BC economy on a roll but exports still vulnerable

3 threats could curtail the exports that are such an important part of its economy

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Roslyn Kunin is one of those rare economists who can make the often difficult subject of economics understandable and even interesting
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VANCOUVER, B.C., Apr 27, 2015/ Troy Media/ – It was not so long ago that British Columbia, while still one of the country’s most prosperous provinces, had to bow to Alberta as the undoubted leader of the prosperity parade.

How things have changed.

B.C’s provincial budget is – unlike some others – comfortably in surplus. Our export products are diversified. We do not rely on one product as Alberta does on oil and so cannot be sideswiped if demand for that one product tanks. Cynics might say that, in spite of our best attempts, B.C. has not yet succeeded in its efforts to get one product, namely LNG, to become the major pillar of our economy. Nevertheless, our range of export products is serving us well now.

BC economy benefits from wide range of export markets

Also serving B.C. well is the range of markets to which British Columbia ships its exports. Canada is an open economy. We rely heavily on foreign trade. But for a country that is so dependent on exports, we put ourselves at risk by having only one major customer – the United States. About three quarters of Canada’s international trade is with the U.S., making up 19 per cent of the Canadian economy. Ontario sends 80 per cent of its exports across the U.S. border, much of it tied to the automobile industry. Alberta is not only a one-product economy, it is also a one-customer economy, with 90 per cent of its exports flowing to the United States.

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No 1 threat to BC economy is US protectionism

The low Canadian dollar has been helping Canadian trade by making our exports more competitive. However, since the loonie has fallen more against the U.S. dollar than against other currencies, it gives us a bigger advantage in America than elsewhere and so increases the concentration of our trade in the U.S. Meanwhile, B.C. sends 37 per cent of its exports to Asia and 13 per cent to Europe and other countries, leaving 50 per cent going to the U.S., significantly lower than the rest of Canada.

But there are three threats that could curtail the exports that are such an important part of our economy.

The first is the threat of protectionist action on the part of our major customer, the U.S. Overt protectionist measures are constrained by the free trade agreement that exists between us, but indirect measures like changes to the soon expiring softwood lumber agreement can have the effect of limiting Canada’s access to U.S. markets. Canada’s market advantage from the lower loonie also tends to encourage American lobby groups to push for the kind of strictures that work against Canadian producers.

The second threat could be more significant to Canada, but it is not getting attention because it is less certain and less immediate. This is the Transatlantic Trade and Investment Partnership (TTIP), an agreement under negotiation between the U.S and Europe. The Ifo Institute in Germany estimates that such an agreement would boost the U.S. economy by 13.4 per cent. However, by diverting U.S. trade to Europe, it would reduce Canada’s output by 9.5 per cent. Other researchers find these numbers to be high, but their results point in the same direction.

Infrastructure remains a concern for BC economy

The final threat to the international trade component of our economy is our need for infrastructure. Compared to many countries in the world, Canada’s transportation and logistical infrastructure looks pretty good, but it is not perfect. One reason why Alberta sells 90 per cent of its exports to the U.S. is the lack of infrastructure, namely pipelines, to get the oil to tidewater and access to other markets. Other components for transporting and handling exports could also be improved now and will definitely need future upgrading. Improving Canada’s Trade Infrastructure, a study by the Canada West Foundation, shows that the quality of Canada’s overall infrastructure in 2014 ranked 19th in the world, below the United States.

Right now, the governments of both British Columbia and Canada are enjoying fiscal surpluses. Investing these funds in infrastructure that will help our trade grow and prosper will benefit us all over the long run.

It might even help the rest of Canada catch up to beautiful British Columbia.

Troy Media BC’s Business columnist Roslyn Kunin is a consulting economist and speaker and can be reached at www.rkunin.com.

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