Canada’s diversification in Asia

Asia is the world’s hot-growth zone. And it’s likely to heat up more in the near term, as global growth ramps up. If the hot are about to get hotter, is Canada likely to get a piece of the action?...

Asia’s impressive growth run
Superior growth is nothing new for Asia. It has had generations of fast-paced economic miracles, from Japan’s post-war run to the rise of the Asian tigers, then the ASEAN-4, India, and of course, China from 1980 onward. The juggernaut continues: since 2000, emerging Asia has maintained an average pace of real GDP growth at twice the planet’s growth pace, four times the growth rate of the developed world, and averages two percentage points annually over the growth pace of the emerging world. Most expect a somewhat slower clip in the coming five years, but the region is still the front runner, by far.

Canada is at the Asian trade table
Canada is already quite active in this space. Since 2000, we racked up 8.4 per cent average growth in merchandise exports to 18 key emerging and semi-developed Asian markets. This compares with an average annual growth rate to worldwide markets of just 1.6 per cent. This was enough to take the emerging Asia share of Canada’s exports from 0.9 per cent in 2000 to 4.5 per cent in 2017, a remarkable increase in a relatively short time span. 

China is by far the largest single piece of this story, contributing 60 per cent of Canada’s regional export growth over this time frame. Next is India, where Canadian export growth is superior, but whose contribution, at 11 per cent of the total, is held back by its much smaller share of the total. A close third is Korea, at 9 per cent, with Indonesia and Vietnam rounding out the top five.

So much for the present; what is the future looking like? Here’s where things get even more dramatic. If the same pace of growth we have seen in the past 17 years persists – in general, a reasonable assumption – then in a few short years, big things happen. China’s share of Canada’s exports would more than double to 10 per cent by 2025. Similarly, Canadian exports headed to India would more than double their share of total sales abroad, to 1.9 per cent. In fact, four of our top 5 markets in this Asian grouping would see their shares do the same. In sum, total trade to the zone would rise to just under 15 per cent of Canada’s total merchandise exports in 2025.

While there is good reason to believe that this is possible, there are a few factors that might slow things down a bit. First, protectionism is wreaking havoc with the state of trade architecture, adding a lot of uncertainty to the picture. Second, Canada’s exports to the US and other traditional markets have been doing better, thanks to strong economic growth. Third, exports to Emerging Asia have been slower than average in recent years, suggesting that future growth may not be quite as robust as it was for the entire preceding 17 years.

Canada is positioned to grow in Asia
On the plus side, current developments may well boost performance beyond the most recent rate. The CPTPP deal has lowered trade barriers and introduced ‘next-generation’ innovations between Canada and the other 11 mostly-Asian signatories, paving the path for greater economic integration and higher growth. In addition, we have prospective deals on the table with China and India. Moreover, in the recent federal cabinet shuffle, the international trade portfolio was expanded to include trade diversification – strongly suggesting there will be more effort on expanding trade to emerging markets. 

Asia is riddled with markets that have risen in prominence and are also markets of the future. As they increase in wealth, their reliance on outside sources of supply will rise exponentially. Diversification of trade has always been a good strategy, but it has probably never been more important than now.

The bottom line?
Asia’s markets are a potent force. Canada has established a fast-growing Asian footprint that suggests a promising future. But in our competitive world, nothing is guaranteed. Savvy companies are the ones with plans to leverage this potential.

This is a 16 August 2018 article written by Peter Hall, Vice-President and Chief Economist, Export Development Canada.