Canada-US Trade: Numbers, Impact, and Future

Halifax is consistently enjoyable to visit. I am grateful for the Atlantic Institute for Market Studies' invitation to address you today. The research papers you publish on economic and social issues are thoughtful contributions to the public discourse. Halifax has been a critical transit point for Canadian commerce since its establishment in 1749. This city has facilitated the growth and development of Canadian exports by utilizing its extensive port facilities, which have evolved from the early trading of fish and fur in sailing vessels to the modern transportation of consumer and industrial products in large container ships.

This question is of particular significance in the current context, as the global demand and Canadian exports have recovered at a slower pace than anticipated since the Great Recession of 2008–09. Despite the fact that Canadian exports have experienced an annual growth rate of approximately 4% during this time, their growth to date has been below the rate of prior recoveries. For instance, during the recoveries from the recessions of 1981–82 and 1990–91, exports increased by nearly 8% annually for a comparable period. This distinction is significant because the Canadian economy must experience stronger export growth in order to establish a more sustainable growth trajectory.

Throughout our history, we have effectively sustained our increasing standard of living through trade, which includes both imports and exports

Exports have consistently been a significant contributor to Canada's economic expansion (Chart 1). Currently, exports and imports account for approximately 65% of our output, which is one of the highest ratios among the G7 countries (Chart 2). Exports are not an end in themselves; rather, they are a method of acquiring imports for the purpose of consumption and investment. Additionally, trade generates global benefits by motivating countries to concentrate on the production of products and services in which they possess a comparative advantage, i.e., those that are relatively more efficient to produce.

Our export mix has been primarily comprised of resource-based products that are intended for the United States due to our geography, which has provided us with an abundance of natural resources and proximity to the world's largest market. However, Canada has evolved from a primary goods powerhouse—primarily wood, wheat, and other agricultural goods—with a restricted number of trading partners to a modern, well-diversified economy throughout its history. Currently, we export a wide variety of manufactured products, such as automobiles, trucks, airplanes, and subway cars, as well as an ever-growing selection of web-based services. In order to maintain our export success, it is imperative that we continue to explore new markets and exports.

Our demonstrated capacity to adapt flexibly, or "pivot," in response to a diverse array of internal and external forces is a reflection of our dedication to policies that promote economic activity and trade, as well as our robust political and legal institutions. The following are included: legally enforceable contracts and well-defined property rights, as well as growth-promoting economic policies, such as trade liberalization and prudent fiscal and financial policies. Furthermore, our inflation-targeting monetary policy and flexible exchange rate have enabled us to manage disruptions and achieve strong, sustainable economic growth, as well as low, stable, and predictable inflation.

I will commence my presentation with a straightforward analytical framework that emphasizes the primary factors that have impacted the development of our exports

I will elaborate on the ways in which these factors have influenced the evolution of our exports and their destinations throughout history. I will examine three phases of our recent export history. In the final section, I will examine the potential of Canada's exports and their influence on the Bank's economic forecast. An Analytical Framework for Export Determinants I will employ a framework that concentrates on three broad and frequently interrelated factors that affect the volume, value, composition, and destination of Canadian exports over time for the purposes of this analysis: economic growth and development in other countries, particularly in our trading partners and competitors; trade policies, including tariffs and quotas, and other structural factors, such as changing technology and tastes; natural resource or commodity prices and the exchange rate (Figure 1).1. These factors influence the products we offer, the demographics to which we market them to, the quantity we sell, and the price at which we sell them.Two Let us examine the manner in which our export composition and trading partners have evolved in response to these critical determinants since Confederation, utilizing this framework.

Historical Pivots: We Trade With Whom and What We Trade The composition of our exports has undergone a significant transformation since Confederation in 1867, as have the destinations to which we convey them (Chart 3). During Canada's initial years, we exported the products that we extracted from our forests and produced on our farms.3 This pattern persisted until the early 20th century, when commodities such as nickel, copper, and iron ore gained prominence. Two significant trends were expedited by the two world wars: the transition from pastoral to urban life and the adoption of new technologies in the form of electrification and mechanization. The transition to an industrial, export-driven economy that was founded on new commodities, including oil, gas, and manufactured products, was facilitated by these trends.

Trade liberalization, which persists to this day, was potentially the most consequential development subsequent to the conclusion of World War II

The world was taught a harsh lesson about the cost of protectionism during the Great Depression, when trade collapsed in part as a result of misguided policies, including the US Smoot-Hawley tariff..Four Canada's trade agreements have been transformative. Signed in 1947 by 23 countries, including Canada, the initial General Agreement on Tariffs and Trade (GATT) reduced or frozen over 45,000 tariff rates.Five Between 1948 and 1972, the world and Canadian goods exports increased by over sevenfold as a result of this agreement and subsequent GATT sessions. The 1965 Canada–United States Automotive Products Agreement, more commonly referred to as the Auto Pact, represented an even more significant turning point for the Canadian economy and exports.SixIn contrast to 15 years ago, our markets have become more diverse, despite the fact that the United States remains our dominant trading partner, as it is the destination for approximately 75% of our exports. I have condensed a vast expanse of Canadian history into these charts. Three significant points are illustrated.

Autos and auto parts were freely traded between the two nations under the Auto Pact, which also ensured that Canada would receive a portion of the total auto production. The Canadian auto industry experienced significant growth, increased efficiency, and successfully exported on a large scale. Next, we will examine our commercial partners (Chart 4). We once again observe the adaptability of Canadian exports in response to evolving circumstances. The United Kingdom, the remainder of Europe, and the United States were the destinations of the majority of our exports following the conclusion of the Second World War. The chart illustrates the gradual increase in the United States' significance as a result of subsequent trade agreements and the subsequent surge in trade to the United States following the first GATT agreement in the late 1940s. In recent decades, there has been a rise in the proportion of shares allocated to China and Mexico.