We must diversify our export trade to where the growth is going to be — Asia.
Canada is a trading nation. We always have been. We are the world’s eighth-largest exporter and seventh-largest importer. Trade accounts for almost two-thirds of our total economy, and exports account for one-third of our GDP. By comparison, exports represent only 13 percent of the United States’ GDP. The basis of Canadian trade is also more diverse than is commonly understood — it consists of minerals, agriculture, lumber, manufacturing, a variety of services and of course energy, which now makes up 25 percent of Canada’s total exports. However, we are too dependent on the United States. This isn’t surprising. It has been too easy for us. The American market is huge and affluent, and for the most part Americans look, speak and sound a lot like we do.
Our relationship with the United States has been, and will remain, fundamental to our prosperity. In 2010 more than $1.6 billion worth of goods and services crossed our shared border every single day. The United States sells more products and services to Canada than to anyone else. Canada and the United States share the largest and most successful bilateral trading relationship in the world. North Americans should devote their collective attention to ensuring that it remains that way.
We are, however, paying for our failure to diversify.
When the US economy struggles, we suffer. The US recovery from the recent recession has been the weakest since the Great Depression. We have also learned through our recent experience with the Keystone XL pipeline that being dependent on any single large customer is fraught with peril — even if that customer is our best friend.
To make matters worse, Canada’s non-US trade is far too focused on other low-growth economies, including Europe. Once again, this dependency is not surprising and reflects our historic, linguistic and cultural ties, yet 85 percent of our export trade remains focused on lower-growth economies. The result is that Canada’s export performance from 2000 to 2010, based on trade growth, was the second worst in the G20. Our singular focus on trade with developed economies is hurting our economy and is detrimental to our future prospects.
Canada must diversify its export trade. We must go to not only where the growth is, but where it’s going to be: Asia.
The big developing economies in Asia are booming. In 2011, emerging economies accounted for almost 80 percent of global growth, up from just over 40 percent in 2000.
The opportunity for Canada is that Asian markets beckon.
China alone has almost 1.5 billion people. There are more than 130 Chinese cities larger than any Canadian city. China’s economy is now second in size only to that of the United States. In 2010, China overtook the United States in manufactured output, car sales and energy use. Virtually all incremental growth in global energy consumption is Asian. And, importantly, China has begun embracing global trade and other economic relations since joining the World Trade Organization (WTO) in December 2001.
Emerging economies are not only growing rapidly, they are changing — as are their needs. Urbanization in India and China almost quadrupled between 1990 and 2010, creating its own dynamic in infrastructure and consumer demand. By the middle of this decade, these economies are expected to account for more than half of global production and consumption of goods and services. By 2030, global trade volumes will quadruple, and by 2050 emerging markets will be home to 70 percent of global trade and 60 percent of the world’s wealth.
The case is compelling. Asia is where the future growth will be. Asia is where Canada needs to diversify.
The good news is that Canada produces a lot of what these big, rapidly growing markets need: oil (Canada is the sixth-largest producer in the world), natural gas (third), uranium (second), hydro (second), potash (first), copper (third), diamonds (third), nickel (second), lumber (in the top five), wheat (second), overall agriculture (in the top five). I have never advocated a future for Canadians as “hewers of wood and drawers of water,” but we do have natural resources in abundance. Asia wants them, and there is no shame in being the most capable and efficient people in the world at producing them.
Canada also has many other comparative advantages. We have a well educated, highly skilled workforce; a strong economy; a banking system that is the envy of the world; and stable, market-oriented governance. Canada is seen as a secure and dependable source of goods and services. We have expertise in engineering and infrastructure development, finance, energy technologies, health care and education — all of which Asia needs.
Finally, a major comparative and strategic advantage we underestimate is that we are arguably the world’s most cohesive and successful multicultural society. One of our greatest assets is that there are millions of young educated Canadians who speak multiple languages and maintain familial and cultural ties to these emerging economies. This reality was driven home to me during my tenure as Canada’s industry minister, and it has been reinforced in my time since, as a banker. Canada has become in part an Asian country itself, if not by geography, then by population. There are 3 million people in Canada of Chinese, Indian and Korean descent alone. Canadian citizens living in Hong Kong alone equate it to Canada’s 12th-largest city.
Canada and the united States share the largest and most successful bilateral trading relationship in the world. north americans should devote their collective attention to ensuring that it remains that way.
Unfortunately, Canada is only a minor player in these growing Asian markets: less than 10 percent of our exports and less than 4 percent of outward investments go to these countries. Asia is where we need to be, yet we have no overall strategy that recognizes this fundamental fact. Most concerning, as others such as Wendy Dobson and Derek Burney have pointed out, we have not negotiated a single major comprehensive trade deal or investment agreement in Asia. We have been badly outpaced by others. Australia has doubled its share of world trade over the past 10 years. Ours has been halved.
In the face of globalization, you are either expanding or contracting, eating or being eaten. Those who have figured all of this out will begin devouring the markets that Canada has traditionally relied on. In fact it is already happening. Other countries are rapidly expanding through bilateral trade arrangements. In contrast, according to the Bank of Canada, Canada’s share of the world export market fell from 4.5 percent to 2.5 percent, and our manufactured-goods export market share has been cut in half. Economies we spent years ignoring are now competing with us — and winning. If we do not step up our game — if we do not catch up the ground we’ve already lost and move forward and expand — Canada will be left behind.
In the study “Canada, China and Rising Asia: A Strategic Proposal,” Wendy Dobson contends that we are “stalled” and lack any strategic focus or commitment. She is right, and we have ground to make up. We need a clear sense of priorities and a strategic direction that aligns with our market potential.
I am an optimist. In the past we have shown the ability to undertake transformative initiatives. Following its election in 1984, the Conservative government of Brian Mulroney set out to transform the environment for economic growth in Canada — through tax reform, deregulation, privatizations and the negotiation of free trade agreements. Canada today requires something equally dramatic for international trade.
We need the same sort of sustained, pragmatic focus that has driven Australia’s success over the past 20 years. Our national government, our provincial governments and Canadian business need to focus on this as an imperative. It needs to begin with government, because Canadian businesses can capitalize on business opportunities only within the context of overall multilateral or bilateral trade arrangements. This is especially true in the Asian context, where government and business are interconnected. Try consummating an energy or investment agreement with China Petroleum and Chemical Corporation, China National Offshore Oil Corporation or the China Investment Corporation without the appropriate political signals from both the Canadian and Chinese governments!
I acknowledge that, at the end of the day, it is business that produces goods and services. The critical role for government at this historic moment is to secure Canadian market access. If we do that, I have every confidence that the business genius that has made Canada one of the world’s great free traders will flourish. I don’t agree with the criticism of complacency in the Canadian business community. There are Canadian business leaders who I see more often in Beijing than in Calgary. Canadians have built some of the world’s most successful global enterprises, and companies such as Bombardier, together with new arrivals such as Linamar, are rapidly expanding their Asian footprint. To be sure, business leaders can do more, but we seem to have lost sight of the Asian adage that “beating your elephant will not make it fly.” Canadian businesses and entrepreneurs need fewer lectures and more leadership — a national commitment to an overall strategy that recognizes the importance of Asia to our future prosperity.
To be sure, we need to ready ourselves at home. We need a supportive domestic environment on which to platform these international opportunities. For example, we cannot build energy relationships with Asia without Pacific pipelines and terminals. Our ability to build exactly that kind of infrastructure off our Pacific Coast is in doubt, and this erodes our capacity to compete with the Australians or Indonesians. Our tax regime, border infrastructure, investment policies, competition laws and industrial policies must also be brought into line, and productivity and innovation must be a continuing focus.
Fundamentally, we need to make trade into the emerging markets of Asia a national priority, and our government needs to lead the way in negotiating multilateral and bilateral market access arrangements across Asia that allow us to compete. It is as simple as that. We must first of all get the overall strategy right. Others have highlighted the need for
- The restoration of Canada’s diplomatic presence in Asia;
- The development and promotion of the Canadian brand;
- A focus on multilateral trade arrangements, especially the TransPacific Partnership (TPP);
- A focus on bilateral trade arrangements, especially with China, Japan and India; and
- The need for more government resources and private-sector acumen to staff such negotiations.
These should all be part of a collective economic priority. To be fair, we are making progress. After a poor start, we have moved decisively to construct a strategic partnership with China. Negotiations have begun with Japan and India. But in recent years we have neglected bilateral relationships and regional institutions. Whereas Canada historically supported the Association of Southeast Asian Nations, we have largely neglected it in recent years — even as that organization takes on greater importance and influence in the region.
We must restore Canada’s presence in Asia as a steady and reliable partner. We must not cut back on diplomatic involvement, but do the opposite, and increase our educational and cultural engagement.
Both governments and business must significantly increase their presence and their participation. Diplomatic resources must focus upon our commercial interests, on activities that secure market access and encourage increased trade and investment. The federal and provincial governments need to better coordinate their efforts. The government must enlist Canadian business leaders, particularly those who have already established successful relationships in the region, to work more closely together in the relevant organizations, in trade missions, in sharing knowledge and connections. Canada’s International Trade Minister Ed Fast has taken important steps in this direction. We should also be encouraging personal relationships at the highest political and business levels. Asia is very much about relationships; surprisingly, we had forgotten this. Our existing relationships, both diplomatic and business, are the key to understanding and resolving the critical cultural differences that Asia presents.
We have not negotiated a single major comprehensive trade deal or investment agreement in asia. we have been badly outpaced by others.
On trade generally, Canada has long had a clear preference for multilateral trade arrangements. But the WTO Doha discussions stalled, and with them, at least for a while, so did Canadian interest in pursuing other trade options. We eventually realized that it was better to work on bilateral agreements than none at all, and we have now concluded or are negotiating a number of agreements around the world. These efforts are in the right direction, but they aren’t nearly enough. With the exception of the Comprehensive Economic and Trade Agreement with Europe, we have been too focused on smaller countries that frankly need us more than we need them. We should focus our negotiating resources on real access to the big emerging markets in Asia that offer us the greatest potential gains — China, India, Korea, Japan and Indonesia.
This is of course why the TPP is the most exciting new opportunity for Canada. The TPP is made up of Australia, New Zealand, the United States, Vietnam, Brunei Darussalam, Chile, Peru, Malaysia and Singapore. Japan and Mexico, along with Canada, have now expressed interest. Not only does the TPP offer huge potential on its own (with Canada, Japan and Mexico, a market potential of over 750 million people with a combined GDP of almost $30 trillion), it is also viewed as a potential gateway to even more countries in Asia, particularly large and rapidly emerging markets such as India and China.
The welcome announcement in June 2012 that Canada would be invited to participate in TPP negotiations came after months of intensive discussions among the parties. The existing TPP members had been reluctant to admit Canada to the negotiations due to ongoing concerns with our antiquated copyright regime and our insistence on maintaining supply management. Frankly, it is hard to imagine the United States, Australia or New Zealand not insisting, before it is over, that Canada abandon our regressive supply management regime.
The TTP is not a panacea. Indeed, in most cases, partner countries are, and will be competitors of ours. We must continue to work at more open, direct relationships with countries like China and India where our respective economies are more complementary. It is an excellent start, but in addition to our TPP efforts, we must negotiate customized bilateral trade and investment arrangements. But we must also be realistic. We are a small economy, trying to open up access to big, rapidly growing economies with whom everyone wants to do business. Frankly, we don’t arrive at the table with the leverage that we sometimes think we warrant. We have comparative advantages, as noted earlier, and oil provides a geopolitical strategic advantage. However, in most cases we need market access to these big and growing economies more than they want us. China is Canada’s 2nd-largest trading partner, but we are only their 13th. Japan is our 3rd-largest, but we rank only 15th for them. India is our 15th-largest trading partner, but we only rank as their 33rd. South Korea is our 7th-largest trading partner, but we don’t even hit their top 20.
We also tend to demand societal change in these countries in exchange for commerce. However, the chances of that happening are often limited. It is equally counterproductive to attempt to extract “market-based” tax and competition laws from target countries as preconditions to trade agreements, since the largest of them are not market-based countries to begin with. Yes, we have much to offer and we need to reinforce our true comparative advantages. But we must also be willing to accept concessions where needed.
In sum, Canada is a nation that is dependent on trade, and our future prosperity is linked to the diversification of our trading base into highgrowth emerging economies, particularly in Asia. Our ability to embrace global business opportunities is critical to our future prosperity.
Canadian governments and business leaders need to recognize the opportunities that increased trade with these emerging economies can provide. We must understand that not taking advantage of these opportunities will leave us further behind. We must recognize the challenges that need to be overcome in order to move forward. Most importantly, we need to make it a national priority to address those challenges, leverage our comparative advantages and negotiate multilateral and bilateral trade arrangements that will achieve market access into the emerging markets that will drive global growth over the next 50 years.