Canadians often refer to their country as a “trading nation.” That’s because the economic foundations of Canada were built on trade, first as French and British colonies and later as a sovereign nation that has pursued
free trade
agreements around the world. As a result, a large share of our historical prosperity has been derived from trade.
However, looking at the dismal performance of exports during the past 25 years, you have to wonder whether Canada still deserves to be considered a trading nation. After quadrupling since the 1960s, exports per capita have been flat since 2000, a stunning break in the trend.
Simply put, after being responsible for about half of Canada’s improvement in
gross domestic product
(GDP) per capita between 1960 and 1999, exports did not contribute much to the country’s prosperity during the past quarter century.
This situation contributes to what I have called the “Lost Decades” — a period when mediocre underperformance in the non-energy sector was masked by the oil and gas investment boom that ended in 2014.
Despite the North America Free Trade Agreement (NAFTA), and now the
Canada–United States–Mexico Agreement
(CUSMA), the total amount of goods Canada exports to the United States has persistently underperformed the total amount of goods Canada imports from the United States since the late 1990s, after having increased in tandem since the early 1960s.
Similarly, when Canada and the
European Union
signed the Comprehensive Economic and Trade Agreement (CETA) in 2017, the share of Canadian exports to the EU was about eight per cent of total exports. Since the pandemic, it has been half this level.
In addition, this poor performance hides a divergence between energy exports, which have increased about 40 per cent in volume since the early 2000s, and non-energy exports, which have increased a more modest 15 per cent. Similarly, services exports have more than doubled over the period.
The mediocre export performance over the past two and a half decades is concerning, and especially worrying at a time when Canada is facing a trade war with its main trading partner and desperately in need of diversifying its customer base.
A lack of competitiveness is the main culprit for the poor performance in exports. Canada used to stand in eighth place in the International Institute for Management Development’s World Competitiveness Ranking; it has since dropped to 19th.
Canada’s persistently weak productivity growth is certainly not helping on the competitiveness front. Chronic underspending on productive investment over multiple decades is the principal cause of its weak productivity performance.
Canada currently spends almost as much on home renovations and home ownership transfer costs as a share of GDP as it does on investment in machinery, equipment and intellectual property. More importantly, there is evidence that household borrowing over the past 30 years has crowded out business investment.
Some have advanced the idea that the divergence between the energy and non-energy sectors during and following a commodity boom suggests the
Canadian economy
may have suffered from “Dutch Disease,” an economic phenomenon where a boom in natural resources leads to currency appreciation, which results in a country’s non-resource exports being less competitive both domestically and internationally.
However, some preliminary analysis and the fact that the start of the non-energy exports’ underperformance predates the oil investment boom suggest that globalization may have played a much bigger role in Canada’s mediocre export performance.
Many of the sectors that underperformed are ones that were more likely to be relocated due to globalization (textiles, furniture, electronics, etc.). However, Canada was not a victim of globalization, but rather a casualty; the country simply failed to adapt to the new reality.
The situation raises important questions. Can the country reclaim its title of a “trading nation,” where exports contribute to its prosperity? And, in the context of the trade war with the U.S., can the country sustainably increase its exchanges with non-U.S. countries?
To reclaim its status as a trading nation, the country will need a clear plan to solve its lack of competitiveness. This includes encouraging spending on productive investment, whether it be machinery, equipment, infrastructure, intellectual property or research and development.
It also involves improving efficiencies in the private and public sectors by streamlining regulations and the tax system. Canada should draw inspiration from the successes in other small open economies with similar economic values, such as Switzerland, Denmark, Sweden and Australia.
Canada needs to draw on its comparative advantage. In the commodity space, the country is blessed with a large endowment of energy, both conventional and renewable,
critical and industrial minerals,
and agricultural products.
Canada also has one of the most educated workforces, with one of the highest percentages of adults with tertiary education in the Organization of Economic Co-operation and Development (OECD). Canada must find a way to unleash this talent and become a service export powerhouse.
One thing is for certain: in light of the country’s performance over the past two decades, it cannot rely on being a low-cost supplier in a globalized world.
Diversifying Canada’s exports will require sustained effort. The gravitational pull from the U.S. — with its similarities to Canada and its 350 million consumers representing 25 per cent of the world economy — will be impossible to fully escape.
Expanding beyond North America will involve more than just trade deals. It will require building relationships with other nations using Canada’s trade commissions. It will also require enhanced access to trade financing to ensure exporters have the financial support needed.
Charles St-Arnaud is the chief economist at Alberta Central.
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Does Canada still deserve to be considered a ‘trading nation’?
2025-05-14 11:37:41
