Global Trade in Canada

No longer just an option, having a global vision has become a business imperative. Having a global vision means recognizing and reacting to international business opportunities, being aware of threats from foreign competitors in all markets, and effectively using international distribution networks to obtain raw materials and move finished products to the customer.

Canadian managers must develop a global vision if they are to recognize and react to international business opportunities, as well as remain competitive at home. Often a Canadian firm’s toughest domestic competition comes from foreign companies. Moreover, a global vision enables a manager to understand that customer and distribution networks operate worldwide, blurring geographic and political barriers and making them increasingly irrelevant to business decisions. Over the past three decades, world trade has climbed from $200 billion annually to more than $1.4 trillion ^[1]. Canadian companies play a major role in this growth in world trade through their participation in international trade and investment. Canadian businesses, particularly in the natural resources, technology, and manufacturing sectors, are known for their competitiveness and innovation, and many have developed strong global networks and partnerships.

The Importance of Global Business to Canada

Canada is a trading nation that heavily relies on global trade for its economic growth and development. International trade contributes directly to Canada’s GDP, as exports of goods and services generate income for Canadian businesses and individuals. According to the Government of Canada, exports accounted for approximately 32% of the country’s GDP in 2020. As such, any increase in exports due to global trade can have a significant positive impact on Canada’s GDP ^[2].

Global trade also creates jobs in Canada, particularly in sectors that are heavily reliant on exports, such as manufacturing, natural resources, and agriculture. According to a study by Export Development Canada, exports supported over 3.4 million jobs in Canada in 2020, accounting for approximately 18% of the country’s total employment ^[3].

Moreover, global trade encourages innovation and competitiveness among Canadian businesses, as they seek to develop new products and services to meet the needs of international customers. This, in turn, can lead to increased productivity, higher wages, and greater job growth in Canada.

Global trade plays a vital role in Canada’s economy. Maintaining and expanding global trade relationships is critical for Canada’s continued economic growth and success. Its trade relationships with the United States, China, and Mexico are among the most significant.

Measuring Trade Between Nations

International trade improves relationships with friends and allies; helps ease tensions among nations; and—economically speaking—bolsters economies, raises people’s standard of living, provides jobs, and improves the quality of life. The value of international trade is over $16 trillion a year and growing. This section takes a look at some key measures of international trade: exports and imports, the balance of trade, the balance of payments, and exchange rates.

Exports and Imports

The developed nations (those with mature communication, financial, educational, and distribution systems) are the major players in international trade. They account for about 70 percent of the world’s exports and imports. Exports are goods and services made in one country and sold to others. Imports are goods and services that are bought from other countries ^[4].

Canada is a major player in the global trading system, with a diverse range of goods and services exported to markets around the world. The country’s trade practices are guided by a commitment to free and fair trade, focusing on strengthening relationships with key trading partners.

Exports

Canada’s largest export categories include natural resources, such as oil, natural gas, and lumber, as well as manufactured goods, including vehicles, machinery, and electronics. The United States is by far Canada’s largest export market, accounting for over 70% of the country’s total exports, followed by China and Mexico ^[5].

Canada has also signed free trade agreements with various countries and regions around the world, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). These agreements have opened up new markets for Canadian businesses, enabling them to expand their reach and increase their exports.

Imports

Canada is a net importer of goods, with the majority of its imports coming from the United States, China, and Mexico. The country imports a wide range of goods, including machinery, electronics, vehicles, and consumer goods.

Canada’s import practices are guided by a commitment to safety, quality, and environmental sustainability. The country has established regulatory frameworks to ensure that imported goods meet Canadian standards for safety, quality, and environmental protection. These regulations cover a wide range of products, from food and pharmaceuticals to automobiles and electronics.

Balance of Trade

The difference between the value of a country’s exports and the value of its imports during a specific time is the country’s balance of trade. A country that exports more than it imports is said to have a favorable balance of trade, called a trade surplus. A country that imports more than it exports is said to have an unfavorable balance of trade or a trade deficit. When imports exceed exports, more money from trade flows out of the country than flows into it.

Canada has traditionally been a net exporter of goods, due in large part to its abundant natural resources. However, in recent years, the country’s balance of trade has been more balanced, with a slight trade deficit in 2020. According to Statistics Canada, in 2020, Canada’s total exports of goods and services amounted to CAD 562.2 billion, while its total imports amounted to CAD 590.6 billion. This resulted in a trade deficit of CAD 28.4 billion or approximately 1.2% of the country’s GDP ^[6]. Canada’s trade deficit was largely driven by a decline in exports due to the COVID-19 pandemic, which led to decreased demand for Canadian goods and services in key markets such as the United States and China. However, with the global economy beginning to recover, Canada’s exports are expected to rebound in the coming years.

As of February 2023, Canada’s balance of trade is positive, meaning that the country is exporting more than it is importing. According to Statistics Canada, in January 2023, Canada’s total exports of goods and services amounted to CAD 52.4 billion, while its total imports amounted to CAD 51.9 billion ^[7]. This resulted in a trade surplus of CAD 500 million. This is a positive development for the Canadian economy, as a trade surplus indicates that the country is earning more from exports than it is spending on imports. A trade surplus can help to support economic growth and development, as it generates income for Canadian businesses and individuals and helps to create jobs. However, it’s important to note that trade balances can fluctuate over time and are influenced by a wide range of factors, including global economic conditions, exchange rates, and shifts in demand for particular products and services. As such, it’s important for Canada to continue to diversify its exports and strengthen relationships with key trading partners to ensure the long-term sustainability of its balance of trade.

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Balance of Payments

Another measure of international trade is called the balance of payments, which is a summary of a country’s international financial transactions showing the difference between the country’s total payments to and its total receipts from other countries. The balance of payments includes imports and exports (balance of trade), long-term investments in overseas plants and equipment, government loans to and from other countries, gifts and foreign aid, military expenditures made in other countries, and money transfers in and out of foreign banks.

According to Statistics Canada, Canada has had a current account deficit (CAD) in recent years, meaning that the country is spending more on imports and other foreign expenses than it is earning through exports and foreign investment. In 2020, Canada’s current account deficit was CAD 11.1 billion, or approximately 0.5% of the country’s GDP ^[8]. This deficit was due in large part to a decline in global demand for Canadian goods and services as a result of the COVID-19 pandemic. However, Canada has historically had a surplus in its capital and financial account, which includes investment income and financial flows such as foreign direct investment and portfolio investment. In 2020, Canada’s capital and financial account surplus was CAD 70.8 billion ^[9].

The Changing Value of Currency

The exchange rate is the price of one country’s currency in terms of another country’s currency. If a country’s currency appreciates, less of that country’s currency is needed to buy another country’s currency. If a country’s currency depreciates, more of that currency will be needed to buy another country’s currency.

If a country’s currency appreciates relative to the Canadian dollar, its goods become relatively more expensive for Canadian consumers. This is because a stronger currency means that each unit of the foreign currency can purchase more Canadian dollars, making the foreign goods more expensive in Canadian dollar terms. As a result, Canadian consumers may shift their purchasing decisions to substitute domestic products for foreign products, which can affect the demand for foreign goods.

Conversely, if a country’s currency depreciates relative to the Canadian dollar, its goods become relatively cheaper for Canadian consumers. This is because a weaker currency means that each unit of the foreign currency can purchase fewer Canadian dollars, making the foreign goods cheaper in Canadian dollar terms. As a result, Canadian consumers may increase their demand for foreign goods, which can lead to an increase in imports from that country.

Overall, exchange rate fluctuations can have a significant impact on the prices of goods in Canada, affecting the relative competitiveness of domestic and foreign products. This can in turn impact trade flows and the balance of payments, as well as the overall health of the Canadian economy. It’s also worth noting that other factors, such as tariffs and non-tariff barriers, can also influence the prices of goods in Canada and affect trade flows.

Daily Exchange Rates