A recent analysis by EDC, Canada’s export agency, estimates that the North American country’s total export volume is currently almost $40 billion per year below its potential, and that trade to foreign markets could quadruple over the next 30 years.
The report, written by Export Development Canada senior economist Meena Aier and published by the Canadian Chamber in Italy, speaks of a “potential” annual loss of 48.6 billion Canadian dollars, which corresponds to 39 billion US dollars and 9% of the total exports recorded in 2019, the last year exempt from the negative influences of the Covid emergency.
Canadian analysts are therefore wondering how the gap between potential and actual can be closed. One answer comes from shifting focus away from the more traditional end markets and towards new realities.
It certainly doesn’t help that many of these rapidly developing new markets are far from Canada’s borders, and that Canada is essentially a rather isolated country geographically, bordering only the United States of America.
But one of the most striking aspects of the EDC’s analysis is that the greatest ‘underperformance’ is now linked to Canada’s largest export markets, places where the country tends to be thought of as having a natural advantage and a favourable trade tradition.
In fact, the EDC says that two-thirds of this export deficit is with the United States, its largest trading partner, despite a deeply rooted relationship and long-standing agreements that have significantly integrated the two major North American economies.
With China, the second largest trading partner, Canada is instead leaving on the table about $5 billion a year – equivalent to almost 30 per cent of total exports recorded in 2019. It is precisely with that China on which hopes were pinned to significantly increase exports, overcoming dependence on the USA, but which has seen trade between the two countries penalised by the difficult relations between their respective governments and the willingness of the Chinese to use trade as a weapon for diplomatic relations.
Canadian exports therefore tend to “underperform” in countries where there are trade advantages.
Here, the report argues, Canada could and should do even more to improve its export performance.
As a counter-move, the report then refers to the idea of looking to other large, high-growth markets where Canada could raise its game in the coming years. One of these is the European Union, where trade has been strengthened in recent years by the CETA free trade agreement, and the other is Asia, whose doors have been opened by the CPTPP.
The report goes on to cite exports to India and Brazil, in particular, as well below where they could and probably should be.
For Canada to recover a significant portion of its export potential over the next few decades, we need to reduce dependence on a few large markets and make better inroads into emerging and make better inroads into emerging economies that offer more room to grow and diversify.
It is also necessary – according to the analysis – to continue to run fast along the road of innovation and technology, to close the gap that still exists with some large economies and to overcome the traditional view that sees Canada as a major exporter of raw materials.
