Trade with the US is up in the air

NAFTA renegotiation has Canadians transfixed. Small wonder; economically, Canada and the US are virtually fused together, and the prospect of a radical reversion of the relationship is…well, unthinkable. Our economic exposure to the US is well known, but what may come as a surprise is that across the country, the exposure – while high everywhere – varies quite a bit from region to region. How exposed are Canada’s provinces?

Nationally, about three-quarters of our merchandise exports go to the US. That’s a lot – but it has been higher. Back in 2000, it was 87 per cent. It held firm through 2002, but went on a nine-year slide that coincided with a spike in the Canadian dollar, a thickening border and superior growth in emerging market sales. US economic recovery – such as it was – stabilized the share of trade in 2012, and since then it has held firm at roughly the same rate. Reasons notwithstanding, that was a fairly substantial shift in a relatively short space of time.

While the same trend is generally true of the provinces, each of them has a unique story to tell. The highest provincial exposure is currently New Brunswick, at 92 per cent of total merchandise exports. Energy exports form the lion’s share of the province’s trade, with a large focus on the US market. However, its fishing and forestry industries are also uniquely focused on American sales, bucking the trend to higher diversification seen elsewhere in Canada. While New Brunswick’s exposure has always been relatively high, it is one of the few that have bucked the national trend, rising from a share of 87 per cent in 2000.

Next in line is no surprise: Alberta is well known for the almost singular flow of its vast energy output southward. The US share of Alberta exports has been remarkably smooth during the New Millennium years, beginning at 88 per cent in 2000, averaging the same throughout the series, but ending off at 86 per cent in 2016. Given the recent failure of east- and west-bound pipelines to gain traction, Alberta will likely continue with its high level of southward exposure for some time to come.

Exporters are also particularly twitchy in the third-most exposed province, Ontario. Not only is it high in the charts at 81 per cent, but that’s on 44 per cent of Canada’s total exports. This concentration comes in spite of Ontario’s enviable wide-ranging array of exports, which could be sold more broadly around the world. Its ratio used to be higher, though; Ontario was once the most exposed, at 93 per cent of America-bound exports.

From here, the rest are below the national average. There is a cluster of provinces in the 68-74 per cent range, and each of them has seen the same basic decline in share since 2000 as at the national level. Of these, PEI has seen the more dramatic shift, falling from 90 per cent exposure to the US to 74 per cent in 2016. Quebec is now just one per cent lower than this, having had an Alberta-sized exposure in 2000. For an industrially-diversified province, this is a particularly notable shift. Manitoba, a perennially diversified province industrially, has also managed to stoke up sales in non-US markets, with its share the lowest in the mid-range. Nova Scotia was just one per cent higher in 2016.

Bringing up the rear are the more diversified provinces. These had lower rates of exposure back in 2000, and have maintained that distance since. Newfoundland and Labrador ring in at 59 per cent, with a starting level of 73 per cent in 2000. British Columbia – where roughly one-quarter of exports now go to emerging markets, mainly East Asia – has just over half of its foreign sales in the US. Saskatchewan, with its strength in agriculture and mining, is the only province that sends less than half of its merchandise southward, with a whopping 41 per cent headed to the emerging world. These numbers are not really anything new, though; Saskatchewan has steadily been Canada’s most globally diversified province for quite some time.

When it comes to US exposure, clearly some regions have more to worry about than others. Those with an energy bent, although exposed, can likely rest more easily as energy products have not figured as much in the trade talks. Exposed provinces with a more eclectic trade mix likely have more reason to fret.

The bottom line? NAFTA jitters are not shared equally across the land. But make no mistake, at the negotiations’ most tenuous moments, all need tranquilizers – just different doses.

This was written by By Peter G. Hall, EDC Vice President and Chief Economist.