By Theo van de Kletersteeg

Canada’s merchandise trade deficit with the world widened from $2.2 billion in February to a record $3.0 billion in March. The February trade deficit, originally reported as $984 million was revised to $2.2 billion as estimates of exports of energy products were updated.

Imports rose to $45.5 billion in March, while exports edged up to $42.5 billion in March. An increase in exports of motor vehicles and parts was mostly offset by a decline in energy products. Not surprisingly, exports of energy products declined 8.9 per cent to $6.9 billion.

Worrysomely, Canada’s international merchant trade surplus, once the pride of the country and underlying its economic strengths of past decades, has been on a downward trajectory for a long time, reversed into a deficit in 2009, and remained mostly in deficit since that time. The decline started a long time ago, long before declining commodity prices. Just examining the numbers of the past twenty years reveals that Canada’s peak surplus occurred in 2001 when a surplus of $69 billion was accumulated, equivalent to 16.6 per cent of exports in that year. The surpluses gradually diminished until they declined to $43.7 billion in 2008, still a remarkably solid number, even though by that time it represented only 9.0 per cent of exports. The following year, in 2009, with the global economic crisis, the $43.7 surplus turned abruptly into a $6.8 billion deficit, from which the economy has, unsuccessfully, attempted to recover.

During the past two decades, huge upheavals in trade patterns have occurred from which, by and large, Canada has been unable to make gains. For example, Canada’s trade balance with China was roughly in balance in 1998. However, by 2014, a trade deficit of almost $15 billion had developed. Similarly, a 1999 trade deficit of some $479 million with Mexico developed by 2014 into a trade deficit of almost $10.4 billion. Although Canada’s trade surplus with the United States is still huge ($49.3 billion in 2014), it used to be much larger. Specifically, a trade surplus of $107.9 billion was recorded with the United States in 2005, which declined steadily to hit rock bottom at $34 billion in 2009, but which has steadily improved since that time.

While our trade with China tells a tale of shifting manufacturing activities from Canada to China, which is not sufficiently offset by growing Canadian exports of raw materials, the trade deficit with China and with many other parts of the world suggests a growing lack of competitiveness in the Canadian economy. Similarly, our trade in motor vehicles and parts confirms that this trade is shifting away from manufacturing to consumerism. Rapidly growing affluence among professionals and entrepreneurs has diminished appetites for locally made vehicles in favour of imported Audis, LandRovers, Porsches and other trophy automobiles. Meanwhile, for a variety of other reasons, including the relatively high cost of manufacturing in Canada, Canada’s overall trade surplus in vehicles and parts has declined steadily over the years. During the years 1999 and 2000 this trade resulted in a combined surplus of $43 billion when automotive exports totalled $100 billion annually. Since that time, however, things have steadily declined, and in 2007 a first “post-Auto Pact” trade deficit of $4.1 billion occurred, on exports of $77.6 billion. From 2007 onwards, the automotive trade deficit grew larger in each year, and by 2014 stood at $15.9 billion, on exports of $74.5 billion. Stagnating exports are clearly visible in these numbers, as well as the significant increase of imported luxury vehicles.

The trade numbers are a national disgrace and, more importantly, are a national disaster. Focusing not on the details, but on the direction of the overall numbers, they are most worrisome. But why should we care? We should, if we care about our prosperity and the maintenance of our social safety net. Canada’s social welfare system was conceived in the sixties when the economy was on a roll, and nobody seriously expected that the age of abundance would turn into an age of stagnation and struggle. Can we still afford Old Age Security, state-sponsored healthcare, and other components of the social safety net as they were developed then? In view of the tinkering that has taken place to make these systems less of an onerous burden to taxpayers, these programmes arguably may represent an unaffordable cost. Let us also consider that all provinces, as well as the federal government, continue to operate at a deficit, or at marginal surpluses. Unless our economy turns around, and does so in a sustainable manner, it will only be a matter of time before more substantial cuts to Canada’s social safety net will be necessary. Either that, or we may have to live with a 60 cent dollar!

The trade deficit picture is an urgent wake-up call. Solutions to entrenched financial problems take years to develop and implement, particularly in a country where everyone has “inalienable rights”. We cannot wait until the problems have reached crisis proportions – we must act now to develop a new game plan for our economy – a game plan that recognizes that we cannot remain among the world’s heaviest polluters, and a game plan that should recognize that one of Canada’s “distinctive competencies” resides in its ability to exploit its abundant natural resources. Some large-scale future opportunities were identified among the past few years, among which were the transportation of oil to both eastern and western shores, for export. LNG export terminals were also explored as being able to generate substantial economic activity. Although these opportunities still exist, project approvals have been mired in public opposition, with not a lot of progress to show for all the years of planning. While we may spend years talking and debating, that does not stop others from developing alternate plans. More oil and more LNG will reach global markets in future years from other new or expanded sources, thus diminishing opportunities that Canada had while meeting environmental regulations and fighting activists in Court.

While Canada needs to develop a “business plan” with the highest of priorities, a national debate needs to occur on the subject of the role of taxpayers in paying for what is rapidly becoming an unaffordable social contract with citizens. Education, healthcare and social programmes are the largest expense categories for governments. Can we afford to keep them in their present form and, if not, how must they be re-engineered for fairness and sustainability? Deep down we all know that things are not what they used to be, and we must demand from our political leaders that they acknowledge the problems, and start looking for long-term solutions.

So, we’ll probably do nothing, and muddle on. On the other hand, at least in the near term, we will benefit from a more energetic U.S. economy in the near future and, who knows, perhaps deals can be made to get oil and gas pipelines built, and LNG terminals constructed. There is still that nagging question of the Ontario auto plants: perhaps their workers can “put some water in their wine” to keep these plants open as long as possible – financially comfortable auto workers need not call for taxpayer support – taxpayers are tapped out.