Ottawa, January 22, 2012—The “lost decade” of essentially no growth in Canadian exports is due less to the strong dollar and more to the rise of China and other emerging economies. A Conference Board of Canada report for the Global Commerce Centre explains how Canada’s trade has shifted this “two-gear” trade model in which the United States is relatively less important and emerging markets offer the greatest opportunity for growth.
Canada’s overall export volumes (both goods and services) changed little in the 2000s. Exports to the United States have been flat since the since the turn of the century, while exports to emerging markets grew by 80 per cent.
The strong loonie alone does not explain this trend. While Canadian exports to the U.S. stagnated, Canadian imports from the U.S. should have risen with the higher dollar, and they have not. Yet, over the same period, the Canadian dollar also rose against many other currencies, such as the euro, the British pound, the Chinese yuan, and the Mexican peso. And in each case, Canada’s bilateral trade increased.
“Many of the changes that happened in the past decade to our export-dependent industries would have occurred regardless of the value of the currency, although the dollar’s strength has likely accelerated the pace,” said Michael Burt, Director, Industrial Economic Trends and author of Walking the Silk Road: Understanding Canada’s Changing Trade Patterns.
“Focusing on the value of the dollar as a key cause of Canada’s changing trade patterns, and thus a tool to change them, is counter-productive. Canadian policy-makers have very limited influence on the value of the currency. Thus, ‘managing’ the value of the Canadian dollar would be difficult and unlikely to produce the desired revival in some industries.”
Since the dawn of the 2000s, what Canada trades has changed. A decade ago, five key products —transportation equipment, pulp and paper, electronic products, plastics and wood products — accounted for almost half of Canadian exports. Today, the top five consists of oil and gas, mineral products, chemicals, primary metals and food products. Other areas of trade strength in recent years include professional and financial services.
The emergence of China on the world stage has led to a realignment of North American trading patterns. A new trade equilibrium is developing among China, Canada and the United States. Canada is losing market share in the U.S. to China, and Chinese imports are capturing market share in Canada from the United States. However, the Chinese market provides massive opportunities for Canadian firms.