The Canada-Australia Connection

Distance has likely been the greatest historical disconnect between Australia and Canada. But advances in communication and digitization have shrunk virtual distances to almost nothing, and vastly reduced the time zone barrier. Yet the same is true for every offshore interaction – and when it comes to Australia, getting you or your stuff there from Canada is a big endeavour, even if starting from the west. So, in today’s economy, is there a strong case for a Canada-Australia connection?

In the ‘yes’ column, cultural similarities rank high. Our colonial roots and sustained ties through the British Commonwealth have forged a lasting relationship over the years. Security ties remain strong. We are both members of CPTPP. Our economies are also similar, in terms of population size and geographic concentration, industrial mix and approach to policy, among other features. The extent of our trade dependence puts both countries in the special class known as small, open economies. 

Case closed? Not exactly. Traditionally, economics puts greater value on relationships between dissimilar economies. After all, in a trading relationship, each economy typically wants to get something from the other that it doesn’t already have. And even if both economies produce a good or service, one will have a comparative advantage in something, while the other, in something else. The less alike the economies are, the easier it is to identify the differences. 

Thankfully, Canada and Australia aren’t carbon copies of each other. First, Canada shares the world’s longest undefended border with the top economy on the planet, while Australia is an island, far from the nearest large market. Second, Canada is closer to OECD markets, while Australia’s nearest ports of call are in the emerging world. Third, the industrial mix is similar, but Canada’s oil and gas sector dwarfs Australia’s. In manufacturing, Canada has a vibrant auto sector; down under, that industry folded its tents years ago. And then there’s climate, where seasonal times are reversed, and even the coldest winter temperatures hardly ever go into single digits. Still, the similarities likely outweigh the differences – so where do the greater mutual opportunities of the future lie?

Smaller countries generally have a rougher ride in today’s global economy. Scale is a critical competitiveness factor in an increasingly global world, and in general, the larger economies do it better. For the most part, they have the enduring electronics giants, the Wal-Marts, Amazons or Alibabas, the aerospace giants, and so on. And there’s a fear that this increased, large-market concentration will only continue. With populations of 37 million and 25 million respectively, Canada and Australia hardly have the domestic market scale that easily incubates giants.

Even so, we are both giants in the resources world. Our economies have world-scale mining companies. In food, we are both among the Earth’s more significant net exporters. While our respective firms certainly compete with each other, free-trade agreements between similarly-structured economies – notably Canada and Chile – have proven that same-industry interaction pays off. At the limit, it has the potential of creating super-scaled arrangements. 

Does it stop there? Not necessarily. Separately, our economies might lack – but a combined 60-million population-base is a different league, the size of the UK, France or Italy. Greater collaboration could in theory leverage higher scale to compete more effectively with larger markets.

There’s more still. Each of our countries has cultivated regional relationships that the other could benefit from. Indeed, that already seems to be the case. Canada’s largest Asian investments are in Australia. At the same time, Australia has a significant presence in Canada, one it could use and grow to leverage Canada’s advantages in the North American space. As Canada’s international trade tilts significantly to Asia, the relationship with Australia will grow in importance.

Strong global growth and the need for economic diversification point to large potential gains from a strong Australia-Canada relationship. There’s a lot already in place, but there’s lots more that can be built. That’s why EDC opened an office in Sydney a year ago, and why we remain strongly committed to the market.