A challenging hill to climb

The global pandemic has modified our planning and tested our resilience, determination and commitment to not only free and open trade but inclusive and collaborative solutions. For the global and Canadian economies, analytical results for 2020, as expected, weren’t stellar: The International Monetary Fund (IMF), for instance, estimated that the global GDP would drop by 3.5%; the World Trade Organization (WTO) calculated that the volume of world merchandise trade would contract by 9.2%; and the United Nations Conference on Trade and Development (UNCTAD) projected that global foreign direct investment (FDI) flows would dramatically decrease by up to 40% in 2020.

Likewise, Canadian estimates for last year were not encouraging either, with a GDP estimated to drop by 7.1%, goods exports falling by 12.3%, and services exports declining by 18%. Amid exceptional uncertainty, the world and Canadian economies are projected to grow 5.5% and 3.6% in 2021, respectively.

Two reasons why the Indo-Pacific approach needs to be considered

It must be highlighted that the estimated economic growth in the global and Canadian economies, this year, follows an unprecedented economic collapse that has had severe adverse effects on business activity.

Considering the uncertainty and challenges in both the Canadian and global economies, a recovery strategy that prioritizes Canada’s commerce and investments around the world could promote much-needed sustainable growth and resilience for the country.

Keeping this in mind, there are two main reasons why Canada should seriously consider drafting and implementing an Indo-Pacific approach as a strategic trade policy to support economic recovery:

1. It would bring trade diversity and import-export opportunities to Canadian businesses

First, Canada needs to diversify its trade. Official reports point out that Canada’s exports are the fourth most concentrated by destination out of 113 economies [1]; this is true due to a large share of exports going to the US market. In this regard,

formal engagement with the Indo-Pacific region could represent new alternatives for businesses, including small and medium-sized enterprises, to export their products and services and engage in regional supply chains.

To be successful, the key step in this diversification imperative would be for Canada to take a more proactive role in trade agreements where it is already a member—namely the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It should also consider doing the same for agreements that are in the negotiation stage. For instance, Canada currently has talks in different stages with the Association of Southeast Asian Nations (ASEAN), India, Mercosur, and the Pacific Alliance.

2. It would streamline relations to focus on beneficial trade agreements, such as the CPTPP and the CUSMA

Second, Canada needs to consolidate trade relations with its current trading partners. It must promote and ensure that its businesspeople are reaching their full potential in trade and investment opportunities.

To reach this full potential, Canadians must take better advantage of the 14 Free Trade Agreements in force, giving their business access to 1.5 billion consumers across 51 countries.

In the Indo-Pacific, particularly, Canada currently has access, via trade pacts, to thirteen dynamic economies that could complement its economy perfectly. In order to consolidate these ties, Canada needs to tap the benefits of its membership in trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Canada-United States-Mexico Agreement (CUSMA).

Two challenges to the Indo-Pacific approach

There are a few challenges that Canada could face in the process of the construction of this Indo-Pacific approach:

1. Contending with differing views on multilateralism

One, it would have to clearly define an approach that represents Canada’s values and legitimate interests and offer a compelling value proposition for the Indo-Pacific region. Canada has characterized its commitment to multilateralism by championing an international order based on recognized standards and rules, such as those established by the United Nations, the WTO and the World Health Organization (WHO), among others.

In this regard, Canada must keep itself away from Indo-Pacific visions that have a goal of the containment of China’s rise and influence in the region.

2. Logistics: The Indo-Pacific region is vast and would require a prioritization of markets

Another challenge that Canada might face with an Indo-Pacific approach is logistical: The region is so diverse and large in geography and includes many countries across the Indian and Pacific oceans. For this reason, Canada’s approach must prioritize markets that can leverage economic recovery in a post-COVID stage and increase the trade and investment presence of Canadian businesses in regional and global supply chains. In this respect, Canada could operate selectively in the Indo-Pacific rather than adopting a region-wide approach. It could, carefully, define its priority markets, initiatives and engagements to support and participate in.

To overcome the challenge of the large capacity of the Indo-Pacific region, Canada could also join efforts and work together with like-minded and APEC economies to find solutions together for common trade and investment issues that require attention in the face of protectionism and unilateral measures.

Without a doubt, Canada’s Indo-Pacific approach could support economic recovery, but it will need to commit itself to a mid-term and long-term action plan that creates and strengthen relations with the Indo-Pacific countries—all supported by a strategic vision. This is an important decision for Canada’s future and it demands a collective effort from both the private and public sectors. The Indo-Pacific approach, if implemented effectively, might represent a milestone for Canada in the post-COVID era and beyond—one that’s based on equitable, diverse and inclusive trade.

[1] 20th annual edition of the State of Trade Report for 2019, Global Affairs Canada

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Export Development Canada is about to embark on their annual “Let’s Talk Exports” tour, and you won’t want to miss it.

Peter Hall, EDC’s Chief Economist will talk about succeeding in the global marketplace amid volatile markets and falling commodity prices.

The tour is designed to benefit businesses involved in product export, financial institutions and various industry associations as well as those servicing the export community.

The idea behind ‘Let’s Talk Exports’ is to provide the Canadian export community with the most up-to-date trends in the global economy, and how they will affect exporting businesses of all sizes, in all sectors.

The main theme of this year’s tour is the volatility that struck global commodity and financial marketing in the beginning of 2016.

Some pressing questions that will be addressed include:

Are the wheels of the world economy getting loose?
Is this the natural point for another global recession, or is the cyclone contained?
And will there be an end to the commodity price plunge?
Is Canada’s winning streak at an end, or are there opportunities to pursue?

The cross-Canada tour will span 11 cities from April 26 – June 1, 2016.

Those unable to attend personally can join the tour virtually via an online webinar that will be held on June 2, 2016. Twitter users are encouraged to join tour by following #LetsTalkExports / @PeterGHallXIII.

This year’s ‘Let’s Talk Exports’ Tour features Peter G. Hall, Vice-President & Chief Economist at Export Development Canada. Peter has over 25 years of experience in economic analysis and forecasting.

He is responsible for overseeing EDC’s economic analysis, country risk assessment and corporate research groups.

During the tour Peter will provide his insight on the current global economy and its effects on Canada, along with forecasts for the Canadian dollar, commodity prices and growth in particular industries.

Will you be attending one of this years events? Let us know what you think and send us your event photos, comments.

The post EDC goes on ‘Let’s Talk Exports’ Tour appeared first on Trade Ready.

Facing a global economic slump and a sharply devaluating loonie, the government of Canada has strategically turned its attention on growing international markets with the goal of tapping into the economic benefits of global trade.

Prime Minister Justin Trudeau has demonstrated his desire to strengthen international trade ties by planning a major trade mission to China and India.

He has also invited former Australian Prime Minister Kevin Rudd into discussions with senior Canadian business leaders to seek a free trade deal with China, similar to that negotiated by Australia.

Despite the fact that there are currently no free trade negotiations between China and Canada, both countries have demonstrated a willingness to strengthen their trade relationships and promote foreign investments.

According to Sylvain Charbonneau, CITP®|FIBP®, an international trade professional with over 15 years of experience and an instructor at Ashton College in Vancouver, there are two sides to this discussion. He noted:

A Canada-China free-trade agreement should be beneficial for Canadians, but it could also bring challenges and risks of negative impacts in some areas.

This article explores the primary issues with regard to the establishment of free trade between the two countries.

Canada-China trade presents major challenges

There are several things to consider when it comes to trading with China. International trade agreements create ties of influence between the countries that can extend beyond import-export affairs. The Chinese government has different values and priorities when it comes to the issues of law, politics and human rights, amongst others.

Moreover increasing competition for Canadian companies and economic pressures have international trade experts concerned.

The most pressing challenges can be outlined as being:

China’s human rights record: It is hard to deny the fact that China has a well-known history of human rights violation and systematic repression of certain minority groups. One of the biggest concerns about opening a free trade agreement with China is whether Canadian export products might become involved in oppressive situations. Of course, we are not talking about an arms trade, but this is an important consideration nonetheless.

Intellectual property protection: Canada values the protection of intellectual property for owners, producers and creators of various products, goods and services. Reported cases of intellectual property violations in China, and the possibility of forged products circulating in the market, have been raised as another point of conflict.

Economic incompatibility: Ron Austin, an instructor in the International Trade department at Ashton College, points to the difficulty of aligning the two economic systems of both countries.

Trying to integrate two economies with such different economic conditions – which is what free trade agreements essentially accomplish – can be challenging.

“If we look at the European Union, for example, we see countries like Greece or Italy clashing with Germany and Sweden; countries which have greater capital and higher taxes. We would not want that to happen in a Canada-China trade relationship.”

Competition: Charbonneau points to concerns over competition from Chinese companies, noting that an increase here “could cause difficulties for many Canadian businesses if they can’t continue to innovate on an ongoing basis. This could also have an impact on the employment landscape in Canada”.

Trade with China could have huge positive impact

There is certainly another side to this story. A strong economic (and even political) relationship between Canada and China could bring real opportunities for Canadians. Most predictions foresee great benefits for Canadian exports as a result of a potential Canada-China free trade agreement.

Among the key advantages are the following:

Economic benefits: Even though China’s economy is slowing, its purchasing power cannot be ignored. There are several key areas in which Canada could diversify in China and increase exports.

According to Charbonneau:

Trade with China could represent great business opportunities for Canadian exporters of consumer products, equipment and machineries – especially with its growing middle class generating an increasing demand for commercial goods.

“The agriculture industry should see an increase in demand for such products as meat, canola, fish and seafood. The trade deal could also be favourable for the forestry industry, metals and minerals”.

Bringing Canadian services to China: The rapid rise of the Chinese middle class has created opportunities for Canada, from the possibility of offering pension funds and insurance in China, to the expansion of Canada’s infrastructure sector and services.

Charbonneau has pointed out engineering, financial services, information technologies and architecture as the key industries to benefit from the export of services. There is even a potential to expand Canada’s influence in the areas of green technology and natural resources.

Improving the Canada-China relationship: According to Trudeau, cooperation with China could bring benefits to both countries. Strengthening Canada-China relationships could go beyond economic ties, leading to political connections (an important tie, given China’s growing influence) and cultural exchange, including travel and education.

So what happens next?

Although concerns and hesitations about establishing free trade between Canada and China certainly exist, the general consensus is that the benefits outweigh the challenges. However, this does not mean those concerns should be disregarded.

Austin states:

I believe the key is to introduce trade agreements that would reinforce environmental protection and positive working conditions of the cooperating countries.

Indeed, careful negotiation is needed to ensure that any economic benefits are also aligned with Canada’s political and humanistic objectives.

Although concerns and hesitations about establishing free trade between Canada and China certainly exist, the general consensus is that the benefits outweigh the challenges.

However, this does not mean those concerns should be disregarded.

“I believe the key is to introduce trade agreements that would reinforce the environmental protection and positive working conditions of the cooperating countries,” states Austin.

Certainly careful agreements have to be established to ensure that economic benefits are also aligned with Canada’s political and humanistic objectives.

Do you think it’s a good idea for Canada to pursue a stronger trading relationship with China? Do the challenges in human rights and IP present too much risk to Canadian trade?

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When compared to United States’ dollar, which has improved in value over the same time period, it might appear to some that Canada is in poor economic shape.

While businesses have a reason to be cautious, a weakened dollar actually brings tremendous benefit to Canadian businesses in a variety of industries.

Among these benefits is Canadian businesses’ ability to leverage increased trade and foreign investment opportunities, which will help bring more export revenue into the economy.

United States to boost Canadian investment and exports

As the largest (and closest) export market for Canada, the United States provides significant opportunity to Canadian businesses.

Historically, when the American economy is booming and the Canadian dollar is comparatively low, American businesses look to take advantage of the exchange rate by buying more Canadian products and services.

In 2014, the United States imported 75.64% of all Canadian exports, a significant rise compared to 2009, when they only imported 73.56% of Canadian exported goods.

In the same time period, Canada has grown to export more than $400 billion annually to the USA, up from $270 billion in 2009.

Yes, you read that correctly. Canadian businesses have grown their American exports by nearly $130 billion in 5 years.

The low Canadian dollar has meant more than American businesses purchasing an increased quantity of goods, it’s been leading to investment, the most well-known of which being the automotive industry investments.

Earlier this year, American vehicle manufacturer General Motors increased its commitment to the Canadian economy by investing $560 million into their Ingersoll, Ontario plant.

These types of deals, assisted by a weakened Canadian dollar, pose a long-term opportunity for our economy and allows us to gain an advantage for the future.

How investment and manufacturing will reshape the Canadian economy

Canada’s energy resources, once the centre of the economy and exporting, have seen a significant drop and are expected to remain stagnant.

Falling oil prices around the world have meant that Canada must diversify its revenue sources and take advantage of other economic opportunities.

Value-added manufacturing has witnessed the greatest growth due to the slumping energy sector. International businesses will look to Canada for manufacturing that uses our skilled labour and advanced technological abilities.

These advantages, in addition to falling material and labour costs, will make Canada the ideal country to invest and import from.

Although this requires an economic shift from the direction Canada has gone with projects such as the Keystone XL pipeline and other energy projects, it’s an important step to make.

Early effects of a shifting economy

Canadian manufacturing statistics are revealing that demand, as anticipated, is slowly increasing for Canadian goods. As the dollar continues to weaken, international companies see more benefit in working with Canadian firms.

Unfilled manufacturing orders rose nearly 7% to $96.1 billion in September 2015, and Canada’s GDP has rose nearly 1% since this time last year.

Although this economic data is encouraging, most experts claim that it will take 2-5 years for businesses to begin to launch strategic initiatives that make use of the benefits of a low exchange rate.

Waiting reduces the risk of an exchange rate that returns to near-parity, but it may also mean missing out on major advantages.

Although it’s speculated that Canada’s currency value won’t be improving any time soon, businesses need incentives to adapt to changing economic conditions.

Technological improvements and capacity-building projects are two areas of investment which the federal and provincial governments are most active in supporting, providing a number of grants, loans, and tax incentives for businesses to access.

By making strategic investments now, Canadian businesses can ensure that they are poised for growth and success in a new economy.

Grant opportunities for Ontario SMEs

The CME SMART Advanced Technologies for Global Growth (CME SMART) is a government grant that helps Ontario small and mid-sized businesses (SMEs) take advantage of these economic conditions.

Ontario businesses may qualify to receive 35-50% of their eligible project expenses, up to $100,000 for technology assessments and implementation.

For most manufacturers, this will help to address outdated technology and processes that reduced production output.

Businesses that receive CME SMART grants will be able to expand into foreign markets or improve their ability to satisfy existing export markets’ demands with new capabilities and increased production.

Ontario businesses that use this grant will become more agile in responding to the Canadian economy and its business conditions, making them more attractive to foreign customers and investors alike.

How could this SME import export grant help your business with your current market expansion strategy?

The post How the lower Canadian dollar is reshaping our economy appeared first on Trade Ready.

Canada is a trading nation. Roughly 60% of our GDP is generated by international trade. It’s therefore important to get an accurate picture of international trade in this country to highlight trade stats which matter in a meaningful way.

If only 5% of our total economy was wrapped up in international trade, we could afford to report only the top level numbers, but when 60% of our economy is generated by international trade, we have to be more granular in the way we analyze and publish the statistics.

We simply can’t afford to create a false impression, or be guided by false impressions.

So which of the international trade statistics available really matter and why?

Take the automotive industry as an example

With an industry such as automotive, which is extremely important, we tend to focus just on the high level number, the total exports. With only export numbers, you miss that most vehicles exported from Canada contain a significant percentage of imported components. This is true of the industry in most countries.

There’s nothing wrong with that. That’s what keeps those companies manufacturing here – the ability to develop international supply chains.

But the numbers we should be looking at are not the gross numbers of automotive exports. To get a clear picture of trade in Canada, we need to look at the net numbers.

Last year, there were around $89 billion in automotive exports, but in that same year we imported $58 billion worth of auto parts.

Both numbers are important, but in policy formulation terms, you’ve got to be very clear as to where the highest ratios of Canadian value-added are positive, and not to suggest any changes which might diminish those ratios, even if they would increase gross export statistics.

A significant portion of the components in the cars manufactured in Canada involved value-add, meaning that components were being imported from other regions and added to the vehicles before being exported. This number is far from insignificant.

But a few years ago when we did an input/output analysis of Canadian exports, and from the Canadian value-added perspective, the most important sectors were agriculture, mining and forestry.

It’s therefore important to use statistics which reveal what percentage of exports are truly domestic, and focus efforts around initiatives that will increase those numbers to have the maximum effect on the Canadian economy.

We are missing out on some of the positive

When the media report on monthly trade fluctuations, they can miss good news buried in the bad, and bad news buried in the good. The way trade statistics are typically reported, there may be a newspaper story triggered by a sudden drop in exports, right?

For example, there has been no shortage of news stories generated by the price of petroleum.

The price of oil is obviously important, but if the price and the volume of exports are dropping because of oil prices, yet it turns out that exports of automotive parts are up by 40%, and canola oil is up by 15%. That’s also important, and should be reported to give the full picture of what’s happening to understand the full net effect on Canada’s international trade.

Merely looking at the dollar value doesn’t tell you the entire story.

Re-exports are good, so let’s talk about them

This misreporting is occurring in the same way with trade stats that get talked about in several Canadian provinces. There’s a great deal of significance given to total exports in each province, but that becomes a problem when we start looking at provincial exports in competitive, rather than cooperative, terms.

If re-exports grow, that’s good! By re-exports I mean products that are imported from one province and exported out of another. For example, canola oil is imported from Saskatchewan and exported from British Columbia to other markets. It’s a re-export.

Since British Columbia is Canada’s Pacific gateway, a huge amount of what goes through B.C. ports comes from the rest of Canada, particularly the Prairies.

This certainly doesn’t diminish the important role of ports in British Columbia in Canada’s trade, but it shows the focus on re-exports from this province. Plus, it shows how significant the efficient running of B.C. ports is for the whole country, not just the province.

Re-exports are still important to the Canadian economy and that of each province but, if there was a strike in the port of Vancouver, which there was recently, the impact would not be solely on B.C.

Intuitively we know that.

But if we tracked the re-exports from B.C. and their source of origin, and put those measures out in press releases, the national impact of good public policy, on Canada’s West Coast specifically, would become more apparent than it may be the at the moment.

So how can Canada use these statistics to work to establish a strong trading environment?

That is a good question.

It’s a question that we are throwing out to the major trade associations, such as the organizations that stepped up to create FITT.

It’s well past the time that we took a good look at the private sector. From the private sector, what are the barriers, and how can we best measure them statistically? From the private sector, where can governments at all three levels intervene to assist business in achieving the goals they set up? We don’t want a government plan here, but one driven by the private sector.

I’m tired of governments trying to direct Canadian companies. Instead of directing, governments should be asking: Where are you going, what statistics do you need to know, and how can we help you get there?

We can’t compete on price alone

The reality is we are still heavily exchange-rate driven in our success in international trade, and that factor will always be there. But the more we can sustain our economy on the basis of creativity, innovation, trading smart, and the less we have to rely on a relatively cheap dollar to succeed, the better off we’ll be.

Canada should be building margins through knowledge gained from trade statistics and trade training, not through the movement of the Canadian dollar.

Long-term, we have to do whatever it takes to ensure that the capacity is built throughout Canadian industry that matches the best of our best companies.

There are a lot of fantastic companies doing wonderful things around the world and leading by example, who are clearly driven by innovation, market research, knowledge and skills.

What we need now is a better understanding of the statistics behind these companies, and how we can foster more companies with this same level of success.

How do you think Canada can better use trade statistics to strengthen the environment for trade?

The post Are we looking at the right international trade statistics to improve Canada’s export capabilities? appeared first on Trade Ready.