Canadians are again bemoaning our overwhelming trade dependence on the United States and asking ourselves why we don’t consume more of our own products and why we don’t sell more to other countries.
U.S. president Donald Trump’s mad decision to launch a trade war against Canada has again forced Canadians into self-examination.
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SASKATOON — Scott Moe is in a conciliatory mood. Moe had plenty of kind things to say recently about Canadian Prime Minister Mark Carney, which wasn’t the case with Carney’s predecessor Justin Trudeau.
We go through this regularly and, disappointingly, we have not been bold enough to tackle internal weaknesses that, if we fixed them, would make us more resilient.
On the other hand, we can’t get around the fact that we live next door to a giant.
As former prime minister Pierre Trudeau noted in 1969, it is like sleeping with an elephant.
“No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt,” he noted.
Now, there is a president who is neither friendly nor even tempered.
We’ve always been tied to our giant neighbour but have been wary of it. We admitted the link by signing the Canada-U.S. Free Trade Agreement in the late 1980s, hoping that by formalizing the trade relationship and building up rules and an impartial adjudication system to handing disputes, we’d lessen our risk.
That deal and the subsequent North American Free Trade Agreement helped expand cross-border trade even more.
But there is always a parallel uneasiness with such dependence, and we hoped we could reduce it by negotiating other trade agreements such as those with the European Union, Pacific Rim countries and individual countries.
We had modest success with diversification. The dollar amounts of trade with other countries grew and the trade pie got bigger, but the slice that was with the U.S. remained dominant.
In 2002, 87 per cent of Canada’s exports by value went to the U.S. and almost 63 per cent of imports came from there.
With all our diversification efforts, by 2012 our export dependence on the U.S. had dropped to about 75 per cent and imports to 51 per cent.
However, the trade percentages have changed little since then.
U.S.-bound exports are 74 to 77 per cent and imports are 49 to 55 per cent.
That is not surprising. It would be a curious thing, indeed a failure, if our trade with the U.S. was not dominant.
America, the wealthiest country in the world, is on our doorstep.
We share a language and culture. Our proximity is knitted together through an extensive transportation network of roads, rails, shipping and air links.
Even with the enormous advance of China in the past two decades, the U.S. economy still amounts to one quarter of the world’s gross domestic product.
The U.S. economy is the most robust of the major developed countries, with GDP growing 62 per cent from 2013 to 2023.
China’s economy grew by 86 per cent and is now a close rival to the U.S., but it lies thousands of kilometres away, across an ocean. Canadians do not share a language or culture with the Chinese. The Chinese government has shown repeatedly it is willing to manipulate and crush trade relationships when it suits its ambitions.
So it is rational and advantageous for Canada to have close trading links to America.
Today, that close relationship is fractured. Eventually it will heal, but even as the best export market available, it presents a level of risk.
So we must ask ourselves: what is the only market that has less risk?
We can look in the mirror.
Canadians are stepping up to “Buy Canadian” like never before, especially in what we buy in the grocery store. That is most welcome.
But what about clothing, electronics, housewares, furniture, office supplies and machinery?
Canada has few big manufacturers and processors.
Impediments in our regulatory and taxation systems must be adjusted.
But another problem is that the domestic market is too small to allow companies to scale up efficiently to take on the world.
Removing internal trade barriers will help, but even then, we are a market of only 41.6 million.
Yes, we have grown in the past five years, about 10 per cent, driven by immigration and non-permanent residents.
The influx exacerbated existing problems in the housing market, but with the right policy environment, the housing market can catch up and eventually those new Canadians will make a mighty contribution to the domestic economy.
And although 10 per cent growth in five years is exceptional for Canada, other places experienced similar growth over the same period. Florida grew by nine per cent and Texas by eight per cent.
Further population growth, driven by smart immigration and a more business-friendly policy environment that promotes job creation and productivity, will produce a larger domestic market that lessens our reliance on exports.
