A recent report from the Government of Canada’s Trade Commissioner Service underlines the desirability of diversifying trade beyond the United States as well the Government’s goal of increasing overseas exports going overseas by 50%. This will not be easy for one reason – oil and other mineral fuels.
In 2017, oil and mineral fuel exports accounted for 20.1% of aggregate Canadian exports ($84.6BN), all of which essentially goes to the U.S.; and since pipeline projects to take Canadian energy to other markets have been stymied, the U.S. remains the sole buyer for Canadian energy. This has not been lost on American oil refiners, who are now paying a lot less for Canadian oil on a comparative basis. Between 2010 and 2015 the discount paid on Western Canadian Select (a Canadian benchmark) was between US$ 10-15 per barrel. Since 2017 this has widened to USD 40 per barrel. The result is Canada needs to ship a lot more oil to the U.S. simply to maintain the dollar volume of exports.
Unfortunately, Canada’s trade dependency on the U.S. may be self-correcting in other ways as well. In addition to earning less for our energy exports, recent moves by the likes of General Motors to shut down Canadian production can only have a negative effect on vehicle exports. These totalled $62.3BN in 2017, Canada’s second-largest export category. Again, almost all of this goes to the U.S. market. On top of this, exports like aluminum ($9.8BN in 2017) are not being helped by the trade policies of the Trump Administration.
Canadians may not have reason to celebrate if the Canadian Government’s trade diversification strategy succeeds as a result of a collapse of trade with the U.S.