Trade with America is dominating the headlines daily, as the future of free trade with Canada’s number one partner is hotly debated. Billions of dollars of two-way trade are at stake, not to mention countless livelihoods – on both sides of the border. But even at the best of times, trade with the US is pretty big news in Canada. A quieter but potent force is the trade Canada does with less-traditional countries – those fast-growing emerging markets. Amid the current trade turmoil, and further-reaching anti-trade, anti-globalization sentiment, how is Canada faring in these lesser-known parts of the planet?
Trade in goods is the better-known story – and it’s dramatic. Back in 2000, just 5 per cent of Canadian merchandise exports were destined for emerging markets. That share doubled to 10 per cent by 2008, and although trade was wracked by the global recession, since then the share has risen further – it is now pushing 13 per cent. Given Canada’s growing presence in the emerging world, and much faster growth profile of these markets over the long term, this share of our trade is most likely to continue rising well into the future. Certain regions of Canada are already well on the way: British Columbia gets the prize for most rapid diversification, currently second among the provinces at 25 per cent of all merchandise exports. Saskatchewan – perennially diversified – is number one, at 41 per cent. Among industries, agricultural products is a standout, but others are doing well. The story doesn’t stop at goods, though. Trade with emerging markets in services is surprisingly strong. Back in 2006, it amounted to roughly 19 per cent of total exports of services – a much larger share than our goods trade. The share hasn’t risen as dramatically, though; while average growth among sales of services to the emerging world is 5 per cent, compared with developed-market sales growth of just 3.1 per cent, the total share of sales rose more modestly, to 22 per cent by 2015, the latest year of comparative data. Given that services trade will grow in importance over time, this beachhead in the developing world is strategically significant.
A further element of truly integrated trade is foreign investment. On this front, emerging market activity is also impressive. Annual growth in the stock of Canadian investment in emerging markets has averaged 8.6 per cent since 2007, just nudging ahead of growth to the developed world over the same time. The share of total overseas investment fluctuates from year to year, but the trend in activity is generally up from 8.9 per cent in 2007, hitting as much as 11 per cent in the years since.
With the investments in overseas markets come sales into those markets – and from those installations to still other markets – known technically as foreign affiliate sales. As long as trade continues to broaden its reach around the globe, this form of trade is likely to grow in significance. Growth in this form of Canada’s activity with emerging markets has fallen marginally shy of affiliate sales in OECD countries. However, what is surprising about the data is that emerging markets already account for roughly 28 per cent of all activity. The cost advantage of operations together with rising wealth inside these markets suggests a growing share of overall foreign affiliate sales activity over time. While a more obscure part of our overall trade, this is one to watch in the coming years.
These pieces of what we generally call Canada’s international diversification story are inspiring, but they mask one key underlying reality: among firms in Canada, export data are very skewed. Over the time period of these dramatic developments, large Canadian companies are the dominant players. Survey data shows that large firms – 3 per cent of the exporting population – account for about 60 per cent of sales, a share that has barely budged over the reference period. But in this data, some encouragement: small firms actually seem more adventurous. While only 6 per cent of large firms export only to non-US destinations, the number for small firms is 19 per cent.
The bottom line?
Amid unsettling trade-talk, there is a glimmer of hope. Canada is, over time, turning more of its attention to smaller but faster-growing markets. And that trade is not just happening in a rudimentary way; activity through multiple means suggests a maturity that portends well for future activity.