APS-007: Canadian Performance in the U.S. Market, 1995-2009

  • Mykyta Vesselovsky, Office of the Chief Economist, DFAIT
  • Florence Jean-Jacobs, Office of the Chief Economist, DFAIT
  • David Boileau, Office of the Chief Economist, DFAIT

June, 2010

Executive Summary

Canadian trade with the U.S. is not only the largest bilateral trade relationship in the world, it also serves as the foundation of the present-day Canadian economy. Its importance for Canada is such that several industries are more susceptible to the U.S. economic conditions than to domestic ones. Given that, understanding of the behaviour of our market share in the United States and early recognition of its long-term trends is of great importance.

What these trends show is not very encouraging - since 1995, Canada lost about a quarter of its market share in the United States merchandise import market, a process that seems to have been accelerated by the global recession. Most of that loss occurred after 2000, and most of it was caused by a decrease in competitiveness of our exports. This trend was exacerbated by global recession, with declines both on the product mix side and the competitiveness side of Canadian exports to the United States.

Had the post-2000 loss not occurred, our exports to the U.S. over the 2000-2009 period would have grown by an extra $92 billion. While competitiveness was the main driver, the effects of the product mix sold to the United States on our export growth were marginal until 2009 - slightly subtracting from the overall growth in the 1995-2000 period, and slightly contributing to it over the 2000-2008 period. However, during the year 2009, the contribution of the product mix to the decline in Canadian exports was stronger than that of competitiveness effect.

Though loss of competitiveness played a primary role in the market share decline, it is not clear whether the appreciation of the Canadian dollar or the rise in competitiveness of East Asian exporters (particularly China) have played the key role. As these factors are likely to persist, this analysis underscores the need for raising Canadian competitiveness through both increased productivity and increased competition through entry of new exporters into the U.S. market – a topic of current intense policy discussion. While maintaining market share in a world of emerging economies may not be within anyone’s power, an innovative nation with high productivity, world-class education and forward-looking investment and fiscal policies would be well positioned to succeed in a world that is more economically diversified than in the past. If the changes identified in our market share in the U.S. over the past decade are major and permanent, the recognition of the new trading realities through diversified engagement strategies may be necessary in order to preserve Canada’s status as one of the world’s foremost trading nations, with an extensive role to play for TCS both in the U.S. and beyond.

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