Jan 04, 2017 5:29PM EST – The outlook for world commerce in the coming year is difficult and uncertain. Even so, it is not necessarily all bad news for Canada | published: Jan 05, 2017 5:00AM EST
As Canada’s exporters head into the new year, the main question on many minds will likely be: What on earth has happened to global trade?
The outlook for world commerce in 2017 is difficult and uncertain – possibly “the beginning of a new and darker global order,” as the Economist puts it in its year-ahead forecast.
Even so, it is not necessarily all bad news for Canada.
“Canadian businesses can expect to see 3-per-cent growth in exports of goods and services next year following a downbeat 2016 that saw exports stall,” Export Development Canada (EDC) said in its global export forecast released Nov. 2.
“EDC believes that the modest rebound facing Canadian exporters in 2017 will be led by a sharp recovery in the energy sector, as prices return from significant lows. Decent gains will also be seen in the aerospace, fertilizers and consumer goods industries,” EDC’s November forecast said.
“Exports of services will also be impressive, rising by 5 per cent in 2017 (after 4 per cent in 2016). The uptick in the services sector will be driven by tourism, financial, and technology services.”
The World Trade Organization also predicts a modest upturn for 2017, forecasting worldwide trade to rise between 1.8 and 3.1 per cent in the coming year. While this is a downward revision from its earlier forecast of 3.6 per cent, it’s still better than the sluggish 1.6 per cent growth of 2016.
While the predictions of an uptick in world trade may be encouraging, what was conventional wisdom about trade even a few months ago has been more or less upended by a wave of worldwide populist resentment.
Global trade relationships seem to grow testier by the week, with tough talk about protectionism from leaders – including about the North American free-trade agreement (NAFTA) that is crucial to Canada’s economy – and key trade deals unravelling.
While there are some positive steps to look forward to, including the ratification of the Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe, the very future of the European Union itself is uncertain after Britain’s June 23 vote for Brexit – leaving the EU.
And with the tough-talking Trump administration about to take power in the United States, the outlook for smooth and harmonious trade is shaping up to be not as sunny as many imagined a year ago.
“The greatest threat to the export outlook is the alarming rise in anti-trade sentiment. The Brexit vote puts at risk the world’s largest trading bloc, while the U.S. election has revealed widespread discontent with America’s current trade architecture,” the EDC says.
The danger is that, although it has been many years since the global economic crash of 2008, the full recovery that should bring robust global trade simply has not taken place.
“After years of slow growth, consumers and businesses around the globe are frustrated,” said Peter Hall, EDC’s chief economist, when the November outlook was published.
“You can’t blame them. Seven years seems like an eternity when you’re waiting for your first real job, or your next one. But lashing out at globalization is really an attack on one of the key economic remedies.”
Talk from president-elect Donald Trump about “ripping up” NAFTA, or even renegotiating the agreement with Canada and Mexico, only adds to uncertainty for Canada’s exporters, since about three-quarters of Canada’s international trade is with the United States.
However, the opportunities in the United States for Canadian exporters in 2017 should not be overlooked, says Danielle Goldfarb, director of the Conference Board of Canada’s Global Commerce Centre.
“The U.S. economy is actually in a strong position, which is beneficial for Canada,” she says. At the same time, these opportunities “are overshadowed by the election of Trump.”
While it appears that a strong U.S. economy will boost demand for Canadian commodities and services, it’s unclear whether restrictive trade policies will inhibit doing business across the border.
For example, suppliers and manufacturers are looking forward to a big boost in infrastructure spending by the Trump administration. But the administration may also bring in a “Buy American” policy that could freeze out Canadian businesses.
“Exporters need to think about NAFTA renegotiation. What does that look like? What does that mean for our export profile?” says Brian Kingston, vice-president, policy, international and fiscal issues for the Business Council of Canada.
In his view, the key move by Canadian exporters should be to diversify, looking for non-U.S. markets, as well as looking for areas where NAFTA might be fine-tuned.
Exporters should cast their eyes in particular toward CETA, which is expected to take effect between Canada and 28 European countries, after the European Parliament votes on it in early February.
“It will make 98 per cent of tariffs duty free [between Canada and Europe] when it’s implemented. That’s pretty significant,” Mr. Kingston says.
It will also be important in 2017 to make sure that Canada has a strong trade relationship with its second largest individual export market, China, Mr. Kingston says. While only 4 per cent of Canadian exports go to China, it is a market that still offers huge opportunities.
These opportunities may be enhanced by a more chilly relationship between China and the United States under the Trump administration. There may be an opening for Canada as a bridge to North American trade; the Chinese government was displeased when the president-elect took a call from the president of Taiwan, which China regards as a province.
And Mr. Trump appointed economist Peter Navarro to head his National Trade Council. Mr. Navarro is author of a book called Death by China and has urged the United States to pursue more aggressive trade policies with the Chinese.
Other issues that Canadian exporters will contend with this year include the collapse of the Trans Pacific Partnership (TPP) negotiated between Canada, the United States and 10 other Pacific Rim countries.
In a just-released report called Picking Up the Pieces, the Business Council says it is important for Canada to negotiate a bilateral trade agreement with Japan now that the TPP is dead.
Mr. Kingston says one encouraging trade trend Canadians should watch for this year is a boost in service exports, such as financial and legal expertise and engineering.
“They have increased steadily. They’re now roughly equal [in value] to our exports in motor vehicles and parts and they exceed energy exports,” he says.
According to the Bank of Canada, jobs in the goods sectors of Canada’s economy have declined by 70,000 since the end of 2014, but 250,000 new jobs have been created in services.
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