International trade is important to Canada: exports and imports of goods and services each equate to more than 30 per cent of its GDP. As the world’s 12th largest trader, Canada’s share of international trade is about 2.4 per cent, though this has declined from over 3 per cent in the 1980s.
However, Canada has recently concluded large trade deals, such as CETA with the European Union, and CPTPP with 10 Pacific-Basin countries. These offer new trade opportunities. The EU is a key market for car parts and clean-tech products while Asia-Pacific’s expanding middle-classes are customers for food and engineering services exports.
Trade diversification can help manage risks such as uncertainty in the timing of the ratification of the new US-Mexico-Canada Agreement that is due to replace NAFTA or the US imposition of ‘national security’ tariffs on steel and aluminium.
Canadian trade has diversified markedly over the past two decades. The US remains the top trading partner but its proportion of Canada’s exports has fallen from 78 per cent to 72 per cent and its share of imports supplied is down from 67 per cent to 52 per cent. China is now second, providing 10 per cent of Canada's imports, with Mexico third at 6 per cent.
Canada is the world’s fifth largest exporter of agricultural products, the 10th largest for manufactured goods, and ranks 18th for commercial services. The US also accounts for most Canadian services exports and imports but China’s importance is growing.
Canada was the world’s seventh biggest investor in 2017 and the sixth largest recipient of foreign direct investment, the US accounting for nearly half the flows.
Although most Canadian import tariffs are low, some industrial and agricultural imports still face relatively high duties: some in the highly-protected dairy sector exceed 300 per cent. Beyond tariffs, customs and regulatory requirements can be significant and weigh on trade in sectors such as alcoholic drinks, food products, telecommunications, distribution and courier services.
Barriers to foreign investment are also relatively high: the OECD ranks Canada fourth most restrictive for inward investment.
However, Canada now has 14 free-trade agreements covering 51 markets, 1.5 billion consumers and eight of its top 10 goods trading partners. In addition to NAFTA, there are deals with Korea, 10 other Pacific Basin countries including Japan (but not China), and the EU with its 28 members. It is the only G7 nation with trade agreements with all other G7 countries.
Another nine trade deals are under negotiation, including with Japan and India. Further exploratory discussions are underway with China, Turkey, the Philippines, Thailand and ASEAN.
Free trade agreements have boosted Canada’s trade and investment. Its bilateral goods trade with the US has more than doubled in value since NAFTA took effect in 1994 and has risen eightfold with Mexico: US and Mexican investment in Canada has tripled. The replacement agreement facilitates e-commerce and better protects intellectual property. And, it provides some additional market access for agriculture. But, it imposes new restrictions on vehicle sales.
Canada's approach to trade policy - known as the Progressive Trade Agenda - aims to promote liberalisation in consultation with stakeholders, while addressing areas of public discontent with globalisation. This approach covers issues such as trade and gender, the environment, indigenous peoples, anti-corruption and access for small and medium-sized enterprises.
Meanwhile, its Trade Diversification Strategy has a target of growing Canada’s exports by 50 per cent by 2025. Trade deals with markets in Europe and the Asia Pacific may help offset the damaging impact of any further protectionist actions in the US.
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