Three ‘hard truths’ about Canada’s trade

In Canada’s case, a small number of sectors reliably generate significant trade surpluses, which help finance large trade deficits incurred in other parts of our economy.

Canada is an “open” economy that depends on cross-border flows of trade, investment and data/knowledge to maintain high living standards. To pay our way in a very competitive world, Canadians must produce and sell goods and services to customers in other countries. These exports furnish the means to pay for the vast array of imports that contribute to the well-being of Canadian households and allow our businesses to operate efficiently and grow by accessing bigger markets.

In 2022, Canada exported $779 billion of goods to other countries, along with $161 billion of services, for a total of $940 billion. The services category includes a wide array of commercial services including professional, scientific, technical, digital and financial, as well as transportation services and international tourism (when non-Canadian visitors travel to spend money here).

About three-quarters of Canada’s exports are destined for a single market—the United States, whose economy has steadily expanded in size over time to reach some US$25 trillion of gross domestic product today. Canada also sources the bulk of our imports from the U.S.

The centrality of the American market to Canada’s economic prosperity is the first “hard truth” about Canada’s trade, a point explored in a recent paper by Steve Globerman. Despite periodic efforts to diversify Canada’s trade and commercial links over the last 50 years, Canada remains as closely tied to the American economy today as we were in the 1990s. There’s little reason to believe the Trudeau government’s recently unveiled “Indo-Pacific” strategy will change the situation. Proximity, a common language and business culture, and the impact of extensive and unusually deep business and personal ties all serve to reinforce the American-centric character of Canada’s trade. It follows that the U.S. should continue to figure prominently in the trade promotion and investment attraction activities of Canadian governments.

A second “hard truth” about Canada’s trade is the outsized place of natural resource-based products in the export mix. The first table below breaks down Canada’s goods and services exports in 2022 into the main groupings.

Table 1

Added together, energy, non-metallic minerals and related products, metal ores, forest products and agri-food comprise almost half of the country’s total international exports of goods and services combined. Energy alone supplied 27 per cent of Canada’s merchandise exports (and 23 per cent of total exports) last year, generating a remarkable $212 billion in export-driven income for Canadian businesses, workers and governments.

Within the energy basket, oil and oil-based products dominate, providing about three-quarters of energy-based export revenues. Contrary to innumerable speeches and press releases issued by the current federal government, the energy share is likely to rise in the next several years, as LNG production from British Columbia comes on-line and Western Canadian oil exports increase following the completion of pipeline expansion projects.

The final “hard truth” is closely related to the second but carries a more nuanced message. Ultimately, every country will have a ledger showing the trade surpluses and trade deficits across its various industries. In Canada’s case, a small number of sectors reliably generate significant trade surpluses, which help finance large trade deficits incurred in other parts of our economy.

The second table provides a snapshot of Canada’s trade “balances”—the mix of deficits and surpluses by broad industry category.

Table 2

The story is a fairly simple one; positive trade balances in the energy, mining, forestry and agri-food sectors offset chronic—and in some cases very sizable—trade deficits in consumer goods, chemicals and plastics, motor vehicles/parts, and industrial and electronic goods. We also run a smallish deficit in our overall services trade.

The trade data are informative. Among other things, they tell us where Canada has, in the language of economists, a “comparative advantage” in the global context. For a market-based economy, a pattern of positive trade balances is evidence that it very likely enjoys a comparative advantage in the industries which report consistent trade surpluses. Armed with such information, smart policymakers should strive to create and sustain an attractive business and investment climate for the industries that produce trade surpluses. Unfortunately, this is a lesson that today’s federal government in distant Ottawa has struggled to digest.

Author: Jock Finlayson

Related Topics:#Canada'sTrade #CanadaEconomy #CanadaEnergy #CanadaExports #FraserInstitute #JockFinlayson

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Published on May 12, 2024

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From the Daily Caller News Foundation

By WILL KESSLER

Converting America’s medium- and heavy-duty trucks to electric vehicles (EV) in accordance with goals from the Biden administration would add massive costs to commercial trucking, according to a new analysis released Wednesday.

The cost to switch over to light-duty EVs like a transit van would equate to a 5% increase in costs per year while switching over medium- and heavy-duty trucks would add up to 114% in costs per year to already struggling businesses, according to a report from transportation and logistics company Ryder Systems. The Biden administration, in an effort to facilitate a transition to EVs, finalized new emission standards in March that would require a huge number of heavy-duty vehicles to be electric or zero-emission by 2032 and has created a plan to roll out charging infrastructure across the country.

“There are specific applications where EV adoption makes sense today, but the use cases are still limited,” Karen Jones, executive vice president at Ryder, said in an accompanying press release. “Yet we’re facing regulations aimed at accelerating broader EV adoption when the technology and infrastructure are still developing. Until the gap in TCT for heavier-duty vehicles is narrowed or closed, we cannot expect many companies to make the transition, and, if required to convert in today’s market, we face more supply chain disruptions, transportation cost increases, and additional inflationary pressure.”

Due to the increase in costs for businesses, the potential inflationary impact on the entire economy per year is between 0.5% and 1%, according to the report. Inflation is already elevated, measuring 3.5% year-over-year in March, far from the Federal Reserve’s 2% target.

Increased expense projections differ by state, with class 8 heavy-duty trucks costing 94% more per year in California compared to traditional trucks, due largely to a 501% increase in equipment costs, while cost savings on fuel only amounted to 52%. In Georgia, costs would be 114% higher due to higher equipment costs, labor costs, a smaller payload capacity and more.

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Economic progress stalling for Canada and other G7 countries

Published on May 10, 2024

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From the Fraser Institute

By Jake Fuss

For decades, Canada and other countries in the G7 have been known as the economic powerhouses of the world. They generally have had the biggest economies and the most prosperous countries. But in recent years, poor government policy across the G7 has contributed to slowing economic growth and near-stagnant living standards.

Simply put, the Group of Seven countries—Canada, France, Germany, Italy, Japan, the United Kingdom and the United States—have become complacent. Rather than build off past economic success by employing small governments that are limited and efficient, these countries have largely pursued policies that increase or maintain high taxes on families and businesses, increase regulation and grow government spending.

Canada is a prime example. As multiple levels of government have turned on the spending taps to expand programs or implement new ones, the size of total government has surged ever higher. Unsurprisingly, Canada’s general government spending as a share of GDP has risen from 39.3 per cent in 2007 to 42.2 per cent in 2022.

At the same time, federal and provincial governments have increased taxes on professionals, businessowners and entrepreneurs to the point where the country’s top combined marginal tax rate is now the fifth-highest among OECD countries. New regulations such as Bill C-69, which instituted a complex and burdensome assessment process for major infrastructure projects and Bill C-48, which prohibits producers from shipping oil or natural gas from British Columbia’s northern coast, have also made it difficult to conduct business.

The results of poor government policy in Canada and other G7 countries have not been pretty.

Productivity, which is typically defined as economic output per hour of work, is a crucial determinant of overall economic growth and living standards in a country. Over the most recent 10-year period of available data (2013 to 2022), productivity growth has been meagre at best. Annual productivity growth equaled 0.9 per cent for the G7 on average over this period, which means the average rate of growth during the two previous decades (1.6 per cent) has essentially been chopped in half. For some countries such as Canada, productivity has grown even slower than the paltry G7 average.

Since productivity has grown at a snail’s pace, citizens are now experiencing stalled improvement in living standards. Gross domestic product (GDP) per person, a common indicator of living standards, grew annually (inflation-adjusted) by an anemic 0.7 per cent in Canada from 2013 to 2022 and only slightly better across the G7 at 1.3 per cent. This should raise alarm bells for policymakers.

A skeptic might suggest this is merely a global phenomenon. But other countries have fared much better. Two European countries, Ireland and Estonia, have seen a far more significant improvement than G7 countries in both productivity and per-person GDP.

From 2013 to 2022, Estonia’s annual productivity has grown more than twice as fast (1.9 per cent) as the G7 countries (0.9 per cent). Productivity in Ireland has grown at a rapid annual pace of 5.9 per cent, more than six times faster than the G7.

A similar story occurs when examining improvements in living standards. Estonians enjoyed average per-person GDP growth of 2.8 per cent from 2013 to 2022—more than double the G7. Meanwhile, Ireland’s per-person GDP has surged by 7.9 per cent annually over the 10-year period. To put this in perspective, living standards for the Irish grew 10 times faster than for Canadians.

But this should come as no surprise. Governments in Ireland and Estonia are smaller than the G7 average and impose lower taxes on individuals and businesses. In 2019, general government spending as a percentage of GDP averaged 44.0 per cent for G7 countries. Spending for governments in both Estonia and Ireland were well below this benchmark.

Moreover, the business tax rate averaged 27.2 per cent for G7 countries in 2023 compared to lower rates in Ireland (12.5 per cent) and Estonia (20.0 per cent). For personal income taxes, Estonia’s top marginal tax rate (20.0 per cent) is significantly below the G7 average of 49.7 per cent. Ireland’s top marginal tax rate is below the G7 average as well.

Economic progress has largely stalled for Canada and other G7 countries. The status quo of government policy is simply untenable.