JOCK FINLAYSON
The following op-ed by ICBA Chief Economist Jock Finlayson and the Business Council of British Columbia’s David Williams first appeared in the Sept. 25, 2024 edition of the Globe and Mail.
BRITISH COLUMBIA – Canada is a mid-sized economy that accounts for only 2 per cent of global output. Within North America, we represent less than one-tenth of the combined output of the three national economies.
To sustain our standard of living, Canada sells exports in international markets. Exports generate jobs and earnings that circulate through the non-export economy. They provide the means to pay for the vast array of imports that consumers want and need, from cars to clothing to high-end electronics. Companies also import essential parts and inputs for their operations.
The mix of goods and services that any market economy sells abroad ultimately reflects the activities where it has a “comparative advantage.” This principle boils down to a country being better off by “playing to its strengths” than trying to be a “jack of all trades.” Countries benefit the most from international trade when they specialize in exporting goods and services they can produce at lower cost and/or higher quality relative to other countries. An analogy would be that a wonderful doctor is better off by focusing on treating patients and buying (importing) their food from a skilled farmer, rather than dividing their time between being a doctor and growing their own food.
A closer look at trade data highlights the industries where we have a comparative advantage. The accompanying table shows Canada’s exports minus imports, known as the balance of trade, in major sectors combined for 2022 and 2023. Natural resource-based goods play an outsized role in our export portfolio. Added together, energy, non-metallic minerals and related products, metal ores, forest products and agri-food make up roughly half of all exports. Along with aerospace, these are the only broad categories where Canada posts trade surpluses.
Energy alone accounts for more than a quarter of merchandise exports. Over 2022-23, energy produced a trade surplus of almost $300 billion, a figure that far surpasses the combined surplus recorded across all other industries.
Within the broad energy basket, oil, oil-based products, and natural gas dominate, providing around 80-85 per cent of all energy-based export revenues. Energy’s contribution to Canada’s exports is poised to increase in the next few years. This is not due to expanding exports of “clean tech” goods, carbon-free electricity, or hydrogen – all frequently touted by federal government ministers. In fact, the environmental and clean technology sector is 3 per cent of Canada’s economy and contributes only 2 per cent of total exports. Instead, the expected increase in Canada’s energy exports is attributable to the imminent start-up of liquefied natural gas (LNG) production in British Columbia, along with rising volumes of Western Canadian oil shipments following the completion of pipeline expansion projects.
It is hard to overstate the importance of energy to Canada’s trade balance. In its latest “scorecard” report, the Coalition for a Better Future observes that “over the past decade, Canada recorded a cumulative trade deficit of $130 billion. Had it not been for energy, our trade deficit would have been about $1 trillion.”
One rarely hears federal government policymakers acknowledge that energy production and exports play a disproportionate role in “paying the bills” in Canada. The Prime Minister and his ministers are more inclined to denigrate the oil and gas industry than acknowledge its many economic contributions.
We can’t think of another advanced economy where the national government is as discomfited with the country’s leading export sector. A better strategy would be to recognize that energy will remain Canada’s top export earner for decades to come – and to work collaboratively with the industry to reduce its carbon intensity over time. Absent a more constructive policy approach, one that keeps sight of the sources of Canada’s demonstrated comparative advantages in international trade, the country must be prepared to accept a lower standard of living.
Source: ICBA
