More On Canada’s Exports

By Keith Edmund White, Editor-in-Chief

Canada's losing its share of the global export market, some blame the United States, but is this whole debate just a way to bury potentially troubling Canadian marco-economic policies underneath a swallow rhetorical debate on Canada's place in the world?

So...is America to blame for Canada’s dwindling share of the world’s export market? And what does this matter anyhow?

Last week’s speech by the Governor of the Bank of Canada Mark Carney has led to some interesting economic discussion in Canada. 

Carney, noting Canada’s decade-long slide in the global export market, placed blame on “overexposure to the US market and underexposure to emerginng markets….”

But William Watson from McGill makes an interesting counter-point when it comes to the impact of Carney’s words: in short, let the markets work. From Watson’s editorial in the Ottawa Citizen:

On average since 2000, the rich countries to which we send 85 per cent of our exports have been growing at under two per cent per year, while the “emerging markets,” some of which have pretty much completely emerged by now, have been growing at over four per cent. The import of these numbers is that Canadian exporters will want to think about focusing more on rapidly growing markets and, if they agree with Carney that these trends will continue, less on our traditional markets.

Of course, the great thing about a capitalist economy is that businesses don’t actually need a high government official to tell them where to turn their export intentions. As if on cue, on Wednesday Statistics Canada released its annual review of our merchandise trade. While in 2002, 87.1 per cent of our exporting and 62.6 per cent of our importing was with the United States, last year those numbers were 73.7 and 49.5 per cent, respectively. Canadian businesses, not policy-makers, are who we want making decisions about where they can get the best deals for their products. It seems they’re already on the case.

Naturally, this back-and-forth is covering up an important question: why are Canadian exports getting this much attention? Well, first, Carney is reacting to Canada’s post-recession export boom not really mirroring past trade trajectories. Second, Canada’s exports represented 26% of the Canadian economy. So it is an important chunk of Canada’s economy. But, on the other hand, simply increasing exports doesn’t naturally equate to greater economic growth: if new exports, for example exports in manufactured goods, triggers the need for more oil imports, could dilute the impact of positive export growth.

But the real issue behind this debate is how Canada can keep finding markets for their exports, especially in the face of an American economy is not growing like it was in the 90s. With Canada's population 1/9 the size of America's but maintaining an average income that is 50% higher than America's, diversifying markets in face the of an uneven American recovery seems an obvious economic and political priority. And this is especially important as the Canadian economy has been floating on robust consumer spending that has, in Carney's opinion, generated an unsustainable increase increase in household debt.

But, as Watson points out, Canadian businesses act economically rationally: having policy makers tell Canadian businesses where to trade doesn't really make sense--the businesses will make the best choice for them. You want to make Canadian exports more competitive? Raise the currency. You want to cut back Canadian debt levels? Raise interest rates. What I take from his article: 'Thanks, but don't lecture Canadian businesses for responding to the environment you've put them in.'

Naturally, these policies in effect take away 'free money' that Canadians are enjoying: a stronger dollar allows consumers to enjoy travel and more foreign goods, and low interest-rates allow them to over-consume, which is always fun until the party ends. And why would a Conservative government, just enjoying its majority government, want to get in the way of this party. So, instead, we seem to see the Bank of Canada Governor's speech trying to find another way to protect Canada's long-term economic interests without engendering public blow-back: let's focus on who are businesses are and are not trading to and if we can put some blame on the States--why not?

But, whether or not my cynical reading is even close to accurate, one thing is clear: that there’s some serious economic soul-searching going on in Canada, and it might have bad ramifications on the Canada-U.S. bilateral relationship. The graphs below show just how important a trading partner the United States is to Canada.

But, first, more from the AFP article assessing Canada’s current export health:

Over the past decade, Canada's share of world exports has declined from about 4.5 percent to about 2.5 percent, and its manufactured-goods export market share has been cut in half, he added. 

Meanwhile, export growth is almost five percentage points slower than the global average per year, ranking Canada's performance as the second worst in the G20. 

Carney pointed to Germany, which has maintained its market share in manufactured goods by exporting capital goods and automobiles to China and Australia's rising exports of commodities to China as examples to follow. 

He noted that strong household spending has lifted Canada's fortunes of late, but at a cost -- rising household debt, which he said is "unsustainable."