Canada needs to confront its shrinking exports problem: Mike Moffatt

Compared to our global peers, Canada is falling behind on trade

 
The cargo ship CSCL Globe of the China Shipping Group

(Christian Charisius/AFP/Getty)

Canada has undergone a number of dramatic economic shifts over the last generation, including the meteoric rise and sudden decline in oil prices and the value of the Canadian dollar. A less known but vitally important trend is the shrinking of Canada’s export sector that has taken place since 2000.



Looking at Canada’s economy relative to other developed countries puts the decline in Canada’s exports into perspective. Using data from the World Bank, I examined exports of the 34 countries in the OECD from the period 2005 to 2013, with the endpoints dictated by data availability (one of the key series only stretches between those two dates).

Three big themes emerge from the data:

1. Canada is an outlier when it comes to slowing export growth

There are a few different ways to measure the size of a country’s export sector. One way is to measure the value of a country’s exports relative to the size of their economy. Between 2005 and 2013, Canada’s exports of goods and services as percentage of GDP fell from 37.0% to 30.1%. This decline of 6.9 percentage points of GDP is the second largest of the 34 countries of the OECD, with only Israel experiencing a larger drop (8.1 percentage points). Just six of 34 OECD countries experienced a decline in this metric, suggesting there is no global trend towards autarky.

A falling export-to-GDP ratio could be explained by a strong domestic economy that is outpacing export growth, so it is helpful to look at other measures. One measure, the current US dollar value of exports of goods and services, examines the growth in the nominal value of exports. Using this measure, Canada’s exports grew by 27.6% between 2005 and 2013, ranking it 32nd of 34 countries. It was only ahead of Finland (27.1%) and Japan (23.4%) and well behind fellow commodity exporter Australia (123.7%).

Using a current US dollar does not account for inflation, so we can also examine the export of goods and services with a constant (2005) US dollar. Using this measure, Canada ranks33rd out of the 34 OECD countries in the growth of value of exports from 2005 to 2013. Only two countries saw a decline in the value of their exports (by this measure), with Canada’s falling by 1.77% over the eight-year period. Fellow oil exporter Norway experienced the largest drop, at 6.04%.

2. Canada is an outlier when it comes to a declining volume of exports

Conceptually the value of a country’s exports is made up of two components: the number of items exported multiplied by their average price. We can measure the former with a metric called the export volume index. Canada was one of only eight countries that saw a decline in its export volume index between 2005 and 2013, with its 2.13% drop ranking 29th out of 34 OECD countries. Italy, Sweden, Luxembourg, France, Norway, Finland and Ireland were the other countries with a falling volume of exports.

3. There is far more to the exporting story than oil and gas

One possible explanation for Canada’s poor export sector performance is that it is a side-effect from rising commodity prices. One way to test this hypothesis is to compare Canada’s performance to other economies that export similar goods.

There are three countries in the OECD that have their own currency and have fuel products make up 20% or more of their merchandise exports: Norway (67.4%), Australia (27.3%) and Canada (27.2%). Here is how the three perform on our four export measures:

Export Measure—Change from 2005 to 2013 Canada Australia Norway
Exports of goods and services (BoP, current US$) 32nd (+27.6%) 4th (+123.7%) 24th (+49.5%)
Exports of goods and services (constant 2005 US$) 33rd (-1.77%) 17th (+32.59%) 34th (-6.04%)
Exports of goods and services (% of GDP) 33rd (-6.88 pp) 27th (+1.82 pp) 31st (-5.21 pp)
Export volume index 29th (-2.13%) 15th (+29.59%) 32nd (-12.65%)

Australia’s reliance on energy products has not hindered their export performance. Norway’s performance is similar, though arguably slightly better than Canada’s, despite a much higher proportion of their merchandise exports made up by fuel.

It could be that what matters is not the overall level of fuel exports, but the increase in the proportion of fuel exports relative to merchandise exports. Three countries with independent monetary policy saw a five percentage point or more rise in the proportion of merchandise exports made up by fuel: United Kingdom (from 9.4% to 19.3%), United States (3.3% to 10.9%) and Canada (21.6% to 27.2%). The Netherlands, Finland, Portugal and Belgium were excluded due to lacking their own currency and Australia and Norway experienced no growth in the proportion of merchandise exports made up by fuel. Canada’s performance lagged somewhat behind the UK’s and substantially behind that of the United States:

Export Measure—Change from 2005 to 2013 Canada US UK
Exports of goods and services (BoP, current US$) 32nd (+27.6%) 11th (+77.3%) 30th (+30.8%)
Exports of goods and services (constant 2005 US$) 33rd (-1.77%) 9th (+42.6%) 27th (+16.47%)
Exports of goods and services (% of GDP) 33rd (-6.88 pp) 24th (+3.49%) 21st (+4.09%)
Export volume index 29th (-2.13%) 12th (+40.85%) 26th (+1.92%)

Overall, we are still left with more questions than answers on the poor performance of Canada’s export sector. Given the importance of international trade in income growth, Canada needs to start answering those questions and finding smart policy to reverse these trends.

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