The Tokyo Olympic medal standings highlight in full colour how the world is changing. When I was a kid, the race for dominance was between the United States and the USSR: The free world versus the centrally managed one. Fast-forward to today, and it’s emerging giants against the West, with Asian economies duking it out for regional supremacy. There’s a close parallel with global trade, and Canada’s piece of the action. As the race to recovery continues, are there any gold-medal performances?
No surprises here: Just like the Olympics, there’s an epic contest for top trade spot. The U.S. is still the dominant player size-wise, but China was fast out of the gate this year with a very impressive increase in exports from Canada. The two are neck-and-neck in terms of year-to-date gains, with the U.S. up 10% and China up 8%, to date. Both are well ahead of the growth in total Canadian exports to destinations—a sad statement of how we’re performing in the rest of the world, but also a testament to the strength of our No. 1 and No. 2 markets.
So much for this year; the picture is starkly different when we compare current progress to pre-pandemic exports. For most destinations, we’re just trying to get back to pre-COVID-19 export levels. We’re within a hair of that in the U.S. market. For the world as a whole, we’re 2% above the February 2020 level. Here, China is a standout. Canada’s exports there are up by a searing 39% in the same timeframe, and for size and contribution, really there’s no rival.
Break it down further to specific industries, and the numbers are even more exciting. Of the Top 10 Canadian exports to China, seven of those are up 47% on a year-to-year basis, are at 187% of pre-pandemic levels, and so far, this year are collectively up 25%—pretty breathtaking, even for seasoned trade athletes. Products in this list of hot performers, include iron ore, pulp, coal and several food export categories.
This nascent success has boosted China’s share of Canadian exports. In 2000, it was just 1% of our total. More recently, the number has hovered at about 4.5%, although it has been as high as 4.9%. Recent success has lifted the share to as high as 5.6%, a substantial increase considering the base. These kind of momentary blips can happen from time to time; will this one persist and continue to grow?
In the short run, maybe not. After all, we’re expecting a significant rebound in particular industries that have underperformed, and with that, a rebound in exports to countries, which have lagged behind China’s first-off-the-blocks recovery. Although China is well-ahead, the catchup elsewhere is likely to grab some share back from China.
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That’s absolutely not the case for the long run. The rise of the middle class and along with it, per capita incomes, strongly suggest that China’s longer-term growth prospects far exceed those of our traditional customers. Assuming Canada is able to reliably service China’s increasing need for imported goods of all description, its share of our total trade is in for a radical transformation over the 10-to-20-year horizon.
If true, this has huge implications for Canadian business. We’ve done well in the export sprint following the onset of the pandemic. That’s encouraging, but it doesn’t in the least suggest that we’re ready for the marathon of keeping pace with China’s longer-term needs. Successful Canadian exporters to China have all been blown away by the serial demands of the market, year after year. In fact, there’s almost a fear that sales will be too successful, outpacing the capacity to produce and ship.
This may all sound like fantasy in a world that’s still trying to get over the severe body-blow of COVID-19. Recovery is job 1, but even the current shape of the recovery points to the changes in the shape of global trade, which will be even more obvious in a post-pandemic world. It’s not too late to embrace that reality, and in tandem with recovery plans, develop longer-horizon goals, objectives and investment plans to ensure that we survive and thrive in the future.
The bottom line?
Long after the Tokyo Summer Olympic Games are over, the shifts in global influence that they illustrate will continue in earnest. Those who are just in for today’s sprint will use up their energy long before the race is over. Foresight, analysis, relationships, financing, risk-taking investment are key parts of what’s needed to prepare for the demands that China and other fast-growing emerging markets are making on trading economies, like Canada’s. Let’s suit up!
This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.