woo China in the past few years suggests a change in priorities with exports to the U.S. down 14% from a peak in 2002 while exports to China have more than doubled.
And the trend looks to continue with the controversial Keystone XL deal with the U.S. up in the air and the federal government pushing for an alternate pipeline to Asian markets.
Canada is also in the midst of negotiating 14 international free trade agreements, including a major one with the European Union due this year, and officials have signed or brought into force six more since 2009.
And while Canada’s economic well-being remains closely tied with its southern neighbour, the shift towards emerging markets will impact the way businesses work and even the types of businesses that will be successful in the years to come.
“Canada’s competitive advantage lies in the resource sector,” he said. “As such, commodities are on track to become even more important drivers of Canadian economic growth, likely at the expense of manufactured goods.”