From the Fraser Institute

By Jock Finlayson and Elmira Aliakbari

It’s hard to overstate the importance of energy to our economy. In its latest “scorecard” report, the Coalition for a Better Future notes that “over the past decade, Canada recorded a cumulative trade gap of $130 billion. Had it not been for energy, our trade gap would have been about $1 trillion.” By any measure, the energy sector punches above its weight when paying Canada’s bills.

Canada is a mid-sized economy accounting for roughly 2 per cent of global production. Within North America, we represent less than one-tenth of the collective output of the three national economies. Canada is also an “open” economy that relies on cross-border flows of trade, investment and knowledge to sustain our high living standards.

To pay our way in an unforgiving and very competitive world, Canada must produce and sell exports to customers in other markets. Among other benefits, these exports furnish the financial means to pay for the vast array of imports that enhance the wellbeing of Canadian households and allow many of our businesses to operate efficiently and grow.

In 2022, Canada exported $779 billion of goods to other countries, and $161 billion of services, for a total of $940 billion. About three-quarters of Canada’s exports are destined for a single market—the United States. Canada also sources the bulk of imports from the U.S.

A hard truth about Canada’s trade is the outsized role of natural resource-based products in the export mix. Added together, energy, non-metallic minerals (and related products), metal ores, forest products and agri-food (i.e. food produced from agriculture) comprise roughly half of Canada’s international exports of goods and services—a notably larger share than in other countries with advanced economies (apart from Australia and New Zealand).

Energy alone accounted for 27 per cent of Canada’s merchandise exports in 2022, generating $212 billion for Canadian businesses, workers and governments. Mining contributed $85 billion in export revenues, followed by forest products ($60 billion) and agri-food ($57 billion).

Within the broad energy basket, oil and oil-based products dominate, accounting for more than three-quarters of all energy-based export revenues. Despite innumerable speeches and press releases issued by the federal government, energy’s contribution to Canada’s exports is poised to increase in the next few years—due not to growing exports of “clean tech” goods, carbon-free electricity or hydrogen, but to pending liquefied natural gas (LNG) production in British Columbia coupled with rising volumes of Western Canadian oil shipments following the completion of pipeline expansion projects.

It’s hard to overstate the importance of energy to our economy. In its latest “scorecard” report, the Coalition for a Better Future notes that “over the past decade, Canada recorded a cumulative trade gap of $130 billion. Had it not been for energy, our trade gap would have been about $1 trillion.” By any measure, the energy sector punches above its weight when paying Canada’s bills. The same is true, albeit to a lesser extent, for the other major resource sectors.

Many Canadians, huddled in increasingly unaffordable urban communities that have few evident connections to the country’s natural resource economy, may be puzzled by the continued vital importance of resource extraction and processing to Canada’s prosperity.

Ultimately, any trading country has a ledger showing the trade surpluses and trade deficits of its industry sectors. In Canada’s case, a handful of sectors generate significant trade surpluses, which help finance the large trade deficits incurred in other parts of the economy.

The story is a simple one—positive trade balances in the energy, mining, forestry and agri-food sectors offset chronic—and in some cases fast-growing—trade deficits in consumer goods, chemicals and plastics, motor vehicles/parts, and industrial and electronic goods. Canada also runs a smallish deficit in our overall services trade.

The sectoral trade data are informative. Among other things, they tell us where Canada has a “comparative advantage” in the global context. For a market economy, a pattern of positive trade balances is evidence that it has a comparative advantage in industries that reliably report trade surpluses.

Armed with such information, smart policymakers should create and sustain a business and investment climate that champions and bolsters the commercial success of industries that underpin the export economy. This is a message the Trudeau government has had trouble digesting, perhaps because it relies heavily on the votes of a few large metropolitan areas while most rural and resource-dependent regions remain a political afterthought.