Unlike exports of energy products, exports of motor vehicles and parts experienced strong growth between 2010 and 2019, exhibiting the second-fastest annual average growth rate among goods exports. Sarah Pittman is a policy analyst at the Canada West Foundation and the author of the China Brief, a compilation of stories and links related to China and its relationship with Canada’s West. The chapter concludes by showing how Canada has fared relative to other countries. China experienced an almost 13 percentage points drop in growth over one quarter—all the more striking when compared to the 9 percentage-point decline during 7 consecutive quarters of the 2008-2009 global financial crisis. Many of these goods are also transported in the cargo holds of passenger aircraft, the majority of which have been grounded during the crisis. The individual scores for the demand index and the supply index for each industry are then averaged to yield a single overall score, the combined score, for that industry that indicates its vulnerability to disruptions affecting both supply and demand.Footnote 15. Retrieved on May 28, 2020.Calculation of the OCE. Exports and imports of automotive products were the most important driver of the declines in March as auto plants on both sides of the border shut down. Retrieved on May 28, 2020. Calculation of the OCE. For example, the prime minister set up high-level committees headed by the finance, trade, and foreign ministers. Box 2.3: SME exporters and COVID-19The number of Canadian firms exporting goods fell in the first quarter of 2020, with much of that fall occurring in March, as many economies around the World, including Canada, implemented containment measures to reduce the spread of COVID-19. https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020, United Nations Conference on Trade and Development. During the first 3 months of 2020, however, this disease—eventually named COVID-19—would spread, provoking profound effects on the global economy and trade. For Canada, that is good news because it suggests that this key trading partner will be looking to resume imports and exports. Yes, Canada can find alternative markets, but it needs many to replace China. The fastest growth took place between 2013 and 2015. Trade is an important component of the world economy, and so it follows that the same events and trends—such as trade tensions, geopolitical and social events and natural disasters—that affect trade also affect the world’s economy. The improvement of the services trade deficit over the same period partially mitigated the overall trade deficit. FDI flows in 2019 stood at $67 billion versus a $51-billion average for the decade, while CDIA flows were $102 billion compared to a $72-billion average (Figure 1.5). Consumer goods began the decade ranking fourth among Canada’s largest goods exports and ended the decade ranking third, overtaking exports of metal ores and non-metallic mineral products. Provincial government services, for example, scored highest of all industries on this component, importing a potential 1,572 products out of 2,107 on the list. Overall, it saw decreases of 1.7% for exports and of 5.3% for imports in the first quarter of 2020, although the declines in March were larger (3.3% and 8.7%, respectively). In the first 2 months of 2020, Canadian exports to China fell by 13% YoY, likely from depressed domestic demand in China. In 2019, the energy and mining sector received the largest FDI flows into Canada followed by the manufacturing sector. First, foreign factories producing the good that Canada imports may temporarily shut down, as has happened during the COVID-19 pandemic.Footnote 13Second, the home country of the foreign supplier could redirect a firm’s output or increase its domestic demand for a product, which could limit exports. For the quarter as a whole, Canadian goods exports to the U.S. market actually increased by a modest 0.7% to $106 billion, while goods imports from the United States declined slightly, down 2.6%. Between 1993 and 2019, total merchandise trade between Canada and the United States tripled, and total merchandise trade between Canada and Mexico grew almost 10-fold. But COVID-19 was not the only cause of the decline. It is difficult to attribute these declines to COVID-19 since declines also occurred in January and February for Canada and the United States before COVID-19 had taken hold in either country. Indirect exports are equivalent to another 4% of its output. Some 40% of the flows were from reinvested earnings and about 30% from M&As. This chapter looks at why Canadian industries more engaged in global value chains are often more vulnerable to international trade shocks than other industries. Impacts by trading partners2.3. Stock data on an ultimate investing country basis indicates that countries such as the Netherlands and Luxembourg are not as important sources of FDI for Canada as flows could suggest. Early on, Global Affairs Canada mobilized its people to help Canada find solutions to address the new challenges posed by COVID-19—including an unprecedented demand for personal protective equipment (PPE) and medical devices such as ventilators. 44% of imports are consumed in Canada directly, while 56% are used as intermediary inputs to production. Box 1.1: Are Canadian exporters and importers taking advantage of CETA? This group includes pipeline and rail transportation services, some extractive industries (such as potash) and R&D, advertising, professional consulting services and administrative services. The mode of transport of imports capture the last mode before the goods clear customs. Customs basis data does not provide information for services trade. The fall was concentrated in March when both countries implemented nationwide containment measures in the second half of the month. Various industries resumed operations in China at different times in February and March 2020, with some heavily delayed by labour shortages (for example, in construction and manufacturing) while local governments prohibited others from opening (for example, in the recreation, education and tourism sectors). Since its implementation in 1994, NAFTA has contributed to an unprecedented increase in trade flows across North America. Canada’s services trade has fared better than goods trade.Footnote 9 In the first quarter of 2020, services exports declined marginally, down 0.3% YoY, as declines in exports of travel and transportation services were almost entirely mitigated by higher commercial services exports (mainly financial services). With the British Columbia Supreme Court ruling in favor of the Canadian government and China formally charged the "two Michaels" for spying, the deteriorating China-Canada relationship would not be reset anytime soon. In e-commerce, for example, the number of SMEs exporting fell even while the value of exports increased, which indicates that the average value of exports per exporter increased. https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019, ———. US President Donald Trump started a trade war with China to fix what he's repeatedly blasted as an unfair relationship between the world's two largest economies. On the other hand, retail and other service industries may be less vulnerable to disruption because they rely more on domestic markets and suppliers. Bank of Canada. The COVID-19 health crisis has prompted Statistics Canada to postpone the publication of the 2019 stock of direct investment to and from Canada. Underlying this drop were the trade measures China imposed on Canadian food products. Canadian health organizations also discovered that Chinese-Canadians have the lowest infection rate, and few in any had died from Covid-19, suggesting that China might not have spread the virus to Canada or anywhere else in the world. By April 2020, the IMF predicted that global economic growth for 2019 would be 2.9%: the lowest rate since the 2009 recession that followed the global financial crisis that began in 2008 (Figure 1.1). Trade remains crucial to the prosperity of Canadians, accounting for nearly two thirds of our national economy and supporting 3.3 million Canadian jobs before COVID-19. This vulnerability has never been more evident than now in the current climate of downward pricing pressure facing this sector. Although the pandemic changed trade conditions considerably, where products are manufactured tends to remain stable over time. Likewise, many countries put in place physical distancing measures around mid-March, which means that the impact of COVID-19 might not have shown up yet in the goods trade data. He co-authored a book titled "China's Economic Rise and Its Global Impact" in 2015. Aircraft and other transportation equipment and parts account for a small share of Canadian goods imports just as they do for goods exports, nevertheless, imports of these products grew the fastest percentage wise among goods imports over the last decade, including in 2019. Furthermore, among SMEs that export only 11% are owned by visible minorities—a modest gap in the propensity to export compared to other SMEs, but one that has persisted over several years.Footnote 4. Within the department, 2 groups with unique expertise came together to help Canada find the best sources of PPE. Trudeau forged ahead with his China policy in defiance of opposition from the Conservative Party and the general public. The international demand vulnerability index measures the following 3 components: For each industry, these are tabulated and then averaged to generate an overall demand vulnerability score for that industry. Retail and other service industries, on the other hand, may be less vulnerable to disruption because they rely more on domestic markets and suppliers. The remaining 30% is attributable to the category “Other flows,” which encompasses loans and repayments of loans between parent companies and their subsidiaries as well as flows that relate to the financing of new (“greenfield”) investments. Canadian goods imports from China grew at a weak rate in 2019 (up 1.1%) compared to the average annual growth rate of 6.6% in the last decade (Table 1.2). The United Nations Conference on Trade and Development (UNCTAD) estimated a slight decline in world FDI flows (1%) for 2019 due to weaker global macroeconomic performance and general uncertainty for investors. https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019, ———. While most of the world only started to fight the spread of COVID-19 in mid-March 2020, China had been in the trenches since January. Exports to New York, Texas and Washington also declined significantly in March 2020. Agriculture exports rose 13% led by higher exports of oil seeds (60%) and exports of vegetables (49%). The statistics for the European Union include the United Kingdom since it was still part of the union in 2019. As COVID-19 gradually affected different regions and countries of the planet, likewise the various trade impacts emerged gradually. The decline for maritime imports was the largest among imports by transport mode for the first 3 months of 2020, down 8.3% YoY. The aircraft and other transportation equipment sector is small, accounting for less than 5% of Canadian goods exports; however, this sector experienced the fastest growth over the last decade, including in 2019. This recording procedure by the border services lead to an underrepresentation of maritime and air transportation for imports. Global Affairs Canada, Office of the Chief Economist. The tightening and closing of borders, restrictions on the movement of people, constraints on transportation capacity, and the closure of businesses disrupted many supply chains that involve Canadian firms and put others at risk. A survey published in September 2019 by the Pew Research Center found that 85% of Canadians had an unfavourable view of China. Supporting businesses owned by visible minorities and other underrepresented groups is therefore a priority for the department. Global Affairs Canada is committed to an inclusive trade agenda that supports all segments of society in taking advantage of the economic opportunities flowing from trade. The significant Chinese economic uptick made China the biggest buyer of commodities, contributing to around 30 percent of global growth since then. Excluding the “all other countries” category, the investment partner ranking second was different for FDI and CDIA in 2019. Working paper, Global Affairs Canada. This overall growth in goods and services exports was weak compared to the last decade when goods and services exports grew annually on average 4.6%. Domestic politics and U.S. pressure prevent the Liberal government from seeking better relations with China. Meanwhile, measurements of rising coal consumption, traffic congestion and real estate sales looked promising—although still far from the activity levels in 2019—suggesting that China’s economy was recovering. Export prices of energy products partially recovered in 2017 and 2018, only to decline by a small amount in 2019. This geographic concentration for supply contributes to the industry’s high supply vulnerability score of 77.4, the second highest in the group after plastic product manufacturing. It also lagged total services trade, causing the U.S. share of Canadian services trade to decline slightly. Through them, they can procure resources, inputs and labour at a lower cost. Exporting allows Canadian firms to meet demand in fast-growing economies and forces domestic firms to “up their game” to compete in a global marketplace. The 25 most vulnerable industries and the 25 least vulnerable industries are discussed in turn. So has the CPTPP supported Canadian trade? Data source: Statistics Canada, Table 36-10-0023-01. Canadian foreign investment performance, Chapter 2: Early impacts of COVID-19 on Canada’s international trade. They are more likely to be majority-owned by women compared to firms not owned by visible minorities (23% vs. 14%), and the primary decision maker tends to be more highly educated and younger. The legal services sector is focused mainly on the domestic market: direct exports account for only 5% of output. Data source: Statistics Canada, Table 12-10-0126-01. Exports by rail transport for the first quarter of 2020 were already disrupted by strike action and protests across the country that peaked in February and March. National governments reacted to the appearance of COVID-19 cases in their jurisdiction by introducing containment measures. Selling over 75 percent of its exports to the U.S. amounts to "putting all eggs in one basket", which makes Canada vulnerable to American economic "hiccups" and protectionist trade policies. And they can find unique products and services not readily available at home. They can access knowledge and talent. After a surge of 8.2 percent in January, total exports decreased by 2.7 percent to CAD 49.9 billion in February, a level 4.1 percent higher than that set in … China’s unwarranted assertiveness and distrust of democratic systems damages its foreign relations. However, to his credit, Trudeau did not politicize the spread of Covid-19 and the damages it caused, following the scientific route on determining the origin of Covid-19 and its effects. https://www.imf.org/en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018, ———. The good news is both rates were up from 2018, CETA’s first year: up 3 percentage points for exports and almost 9 percentage points for imports. Skip to pdf The But international competition often breeds innovation, which can translate into better Made in Canada products and services. The OCE first looked at the countries from which Canada had imported such products in the past and then it identified the countries that were the largest exporters of these products in the recent past.This approach produced the following results:Malaysia, China, and Thailand were the biggest suppliers of rubber gloves to the world including Canada.China was the dominant supplier of face and eye protection.The United States is Canada’s main supplier of more complex forms of protection and medical devices such as gas masks and breathing appliances.Australia and the United States, followed by China and Mexico, are Canada’s major suppliers of ventilators.The OCE shared this information with the TCS to help on-the-ground trade commissioners conduct strategic searches for this essential equipment and broker the best deals on behalf of Canada.The TCS mobilized trade commissioners in over 160 cities to source and identify likely sellers of PPE to Canada from existing and new business contacts, stepping away from its regular mandate. Together, trade economists and trade commissioners were able to identify sources of this life-saving equipment to help meet Canada’s needs. Canadian trade performance1.3. Economic events thus far into 2020 are being dictated by the COVID-19 pandemic. The 6.8% GDP contraction YoY in Q1 2020 was China’s first since economic reforms took hold in the early 1990’s. Early on, Global Affairs Canada mobilized its people to help Canada find solutions to address the new challenges posed by COVID-19—including an unprecedented demand for personal protective equipment (PPE) and medical devices such as ventilators. How does Canada compare to other countries?Chapter 3: Vulnerability of Canadian industries to disruptions in global supply chains3.1. Exports to Germany rose 29% in Q1 2020 (33% in March), supported by precious stones and metals (gold and precious metal scrap). This report highlights how Canadian innovation and resilience has allowed our businesses to continue to compete in the global marketplace and our government’s commitment to supporting trade through turbulent times. Japan is currently the only CPTPP member for which we have imports data by value, by tariff lines and consequently the only partner whose trade performance with Canada can be analyzed. The provisional application of the Comprehensive Economic and Trade Agreement (CETA) since September 2017 has provided underlying support for Canadian exports to the European Union. The 6.8% GDP contraction YoY in Q1 2020 was China’s first since economic reforms took hold in the early 1990’s.China’s real GDP growth (quarterly, annualized, year-over-year)Data source: National Bureau of Statistics (China)Calculations of the Embassy of Canada to China.Various industries resumed operations in China at different times in February and March 2020, with some heavily delayed by labour shortages (for example, in construction and manufacturing) while local governments prohibited others from opening (for example, in the recreation, education and tourism sectors). With its share of GDP falling from 16% in 2000 to 10% in 2019, the manufacturing industry is clearly a shrinking part of the Canadian economy and the most vulnerable overall to shocks in international supply chains. Vernon, Virginia. This is used instead of balance of payments data because data broken down by trading partner and by detailed product is more readily available. Data source: Statistics Canada, Table 36-10-0026-01. No Government Response requested. Its 2020 growth rate is expected to grow only 0.3 percent after all. As mentioned above, after experiencing strong growth in the first half of the decade, Canadian energy exports experienced a drastic decline between 2014 and 2016. Last modified on Thu 29 Oct 2020 21.35 EDT. Plunging crude oil prices were behind the 9.5% decline in crude oil exports in March 2020 (Figure 2.1). As such, goods transported by truck or train from a cargo ship to the customs services to cleared for entry into the country are recorded as having been transported by road rather than by sea. As our third-largest trading partner behind the United States and the European Union, China is particularly important to Canada: the resilience of China’s economic recovery may lessen the impact of a broader slump in global trade and may help Canada’s exports to China resume sooner rather than later. The IMF’s October 2018 estimate used economic data that showed the upswing in growth that had started in late 2016 and lasted for approximately 2 years. Our approach to strengthening Canada’s trade relationships includes discussions with Mercosur, the Pacific Alliance, and potentially, the Association of Southeast Asian Nations. Canada’s top 3 goods exports - energy products, motor vehicles and parts, and consumer goods—accounted for over 45% of exports and all grew faster than the 1.7% for total goods exports. These acquisitions represent divestitures (or declines in FDI flows), and yet Canadian interests were maintained in terms of production and economic activity. Canadian goods exports to the European Union increased 7.7% in 2019, the fourth consecutive year of growth, after experiencing a period of volatile upswings and downswings earlier in the decade. The least vulnerable group are dominated by retail as well as professional, education, and other service industries. Canadian agriculture exports were up 8.5%, and imports rose 4.1% during Q1 2020 compared to Q1 2019. Of particular note were exports of products with reductions in tariffs of more than 10 percentage points, mainly frozen and fresh beef, which showed exceptionally strong growth of 162%. The COVID-19 crisis has been transformative in countless ways, not the least of which as a disruptor to the “business as usual” model. On a YoY basis, Canadian energy exports advanced 3.3% in the first quarter of 2020 despite a 21% decline in March. By destination, the number of exporters selling goods to China, France and Italy saw the sharpest declines—down 20% to each—while the decline in the number of firms exporting to the U.S. market was less severe (down 9.1%).The number of exporters in the goods-producing sectors such as manufacturing, mining and agriculture witnessed the smallest relative declines. Declines were concentrated in March 2020, when shutdowns and physical distancing measures were first implemented in Canada and in many of its principal trading partners. This merger acquisition contributed to the increase in FDI flows in 2019. Canadian imports in both sectors were also down in March. A free trade agreement and investment treaty between Canada and China could be a "marriage made in heaven" because the two countries' economies are highly complementary, Canada is richly endowed with the natural resources and China wanted to fuel its rapidly expanding economy. Figure 3.1 illustrates 3 broad types of international supply chains in which Canadian firms may be involved that would lead them to be more susceptible to global shocks such as the COVID-19 pandemic: Imports can be either consumed in Canada directly, used as transhipments (exported without significant transformation), or used as intermediate inputs to production (includes capital goods and IP). Finally, the state of Washington falls in the middle of all U.S. states in terms of the impact of COVID-19, but Canadian exports to the state decreased 18%, mostly on lower exports of energy products, or nearly the triple for the drop for exports to the United States overall. Canada’s trade surplus narrowed to CAD 1.04 billion in February of 2021 from a downwardly revised CAD 1.21 billion in the previous month. Federal, provincial and municipal government services were assigned to this category because all 3 score particularly high on the fourth component of the supply index (that is, the number of imported products that can be supplied by a limited number of sources). China was the dominant supplier of face and eye protection. As well, the U.S. GDP growth rate could be 0.5 percentage point lower (from 1.6% to 1.1%) while China’s could be lower by as much as 1 percentage point, down from 5.0% to 4.1% (Chen and Bennett, 2019). With those swoons, China returned to the No. In March 2020, Canadian goods exports to the United Kingdom fell by 35% YoY, primarily due to lower exports of precious stones and metals (gold) and inorganic chemicals. They require little in the way of international inputs and are therefore the least vulnerable to interruptions in international supply chains. In fact, from Q1 2019 to Q1 2020, the average WCS price fell by 40%, propelled by a 73% YoY decline in March 2020. For example, a legal firm may provide value added to an exporting firm by helping it register and protect its intellectual property in the market to which it is exporting. Most of the decline can be attributed to weak flows to developed countries, while FDI flows to developing economies remained unchanged. It remains the third-ranked U.S. trade partner overall in 2020. Based on a metric known as the utilization rate, it seems that so far not all Canadian exporters and importers are taking full advantage of CETA. Trudeau's efforts to establish an economic relationship with China came to a halt on December 1, 2018, when his government caved under U.S. pressure to arrest Ms. Meng. For further details on data sources, component calculations, and the derivation of each index, see Boileau (2020). For more details, see The Canada-United States-Mexico Agreement: Economic Impact Assessment. China-Canada relations are getting increasingly tense, with both sides hurling insults and threats. In 2019, Canada’s foreign investment performanceFootnote 5 was good despite the global context, with flows of foreign direct investment (FDI) and Canadian direct investment abroad (CDIA) increasing. For example, both rates were below the EU average for Germany and the United Kingdom—Canada’s two largest EU trading partners. Although intermediate inputs to the banking industry accounted for 25% of its output, only 9% of these inputs were imported. In the latter half of 2019, many central banks responded to the weak global economy by lowering interest rates to provide monetary stimulus in their domestic markets. Growth in imports of motor vehicles and parts declined in the past 2 years compared to their annual average growth rate in the last decade. Data analysis by trade economists from the Office of the Chief Economist (OCE) came to the service of deal brokering by trade commissioners from the Canadian Trade Commissioner Service (TCS). In March, the decline had reached 9.3% YoY. This is partly attributable to the sharp decline in the export price of energy products between 2014 and 2016. By contrast, trade between China and its partners in Asia in Q1 2020 seems to have held up better than trade between China and other trading partners. “Monetary Policy Report, January 2020.” Bank of Canada Publications (2020). Data source: IMF World Economic Outlook - April 2020. Total imports from Michigan also suffered in March, down 18% YoY. Although exports of energy products grew a little faster than Canadian exports overall in 2019, the sector experienced the third-slowest growth rate among goods exports in the last decade. However, Canadian goods imports from Illinois did not hold up as well, down 23% in March YoY. Furthermore, the management of companies and enterprises sector also was the recipient of the largest portion of CDIA flows, with the finance and insurance sector ranking second. At the time of writing (May 2020), only some of the top exporting and importing economies in the world had reported trade statistics for March 2020. Although influenced by the difficult global context, Canadian results for trade and investment in 2019 were good overall when compared to the global results. The following section compares the impacts of the crisis on Canada’s trade with the impacts on 5 of these economies: China, Japan, Singapore, South Korea and the United States. In contrast, for Canada both FDI and CDIA flows increased from the previous year and were each well above their respective decade averages. Most of the $37-billion increase in CDIA flows in 2019 can be attributed to the management of companies and enterprises sector (a notable $24-billion increase), followed by the other industries sector. Since automotive products is Canada’s largest export sector to Michigan and historically accounts for roughly three fifths of total exports to the state, overall Canadian exports to Michigan were hit especially hard from automobile manufacturers suspending in-person operations in March. 3.3 Where do we go from here?Bibliography. Retrieved on May 28, 2020. While indirect exports are responsible for less than 0.1% of the industry’s output its high scores in the export reliance and export concentration components push it higher on the demand vulnerability index. The number of Canadian firms exporting goods fell in the first quarter of 2020, with much of that fall occurring in March, as many economies around the World, including Canada, implemented containment measures to reduce the spread of COVID-19. Despite the 16% decline in 2019, Canadian goods exports to China grew 6.3% per year on average between 2010 and 2019. “Global FDI Flows Flat in 2019 Moderate Increase Expected in 2020.” Investment Trends Monitor, Issue 33 (2020). At the end of February, the World Health Organization reported cases in almost 60 countries, with over 90% of the cases in China. Although the direct link between COVID-19 and the trade results at any time during the first 3 months of 2020 with a specific trading partner is uncertain, a general trend emerges: Canada saw its trade with most of its top 10 trading partners impacted from COVID-19 to some degree.