As a resource-producing region, Canada has become extraordinarily wealthy on the back of international trade. Just prior to the Great Recession of 2008-09, Canada sold a record $483.6 billion worth of goods to international buyers. (In 2009, that number tumbled to $360 billion.) According to the Export Development Corporation, Canada’s exports are forecast to rise by 13 percent this year, and an additional 7 percent in 2011. But even with that growth, total exports will remain well below the level reached prior to the 2008 downturn.
Why are exports stalling? And what, if anything, can Canadian companies do about it?
The main reason why exports will not be the roaring engine of growth going forward is that our main customer — the United States — is in no mood to shop. Although the US climbed out of recession last year, the recovery south of the border is looking very shaky. The housing market is still DOA, and the unemployment rate is still very close to 10 percent — persistently stubborn at 9.5 percent again in July. Adding to that is a huge swath of underemployed Americans — those who are technically working, but in jobs that are lower-paying than their skills would warrant, or working parttime. All together, about one in six American households is not in a position to be spending much on discretionary items.
That takes a lot of steam out of the US economy, and as a result we can’t count on growing demand for Canadian exports in the coming months or years. On top of that,
Canada’s primary exports to the US — oil and natural gas — are under attack in America. Reasons range from the perception of Canadian bitumen being “dirty” to a more generalized notion that Americans need to reduce carbon consumption and greenhouse gases. (On the other hand, the US government’s proposed cap-and-trade bill has recently died in the Senate, and it now appears it may be months or even years before any emissions control legislation is in place.)
With the American economy in a giant malaise, and with some growing opposition to imports of Canadian hydrocarbons, a wise strategy would suggest diversifying our international trade markets. That, however, is much easier said than done.
China will be requiring plenty of Canada’s natural resources in the future. But without an oil pipeline running from northern Alberta to the Pacific Ocean, it’s difficult to export much bitumen or synthetic crude. A couple of proposals for major pipeline projects are in the wings, but with the twin hit of the BP oil spill in the Gulf of Mexico and the Enbridge pipeline rupture in Michigan, the playing field has suddenly tilted sharply against oil pipeline projects. And even if the considerable environmental opposition to these pipelines is somehow accommodated, it will still be years (maybe a decade?) before a pipeline could be built.
Other options for trade diversification, such as exporting to emerging nations like Brazil and India, offer some possibilities. But again, geography and lack of pipeline capacity limit direct energy exports. And other non-energy exports, such as engineering, specialized financial services and even manufactured food products, are limited by Canadians’ lack of strong trade ties with these countries. Doing business in India, for example, can take years of relationship building with suppliers and customers. Cultural barriers have to be overcome. It’s not as simple as picking up the phone and calling a client or buyer in the US, with which we share similar business protocol and traditions. Everything is different with doing business outside Canada and the US.
This is where Canadian businesses have some catch-up work to do. Other countries, notably Australia and certain northern European players, are far ahead of us in terms of building their international trade linkages. They have never enjoyed the luxury of living right next door to the world’s largest economic market, so they’ve always had to hustle to compete internationally. Now we’re finding out how hard it actually is.
Exports have been the bread and butter for Canada’s economy. But as the US struggles in the foreseeable future, those fortunes may be a bit tough to come by. Diversifying to other international markets is the obvious Plan B, but these are limited by geography, infrastructure and our lack of experience in building trade linkages.
Add in a Canadian dollar that is once again marching onward to parity with its US counterpart, and the storyline for Canada’s exporters becomes clear: it may be a tough slog for a while.