Introduction
China and Canada share a strong bilateral trade relationship. The 1960 wheat trade with China was among the first international transactions to occur between both countries (Evans 17). Since then, the business between both countries has significantly increased. Today, direct foreign investments, people-to-people trade, and cultural exchanges are some notable characteristics that define international trade between both countries.
Different economic policies and bodies support this trade. For example, the Joint Economic and Trade Commission and the Strategic Working Group are some organizations that support the bilateral trade. Their contributions have improved the volumes of trade between both nations. Experts estimate that Canada’s exports to China in 2012 and 2013 were $19,055,515,362 and $20,170,655,976 (Asia Pacific Foundation of Canada 1).
Similarly, they estimate that the North American economy imported about $ 50,720,323,806 and $52,716,736,457 worth of goods from China in 2012 and 2013, respectively (Asia Pacific Foundation of Canada 1). Most of this trade has spanned across different economic sectors (in both nations). Through an inter-industry analysis, this paper provides an overview of the Canada-China trade-in labor-intensive products. This analysis covers three sectors – consumer products, light industrial products, and the processing industry.
Consumer Products
Consumer products are goods produced for the end-consumer. Since 2002, Canada has increased its import volumes for these products from China. For example, its demand for consumer goods increased by about 57% from 2002 to 2006 (Wyman 6). The value of consumer goods imported to Canada in 2006 was about $12 billion. This figure accounted for about 34% of Canadian imports. Clothing accounted for most of these imports. In fact, Wyman (6) says it accounted for about $3.5 billion worth of consumer goods imported to the country. Compared to 2002 figures, Canada doubled its import value of the same product. Estimates from 2007 show that the volume of imports increased by about 22% (Wyman 6). Today, about 50% of all clothing imports to Canada come from China (Wyman 6).
The one-sided flow of consumer goods from China to Canada highlights China’s competence in producing cheap consumer goods in the international market. This advantage allows many countries to source such products cheaply. For example, Canada imports about 60% of its toys and sports equipment from China (Wyman 6). Experts say in 2006, the total value of these imports was $1 billion (Wyman 6).
Today, this value has tripled. Besides toys and sports equipment, Canada also imports about 5.8% of its furniture and fittings from the Asian country (Asia Pacific Foundation of Canada 2). Relative to these figures, CBC (3) says that Canada imports about $1.7 billion worth of household consumer goods from China, monthly. Similarly, about 3.4% of its motor vehicles, tractors, bicycles, and motorcycles also come from the same market (Asia Pacific Foundation of Canada 2). Although China exports finished goods to Canada, it also supplies some raw materials to the Canadian manufacturing industry. For example, it supplies rare earth metals, plastics, and rubber, to Canadian manufacturing firms. Canada uses these materials to manufacture consumer products for its domestic consumption.
Light Industrial Products
China and Canada have different complementary production facilities for manufacturing light industrial products, such as textiles and electronics. As shown above, most of the Chinese exports to Canada are finished products. Comparatively, most of the Canadian exports to China are raw materials for the manufacturing industry. CBC (3) says Canada exports about $4 billion worth of raw materials (metals and minerals) to the Asian economy. According to the diagram below, this value accounts for about 25% of all its exports to China.
The pie chart above also shows that the main export commodity for Canada’s light industry is wood and paper products. These exports account for about 26.5% of Canada’s exports (Economic Partnership Working Group 14). CBC (3) says their value is $1.4 billion (CBC 3). However, like consumer goods, Canada imports more industrial products from China than what it exports to the communist nation. For example, Wyman (6) says Canada imported about $16 billion worth of electronic goods from China between 2002 and 2006. This figure has since increased because there has been a sharp increase in Canada’s demand for “mp3s, laptops, printers, video games, digital cameras, small and large appliances, and LCD and plasma monitors” (Wyman 6) from China.
Processing Industry
Similar to consumer goods and light industrial products, Canada and China share an unbalanced trade relationship in the processing industry as well. However, the food processing industry is the main sub-sector that experiences high volumes of trade between both countries. The biggest food exports to China include wood pulp, seeds, and nickel (CCBC 1). If we expand our analysis to include the wider processing industry, we can see that canola seed and iron ore products are the fastest-growing exports from Canada. Most of these exports are land-intensive. They are worth about $561 million (CCBC, 1).
Comparatively, China’s major exports to Canada are labor-intensive products. The most valuable exports are “apple juice, mandarin oranges, peanuts, sugar confectionery, prepared shrimps and prawns, pasta and preserved mushrooms” (CCBC 1). Based on the nature of trade between Canada and China, the latter has become the second-biggest export market for Canadian food products (Ligaya 6). In 2012, Canada exported about $4.96 billion worth of processed food to the Asian market. This figure marked a significant increase in Canada’s food export value because, in 2008, the country exported about $1.6 billion of the same products to China (Ligaya 6).
Although Canada has increased its value of exports to the communist nation, China’s large population has given it a market edge over Canada in the processing industry. In fact, experts say, in 2015, China would be among the world’s biggest importer of food products. This competency gives it a lot of bargaining power over Canada. Although the North American nation is disadvantaged in this regard, experts say its exports to China generate about $1.6 billion in trade surpluses (CCBC 1).
Potential for Growth
Technological Sharing
This paper already shows that Canada has an unfavorable balance of trade with China. Although the Asian economy has many competencies that dominate its trade with Canada, several opportunities for growth could better this relationship. For example, both countries could share technological knowledge and improve their production processes in the three industries described in this paper (Economic Partnership Working Group 11). This exchange could improve the manufacturing competencies of both countries and create third-market opportunities for increased sales.
Market Expansion
There are many opportunities for Canada to improve its trade balance with China. One opportunity is market expansion. However, this opportunity is only viable in the food-processing sector. For example, Ligaya (4) says there is a huge potential for increased exports of Canadian seafood to China. He says so because he projects rising demand for Canadian seafood in China because of the rising income levels in the communist society and its huge population. Moreover, Chinese people eat more seafood than any other nation in the world. For example, Ligaya (4) says Chinese consumers eat about 32 kilograms per person, while the global average seafood consumption per person is about 18 kilograms. Canada could position itself to exploit this demand.
Value Addition
There is a huge potential to increase the value of Canada’s light industry products through value addition. China and Canada could benefit from this opportunity by sharing their production expertise. For example, China could benefit from Canada’s advanced engineering technology in the textile production by including it in its production processes. Canada could also benefit from the same exchange model by allowing Chinese textile industries to build new plants in areas that Canadian firms do not reach. This way, both countries could easily share their production competencies for the benefit of both markets.
Summary
Based on the findings of this paper, we can see that the nature of trade between Canada and China reinforces the idea that China is the “world’s factory.” Canada mainly imports finished products from the Asian economy, while it supplies raw materials to it. Based on this analysis, this paper shows that Canada has an unfavorable trade balance with China because it imports about three times the value of goods that it exports to the communist nation. This relationship resembles the nature of international trade between developing and developed nations. However, this is not the case for both countries. Nonetheless, to change this situation, Canada needs to improve its trade balance with China through technological sharing, market expansion, and value addition, as explained in this paper.
Works Cited
Asia Pacific Foundation of Canada. Canada’s Merchandise Trade with China. 2014. Web.
CBC. What does Canada trade with China?. 2012. Web.
CCBC. Agricultural, Food & Beverages. 2014. Web.
Economic Partnership Working Group. Canada-China Economic Complementarities Study. 2012. Web.
Evans, Paul. Engaging China: Myth, Aspiration, and Strategy in Canadian Policy from Trudeau to Harper, Toronto, CA: University of Toronto Press, 2014. Print.
Ligaya, Armina. A Gastronomic Transition’: China’s Growing Hunger For Canada’s Food. 2013. Web.
Wyman, Diana. Trading With A Giant: An Update On Canada-China Trade. 2007. Web.