Canada's trade strengths come from natural resources and related industries

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OTTAWA, June 19, 2012 /CNW/ - Canada's trade strengths are concentrated in industries that extract natural resources and process raw materials. These areas of strength - in which Canada has an outsized share of global trade - include agricultural and food products like wheat, meat, and oilseeds; mineral products like natural gas and metals; and forest products like wood and paper. As well, our strength in the utilities sector comes entirely from electricity exports.

"These industries rely heavily on natural resource wealth such as land, water, forests, and mineral products. The abundance of these resources gives Canada a robust comparative advantage in the industries that extract and process them," said Michael Burt, Director, Industrial Economic Trends, and co-author of Adding Value to Trade: Moving Beyond Being Hewers of Wood.

"This comparative advantage can last for a long time, provided that we promote the sustainable development and use of our natural resources, and industries that support the primary sector are competitive with world standards."

This conclusion emerges from third briefing from The Conference Board of Canada's International Trade and Investment Centre (ITIC), on how value is created in Canadian trade. The initial publication found, first, that Canada is less trade dependent and has a smaller trade relationship with the United States than under conventional trade measures, and second, services make a greater contribution to trade. The second briefing found that value-added analysis revealed that Canada has two different relationships to global value chains, one with the U.S. and another with the rest of the world.

Although Canada has strengths in the extraction and processing of natural resources, resource industries still depend on other sectors to bring their product to the global market. Therefore, Canada must remain globally competitive in the industries that are related to and support natural resource development.

This research uses a measure known as revealed comparative advantage (RCA), which calculates the share of a country's total exports in a given industry relative to the share of world exports in the same industry. RCA identifies industries or sectors in which a country has a comparative advantage, that is, it can produce a good or service at a lower relative cost.

Outside of the harvesting and processing of raw materials, Canada has trade strength in very few industries - autos and parts, other transportation equipment (primarily aerospace), insurance, and communication services.

Now in its seventh year, the ITIC helps leaders better understand changes in the global economy and their implications for Canadian international business opportunities and public policies.