By Theo van de Kletersteeg

Canada’s recently announced merchandise trade surplus of close to $1.9 billion for the month of June was a welcome positive surprise for most. Since 2008 when Canada’s annual trade surplus reached $49.5 billion, Canada has staggered from one trade deficit to another, adding up to $21.3 billion over the period 2009-2013.

The problem has been on the export side of the equation, which never recovered to 2008 levels of $483.5 billion. On the other hand, after an initial lull in 2009 and 2010, Canada’s imports in 2011 exceeded its 2008 level of $434 billion, and kept on rising steadily.

Finally, during the first six months of 2014, the balance was tipped in favour of net exports, although the number is still small.

Compared to the first six months of 2013, the category that stood far out against all others during the first half of 2014 was energy exports, which represented 27.2 per cent of Canada’s overall exports. Put another way, in the absence of energy exports, Canada’s trade surplus of $0.5 billion during the first six months of 2014 would have turned into a $68 billion trade deficit.

After subtracting imports from exports, the sectors contributing to Canada’s first half trade surplus included agriculture and fishing ($8.0 billion), energy products ($45.8 billion), metal ores ($3.7 billion), metal and non-metal minerals ($6.0 billion), forestry products ($3.9 billion), and aircraft and transportation equipment ($0.7 billion).

Sectors where imports exceeded exports included industrial chemicals, plastics and rubber ($5.1 billion), industrial machinery and equipment ($13.0 billion), electrical equipment ($18.9), motor vehicles & parts ($9.7 billion), and consumer goods ($24.4 billion).

Another thing we can do is to compare net exports of the current period with net exports of the past few years. In that comparison, there are very few winners, consisting only of agriculture and fishing, and energy products. The other categories either lost ground or did not make significant gains.

So are we ready to celebrate Canada’s apparent return to trade surpluses? Not so fast. From the above, it should be evident that, above all, our current surplus is based on outstanding performance of Canada’s energy industries, and we should remind ourselves that this industry has been and continues to be under public pressure from a variety of interests, slowing down its possible growth rates, and increasing its costs of doing business.

The performance of other industries, notably mining and forestry products, should improve considerably as the U.S. and global economies pick up steam.

As the past five years have demonstrated, global competition is fierce and for Canada to compete effectively, we must offer the world quality products that our customers want to buy at prices that meet customers’ expectations. To do that, Canadian industry must keep costs under control and improve its productivity. The evidence suggests that while a number of natural resource industries are able to exceed this challenge, many manufacturing-based industries are struggling to meet the challenges.

We must never lose sight of the fact that Canada’s relative prosperity is based on its ability to compete with the rest of the world. Once this ability is impaired, our declining dollar will make the cost of importing that great Audi or BMW a little more expensive. While that may be an inconvenience to some, the larger danger is that protracted periods of trade deficits, reflecting a weak economy, will ultimately translate into the country’s inability to maintain its cherished social safety net. The creation of obstacles to doing business will ultimately hurt everyone, as business resources are diverted from production to dealing with regulatory compliance, court challenges, increased bureaucracy, higher taxes and other impediments.

Canada’s agriculture, fishery and energy industries are firing on all cylinders, and other natural resource-based industries have the potential to significantly increase their export potential. To maintain the momentum, we must find ways to grow the industries that are already successful, and we must find ways of increasing the export potential of promising manufacturing-based industries. It’s a tall order, but we do not have much choice if we wish to live in a country that can provide opportunity to all.

Note: Statistics based on Statistics Canada CANSIM table 228-0059