The Financial Post has released a financial reflection on the impact of the pandemic on Canadian trade and an outlook for 2021. Economic journalists, Eugene Beaulieu and Dylan Klemen, take a close look at the health of Canada’s exports and imports and the factors at play.
The COVID-19 pandemic has certainly had a major effect on global trade, and Canada is no exception to this rule. We have noted a sharp decline in traded goods demand, due to a slump in the economy. In addition to this, supply chains have been markedly disturbed. Overall, Canadian trade was down by almost 12% since 2019.
Comparisons to 2008
Canadian trade in goods began to see a decline in March 2020. In comparison to the Economic Recession in 2008, Canadian trade started to fall in October of that year. But that being said, the decline in trade in 2020 was much sharper, happening faster.
In 2008, global trade declined by 12%, however, Canada’s trade fell by a whopping 21% — much more severe.
But recovery is looking much better for Canadian trade this time around. As of November, we see a trade rate that is almost at the same rate as pre-pandemic.
A look ahead…
While recovery is looking good, Canadian trade must be protected with regulatory and policy responses. The Canadian government must team up with trading partners to prevent protectionism that could actually worsen the economic situation.
“Trade protectionism is a policy that protects domestic industries from unfair competition from foreign ones. The four primary tools are tariffs, subsidies, quotas, and currency manipulation.”
Many economists and trade professionals have spoken out against protectionism as a response to the COVID-19 crisis.
“The World Economic Forum does not pull its punches, arguing that tariffs (the most common form of protectionism) reduce productivity and output, increase unemployment and raise inequality.”
In essence, experts say that protectionist policy would increase layoffs, reduce competition (and thus innovation), increased prices, among other things.
The Financial Post journalists encourage Canada to re-evaluate the trade policy framework in preparation for other crises. They put it perfectly: “The key lessons from the great trade collapses of 2008-09 and 2020 are that we live in a hyper-connected world and the impact of demand and supply shocks propagate quickly.”
The economic crisis in 2020 is a shock related to both supply and demand, as manufacturing and purchasing were both heavily disrupted — i.e. the entire supply chain.
It is recommended that Canada work with other multilateralist economies to recover and solidify the World Trade Organization curb protectionist ideals. CUSMA is a great example of a framework that will encourage collaboration between nations and smooth trade. You can read more about it here:
Another challenge in 2021? Brexit. As of now, there is a duty suspension between countries, which we wrote about here: An Overview of Canada-UK Trade in 2021. But these suspensions are temporary, and Canadian importers must prepare accordingly.
There are many factors at play for Canada’s trade recovery in 2021, and navigating these changes will be integral to the success of Canadian importers. Working with a customs broker to help ride the wave will help streamline entry into Canada and soften the blow. Click here to start a conversation!