Planets that revolve around two suns—like Luke Skywalker’s homeworld of Tatooine in Star Wars—used to be the stuff of fiction. Then in 2011, NASA’s Kepler mission discovered Kepler 16-b, a true circumbinary planet. If we could stand on its cold surface, we would see two sunrises every day. For most of our modern history, Canada’s trade has revolved around one star: The United States. But the world is shifting: There’s an emerging star that’s competing for our orbit. Shifting to fit this new reality is a radical but necessary transformation. Are we up for it?
The new star is no surprise. Globalization together with communication technology has made trade with all parts of the globe ever more viable. Markets long frozen out of the trade mainstream got a quick ticket in, and the largest ones, like China, India and Brazil, have become global powerhouses in record time. Many others have also benefited greatly.
Their rapid ascendance has vaulted up per capita income. Tens of millions of their consumers are rising into the middle class every year. As average wealth increases, tastes and preferences are shifting toward higher-value goods and services. The pace is so rapid that these emerging economies don’t have the capacity to meet their own consumers’ needs. Now, there’s an increasing appetite for and reliance upon imports.
Developed nations have long since realized this, and have positioned themselves to capitalize on the trend—and they haven’t been disappointed. As risky as these new and less-familiar markets may be, the returns are phenomenal. What’s more, the opportunity isn’t drying up anytime soon: Long-term forecasts show that among most emerging economies, there’s plenty of growth for decades to come.
Canada has benefited from this megatrend. China has in relatively short order catapulted to our No. 2 export destination, zooming past every one of our traditional European customers with relative ease. India is on the same trajectory, currently ninth overall in Canada’s merchandise export rankings. That sounds like we’re in the game, that the orbital shift is happening. In actual fact, it’s quite slow: The exports we send to emerging markets are pretty concentrated in a few industries. Moreover, China accounts for just 5% of Canadian exports, India not even 1%. In planetary terms, the shift is barely perceptible.
Others are much further along. In percentage terms, the European Union ships twice Canada’s share of its exports to China. A decades-old policy shift in Australia now has it shipping more than 30% of its exports to China, and it also has a growing and sizable business with India and other parts of Asia. Likewise, New Zealand ships 23% of its exports to China. In spite of having a considerably larger industrial base, Canada falls shy of both economies’ reach into the emerging market juggernaut.
Multiple reasons are given for Canada’s reticence. Distance to market is one, although there are many other nations just as far removed spatially from these markets that have figured it out. Risks of doing business in less familiar territory is another reason for taking a pass—and the list can get quite long. Funny, for the most part these risks aren’t unique to Canada, and others have found enough mitigants that they have forged ahead and won big business. Canadian firms that have cracked the code are likewise prospering.
What is often less discussed are the risks of not doing this fast-growing, emerging market business. Scale is a prime driver of business efficiency, now more than ever. Smaller-scale operations are simply finding it harder to compete in global trade. But it’s hard to achieve that scale without bringing emerging economies into the mix. More than ever, getting into these markets’ orbit is not just a nice-to-have, it’s a must-do.
The bottom line?
Orbits, like our current trade patterns, are familiar, predictable, regular…and safe. Disrupting them is always chaotic, it throws off the rhythm, gets out of the safe zone and provides no guarantees. But if a new orbit is the new reality, then fighting it could have even more dire consequences—not the least of which would be failing to discover new worlds of activity and adventure. Our shift to circumbinary trade is inevitable, and underway. It’s time to embrace that reality.
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.