Canada's Trade with the USA Has been Shifting for Some time

 

NAFTA and its successor CUSMA have been instrumental in growing Canada’s trade and its economy by helping us find markets that have grown our export sector.  These agreements have helped cement an economic relationship with the United States such that by 2024 “ the combined value of Canada's imports and exports of goods traded with the United States surpassed the $1 trillion mark for a third consecutive year. In 2024, the United States was the destination for 75.9% of Canada's total exports and was the source of 62.2% of Canada's total imports.”  (Source: Statistics Canada, https://www150.statcan.gc.ca/n1/daily-quotidien/250205/dq250205a-eng.htm)

However, interestingly enough, the importance of the United States as a merchandise export market has actually declined somewhat and the composition of our exports to them has shifted also.  Since 1999, the total value of Canadian merchandise exports to the United States grew by over 90 percent but the value of our merchandise exports to all other countries aside from the United States grew by nearly 280 percent.  As a result, the US share of our exports declined from 87 percent in 1999 to 76 percent at present.  As well, there has been a compositional shift. 

In 1999, 30 percent of the value of our merchandise exports to the United States was motor vehicles and parts but this share declined to 11 percent by 2022.  The greatest growth in the value of our merchandise exports to the United States since 1999 was energy products, followed by metal ores and then farm, fish and food products.  Over the period 1999 to 2022, the energy share of our exports went from 9 to 34 percent, metal ores from 1 to 2 percent and farm, fish and food products went from 2 percent to 4 percent.  On the other hand, the share of forestry products declined from 13 to 8 percent, electronic and consumer goods declined from 8 percent to 3 percent, aircraft and transportation products from 3 percent to 2 percent.  In many respects, the long-term effects of NAFTA/CUSMA appear to be a decline in our export share of value-added manufacturing products and an increase in less value-added resource products.

This is of course all rather odd when viewed in the context of the Trump Administration’s desire to impose tariffs on Canadian exports.  If the goal is to move auto manufacturing out of Canada, it’s importance as a Canadian export driver has already been in decline.    If the goal is to make Canada hewers of wood and drawers of water to the American so to speak by having it specialize in resource inputs to the American economy – that is already happening.  While there have been some increases in Canada’s exports of consumer goods, metal products and industrial equipment, by far the largest increase has been in energy products.   

President Trump seems hell-bent on tariffs and applying them to everything - including energy.  Why the Americans would subject such an important input into their economy to tariffs seems rather incomprehensible.  Given our share of their energy needs, one suspects their demand is quite inelastic meaning  that energy tariffs will have few output and employment effects in Canada and the tariff will be borne primarily by the American consumer.  There may be an incentive for Americans to try and negotiate energy prices downward to compensate for the tariff impact on their consumers  but that essentially means that Americans want to have cheaper Canadian energy and use tariffs on our energy as a revenue source and ultimately have us pay for both these goals.   Why Canada would want to subsidize American energy consumers in this manner is an interesting question.  It will be crucial for Canada to quickly find alternate energy markets to forestall such a scenario.

 

 

 

Why Does Canada Exist?

 

Last evening in Paris, as Canada’s Prime Minister was exiting his vehicle and going into a building, a journalist shouted the question “Is Canada viable as a country” which really asks should Canada exist?  This question has emerged in the wake of the ongoing verbal onslaught from the President of the United States with respect to tariffs, annexation and talk of Canada becoming a “cherished” 51^st State.  One wonders if this journalist was Canadian or American.  If American, not already knowing the answer to that question can be forgiven.  If the journalist was Canadian, well that is also disappointing indeed because that question was answered a long time ago by Canada’s great economic historian Harold Adams Innis. 

Whether or not Canada should exist as a separate entity distinct from the United States has long haunted Canadians – or at least English Canadians.  Before 1763, Canada was Quebec and Quebec has never had any doubts that they constituted a distinct people and nation within their North American environment.  English Canada was settled by refugees from the American Revolution – the United Empire Loyalists – and while they also constituted a distinct cultural group within North America, the similarity of language and culture with the United States has always led to questions of distinctiveness and identity.

These questions have been aggravated by the seemingly north-south geographic grain of the continent with only the Canadian Shield being apart from that grain.  The Atlantic region appears to be but an extension of the New England states, southern Ontario essentially juts into the US northeast, the prairies are an extension of the Great Plains while British Columbia and its mountains are an extension of the Pacific Northwest. The bulk of Canada’s population is clustered along an east-west corridor within a day’s drive of the U.S. border and therefore Canada as an east west construct has seemingly been constructed in defiance of North American geography.

And yet, in his Fur Trade in Canada, Innis argued that Canada was indeed a natural rather than unnatural construct because its east-west orientation was rooted in geography and economic relationships.  Canada became a country because of and not despite its geography and the fur Trade was instrumental in bringing that about. The fur trade waterways of the Great-Lakes-St. Lawrence system and the rivers of northern Ontario, the Prairies and British Columbia and even up to the Arctic provided the east-west canoe travel network of the fur trade first under the French, then under the traders of the Northwest Company of Montreal and finally those of the Hudson Bay Company. 

As the accompanying maps illustrate, the routes of the fur trade penetrating the Canadian Shield were the first network traversing Canada A Mari Usque Ad Mare. And given their links southward via the Mississippi system or into the Washington-Oregon area, one could make as much a case that these regions are but an extension of Canada’s east-west waterways.  Many of Canada’s towns and cities were originally fur trade posts on this east-west network and when the railway came decades later, it followed this east-west line.  This east-west alignment of the country was natural according to Innis and facilitated the east-west extension of Canadian sovereignty into the west during the 19^th century.  

 

 

 

As the famous passage from Innis’s The Fur Trade in Canada goes:

“The Northwest Company and its successor the Hudson’s Bay Company established a centralized organization which covered the northern half of North America from the Atlantic to the Pacific.  The importance of this organization was recognized in boundary disputes, and it played a large role in the numerous negotiations responsible for the location of the present boundaries.  It is no mere accident that the present Dominion coincide roughly with the fur-trading areas of northern North America.  The bases of supplies for the trade in Quebec, in western Ontario and British Columbia represent the agricultural areas of the present Dominion. The Northwest Company was the forerunner of the present confederation.” (Innis, The Fur Trade in Canada, 1930/1971, p.392)

In other words, Canada was the path dependent outcome of a natural east-west economic network.  Canada exists A Mari Usque Ad Mare for reasons that are rooted in its economic history and development and not as an artificial construct.  The border with the United States is there for a reason.