CANADA'S CURIOUS DE-GLOBALIZATION: Figures Show "Free Trade" Not Best Way to Boost Exports

Article excerpt

Everyone knows globalization is an irresistible worldwide process enveloping every economy, including Canada's, in its market-driven tentacles. Right?

Wrong.

In fact, since 2000, Canada's economy has been curiously de-globalizing before our eyes. The importance of global markets to our employment and production has been diminishing, not increasing-and at a remarkable pace. Yearend GDP numbers for 2006, recently released by Statistics Canada, confirm this surprising trend.

In 2000, Canada's total exports were equivalent to 45.6% of our GDP. That was the highest share ever, and reflected the effect of globalization on our economic orientation. Since then, however, globalization began to unwind for us, and the export share began to fall. By 2006 it had shrunk to just 36.5% of GDP.

And this occurred despite a historic expansion in Canada's energy exports (especially oil, and especially to the U.S.), which almost doubled in the same time. Non-energy exports, therefore, fell even faster: from 40% of GDP in 2000 to 30% last year. In other words, an amount of output equivalent to one-tenth of our entire economy has been redirected away from global markets (and toward our home market) in just six years.

This decline in the importance of international trade is utterly unprecedented in Canada's post-war economic history. Incredibly, Canada's economy (excluding energy) is now less dependent on exports than it was in 1994, when NAFTA was signed. Exports are now falling in economic importance more quickly than they expanded during the early years of continental free trade.

A word of caution is required here, because this measureexports as a share of GDP-is somewhat misleading. It includes the value of imported commodities (such as auto parts) that are then processed and re-exported in another form (such as finished vehicles). In reality, Canada's actual production is less dependent on exports than this imperfect measure implies. But until we get a more accurate measure of trade flows, this one will have to do. And it captures the trend in globalization, if not its precise level.

A few more statistics round out our understanding of this curious economic about-face. Exports of services have declined proportionately as much as exports of merchandise. About half the decline in the importance of exports since 2000 reflects falling relative prices for our exports (again, despite rising energy prices), and half is due to declining real trade. …