I’ve just returned from Australia, and It’s a fascinating place. It shares a remarkable list of similarities with Canada – but there are also some key differences. We are both classified as small, open economies, but Australia’s population is smaller, just two-thirds of Canada’s. Likewise, GDP Down Under is smaller. Like Canada, Australia has an extensive, under-populated land mass, but that, too, is smaller than Canada’s, and the resource-base, less extensive. By the numbers, Canada has more clout, but in certain key aspects of international trade, Oz packs a greater punch. What can we learn from the Aussie approach?
Consider diversification. We’re talking a lot more about it these days. Typical – anytime there’s a threat on the ‘sure bet’ we’ve over-invested in, the ‘D’ word vaults back up the ‘most-used’ list. It happens out West through oil & gas’s ups and downs, but they don’t have a lock on this ‘wish I had…’ approach. Today’s resurrection of the word is a direct response to rank protectionism right on our doorstep.
The Future of Trade with the United States is Uncertain
International client #1 made good on a promise to tear up our contract. NAFTAs days were numbered on US election night, and since then it has been a roller-coaster of emotion and uncertainty. Suddenly, we were all scurrying about, looking for an out. As if! Our trade with the US is so dominant, it couldn’t be replaced even after multiple decades of aggressive growth. But the shift in thinking is a welcome one. Most of our export eggs are still in one big basket, and as we’ve all just seen, one quick shift in policy puts those eggs at great risk.
It’s a bit more than just talk this time, though. It’s now official. In the recent cabinet shuffle, exporters got a Minister of International Trade Diversification. That’s quite a statement. It says that policy and effort are both going to explicitly facilitate a shift toward other international markets. Very cool. Thoughts go quickly to other OECD markets, leveraging the CETA deal with Europe, and so on. But they also swiftly go to our #2 export destination, China, instantly conjuring up images of impossibly fast growth and endless opportunity. And so they should.
China’s Role in International Trade
Here’s where the cynics get fired up. In an October 18 Financial Post article, a prominent Canadian economist suggested that China is a faint hope for diversification. Well, Australia disagrees, and has the facts to prove it. Back in 1987, China accounted for just 3% of Oz exports. By 2000, it had ‘zoomed up’ to 5% – just a tad over China’s current share of Canada’s exports of goods.
Today, China is Australia’s preeminent customer, with a 31% share of its offshore shipments. Prior to this, four OECD customers gobbled up a share of Australia’s that added up to our current dependence on the US. What Australia has proven is that in a tiny space of time, consistent, rapid growth can exponentially transform the small share of one nation to a dominant overall position. What it takes is a little imagination, a strategy, and the moxy to carry it off. And Australia isn’t looking back.
What’s Next?
Can we pull off the same miracle? Well, our starting point is remarkably similar: there’s the share of trade, and there’s also the growth: we have averaged paltry average increases to the US since 2000, but to China, average annual growth is 12% – bang on the yearly increases Australia experienced. A key Canadian advantage is that we have a greater mix of goods and services to offer China. How about distance? Well, most would think Oz is a lot closer to China – and they’re only partially right. The shipping distance to Shanghai from Vancouver is almost the same as from Sydney. (Getting stuff to Vancouver can be another issue). Regardless, the fundamentals suggest we can make a realistic go of this.
So – are we going there? It’s really up to us – and the innovative thinking we direct toward business on new frontiers.
Peter Hall is the Vice President and Chief Economist with Export Development Canada. Mr. Hall is also the keynote speaker at this year’s Innovators Exchange event. His talk will provide an economic outlook and address concerns over international trade mayhem and the role of innovation for SMEs.
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- Is Trade Diversification the Solution for Canada? - November 2, 2018
