With economic growth in the United States expected to outpace Canada's, cross-border trade represents a critical opportunity—as long as Canadians are ready to take on new competitors.
While the news reports for the Canadian economy reflect the choppiness observed in the first half of the year, Canadian businesses must not wait to be buoyed by a rising tide. They should take control of their own futures to seek opportunities for growth through international trade.
Canadian companies were responsible for more than 4% of global exports in 2000; that share has dwindled to 2% today, explained David Watt, Canadian chief economist, HSBC Bank Canada. For Canadian firms, regaining that market share will be a great challenge, but putting in the effort offers great opportunities for firms to grow and to become embedded in global value chains.
And as the United States, traditionally Canada's largest trading partner, experiences economic growth, it's the perfect time to focus on building new trade relationships with U.S. companies. “We want to become an economic powerhouse again,” Watt said.
In the latest installment of HSBC's “Fueling Growth Worldwide” webinar series, global economists discussed what Canadian companies need to know about Crossing the Border: Trade with the United States .
Understanding U.S. Economic Changes
While the United States has had its own economic vacillations in recent years, it remains the largest trader in the global economy, with an 11% share of global trade. Within NAFTA, Mexico has now surpassed Canada as the top exporter of goods to the United States, but Canadian companies are poised to compete for market share once again. The key is to understand important shifts in the U.S. economy.
“The composition of the U.S. economy has changed significantly,” said Kevin Logan, chief economist for HSBC Bank USA. “Employment in manufacturing has declined by 30% since 2000, and employment in construction has declined. Today, most of the growth is occurring in low-productivity occupations such as education, health services, and leisure and hospitality.”
The U.S. demand for manufactured goods is declining, Logan added, while more companies need services rather than products. As a result, Canadian companies seeking new trade opportunities with the United States may find them more readily for services including telecommunications services, IT services, and other services that can cater to growing U.S. industries.
In addition, expectations for growth in the United States are lower than in the past. “Growth will be slower, and the share of imports and exports in the U.S. economy may stabilize,” Logan said. “Because the U.S. is settling into a slower growth track, growth in imports will slow and may become more competitive.”
Canadian Companies Can Build a Broader Export Base
To win out among competitors for U.S. trade, Canadian companies can capitalize on the price benefits offered by a weaker Canadian dollar. While this may help launch new relationships with U.S. buyers, the devalued Canadian currency won't be a silver bullet by itself.
“The weaker Canadian dollar and rebounding U.S. growth will provide some opportunities, but we can't assume that traditional exports will carry Canada into the future,” Watt said. For instance, automotive parts were traditionally a strong export category for Canada, but in recent years, the auto industry has made major investments elsewhere, including China, Brazil, Mexico, and Russia. And while Canada has relied on oil as a major export category, the country will have to develop export-worthy products and services in other areas to build and continue growth.
After 20 years of U.S.-Canadian trade within NAFTA, new trade agreements are being negotiated around the world. “The U.S. market is going to become more competitive,” Watt said. “We need to focus on what we produce and how we produce it to regain market share in the U.S.”
In such a tough competitive environment, Watt recommends that Canadian companies become more proactive. “We don't have to wait for the U.S. to grow; we just have to knock on doors we've never knocked on before and look for opportunities,” he urged. “To develop the Canadian economy going forward, we need small companies that don't export now looking for opportunities to export to the United States.”
Simply choosing to refocus attention on the United States as a trade partner won't be enough for Canada to recover from its loss of market share as an exporter on the world stage. “We have to be focused on the idea that Canadian exports may not grow to robust rates,” Watt said.
Even though Canadian exports experienced positive numbers during June and July 2015, recapturing lost market share will take concentrated effort over the long term. “Canadian exporters should not sit back, get comfortable, and attempt to ride the wave of U.S. economic growth,” Watt said. “It will require ongoing work and attention. There are export opportunities, but Canadian companies have to work hard, probably harder than we ever have, to take advantage of them.”
To build lasting economic growth, Canadian companies must look beyond the convenient and friendly United States. Instead, Watt maintained, Canadians should take advantage of U.S. trade with an eye toward using it as a jumping off point for further growth around the world.
Click here to view the replay of Crossing the Border: Trade with the U.S. webinar
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