By Jeremy Woo
Canada has been incredibly fortunate. Through seas of uncertainty, Canada has proven its exceptional financial stability. Though Canada’s mighty ship has successfully weathered the economic storm thus far, the steady winds of prosperity are dwindling from its sails as growth is slowing and losing pace with the rest of the world. In order to take advantage of the imminent economic upswing happening in the rest of the world, Canada must diversify its slate of trading partners and forge trading relationships with fast-growing economies. The need for diversification stems from an overwhelming economic reliance on the United States, the inherent instability of the American economy and the need to revitalize essential sectors of the Canadian economy.
Though Canada owes much of its tremendous wealth to its strong trading relationship with its southern neighbour, Canada is clearly too reliant on the American economy. The Canadian economy has become dependent on selling natural resources such as oil, natural gas, minerals, lumber and manufactured goods to Americans. According to Industry Canada, American-bound goods accounted for 74.9 per cent of Canada’s total exports in 2010. Obviously, the Canadian economy is closely intertwined with its American neighbours and any financial instability south of the border can greatly trouble the Canadian economy. Moreover, 50.37 per cent of Canada’s imports originate in the U.S., according to Industry Canada in 2010, highlighting Canada’s heavy dependence on American goods.
In order to preserve growth, stability and prosperity in the Canadian economy, Canada must forge relationships with countries that improve Canada’s balance of trade. Canada’s first trade deficit in years occurred during the recession of 2008–09 and was largely attributed to American instability. The trade balance with the U.S. alone fell by C$54 billion, according to Statistics Canada. Canadian businesses struggled as overexposure to the American economy adversely stalled the export market, resulting in mounting losses and job cuts. Meanwhile, Canada’s balance of trade with other countries, such as the United Kingdom, improved through the recession, endorsing the search for new, more stable, growth-oriented markets to provide prosperity for Canadians in the future. Clearly, Canada’s reliance on the shaky American economy is reason enough to look to new markets overseas for continued growth and expansion of Canadian export opportunities.
It could be argued that a strong trading relationship with the U.S. would be vital to any nation’s economic success. After all, the U.S. possesses the world’s largest, most powerful economy. While it is important to maintain this ever-important trade relationship, the recent instability of the American economy is a threat to Canada’s economic well being. Despite news reports suggesting that citizens of the world should be relieved that the U.S. Congress has successfully negotiated a life-saving deal to avert the supposed “fiscal cliff,” the U.S. still has deeply-rooted fiscal troubles that could easily haunt its rickety economy at any time. Though the crisis has been temporarily avoided through freezes in certain tax increases and incremental spending cuts, it is only a short-term repair to buy lawmakers time to address significant spending cuts and tax increases that will solve long-term fiscal issues. In fact, the Daily Telegraph reports that only US$620 billion in new tax revenues will be created — a small dent in a total American debt of US$16.4 trillion. The American federal government still must face a US$1.09 trillion annual deficit as of 2012, as reported by Reuters and the Congressional Budget Office.
Even during the “fiscal cliff” negotiations, world markets swung wildly, creating fears of another global recession and demonstrating the true instability of the American economy based on the deadlocked and deeply money-troubled American government. While Congress bickers over the flailing American economy and turns the markets upside-down with every negotiation, Canada must diversify to access new markets in order to ensure its continued prosperity, even though the murky, incredibly unstable yet familiar and easily accessible American waters are so close and enticing.
More interestingly, diversification can be used as a tool for revitalizing struggling sectors of the Canadian economy. For example, Canada’s vital forestry industry has been battered in recent years due to over-reliance on American customers. Cross-border trade disputes and a struggling American economy are chiefly responsible for the forestry industry’s woes. In British Colombia, the U.S. is by far the largest export market for lumber, according to B.C. Stats. Due to this reliance on American markets, the latest episode of the troublesome softwood lumber dispute between Canada and the U.S. earlier this century crippled the industry. Lumber exports to the nation’s southern neighbours from B.C. alone fell by almost C$4 billion over three years according to B.C. Stats, resulting in devastating labour stoppages and layoffs. Reducing export exposure to a single nation may have eased these losses. Furthermore, as the American housing market shrank drastically during the recession of 2008–09, the B.C. forestry industry lost C$5 billion in valuable American exports.
However, exports actually increased to quickly growing nations in the Middle East and in China through the deepest part of the recession, as these nations lacking trees used timber to fuel building booms and bullish economies. Instead of continuing to rely on unsteady American markets, the Canadian forestry industry could look to fast-developing economies that demand high-quality building materials and rid the industry of its constant instability.
However, the forestry industry is only one small example. Other struggling sectors of the Canadian economy could be boosted by exposure to new markets as well, including the iron, mineral and manufacturing industries, all of which have been dominated by the increasingly unpredictable American economy.
Canada’s economic ship is strong — even in the roughest of financial storms, it springs no leaks, its sails remain intact and its masts are strong and proud. The ship has always found a slow, steady wind to forge forward. However, the great sailing ship lacks a rudder — instead, it is steered by a strong American current. Diversification has the opportunity to provide Canadians with long-term stability, jobs and growth, even while maintaining excellent trade relations with Canada’s most important and largest trading partner that lies south of the border.
It is time for Canada to control its own economic destination, fill its sails with the winds of prosperity and sail into unexplored waters to diversify its markets.