Most of our GDP Never Crosses a Border

U.S President Donald Trump’s unilateral tariffs have caused unprecedented disruption around the global economy, including Canada. He has claimed Canada is “not viable” as a country without exporting to the U.S., and hence we will have no choice but to accede to his demands. This is false. Canada is the 10^th largest economy in the world, with enormous human and natural resources. And most of what our economy produces—close to 80%—never crosses a national border. Rather, it is produced in Canada, by Canadians, for Canadians. In fact, the economy is not as ‘globalized’ as is often assumed. To be sure, Trump’s trade war will cause enormous disruption. But Canadians should feel confident in out country’s ability to survive, and ultimately thrive, even as we shift our orientation away from reliance on exports to the U.S. market.

In this commentary, originally published in the Toronto Star, Centre for Future Work Director Jim Stanford explains why Canada’s economy is not so global after all. For a video discussing similar themes, please see our most recent Debunkers Academy video, “Not so Global.”

Not So Global

Canada’s economy has been thrown into jeopardy by Donald Trump. Last week he announced a 25% tariff on car imports, after 25% tariffs on steel and aluminum two weeks earlier. We are already losing jobs and investments.

The next blow will be Wednesday, when he’s scheduled to impose “reciprocal tariffs” on all countries which collect tariffs on imports from the U.S.

Logically Canada should be spared from that, since almost all our U.S. purchases are already tariff-free—but that won’t stop Trump. Bizarrely, he says policies like our GST and digital services tax are grounds for retaliation—even though they apply evenly to all products, wherever they’re made. Alas, we’ve learned by now that Trump’s concocted grievances have no relation to reality.

Canadians rightly fear what comes next. After 35 years of free trade with America, all our export industries are very dependent on U.S. customers: minerals, forestry, energy, agriculture, manufacturing.

Trump claims Canada is “not viable as a country,” and says he’ll use “economic force” to ultimately annex us. So our alarm is justified.

However, while disruptions in U.S.-bound exports will cause major pain and a recession, it won’t spell the end of Canada’s economy. And we will certainly survive as a country. Indeed, in important ways, we are actually less reliant on foreign trade than commonly assumed.

Almost 80% of what we produce never crosses a border. It’s produced in Canada, by Canadians, for Canadians.

Sure, more than half our minerals and manufactures go to other countries, mostly the U.S. About a quarter of our agricultural output is exported, too.

But what about the rest of the economy? In other sectors, exports are much less important. In transportation and trade, exports (largely bought by tourists) make up 15% of output.

In business and private services (including banking, technology, and management services), it’s under 10%. Just 5% of utilities output is exported—mostly electricity, which we can always use at home.

In the broader public sector (including education and health care), just 2% is exported. And the booming construction industry exports virtually nothing.

These are huge segments of Canada’s economy. They employ the vast majority of Canadian workers—producing goods and services in Canada, for Canadians. These are industries Donald Trump can’t reach.

Counter-intuitively, exports have been shrinking in importance since the turn of the century. In the 1990s exports surged, after the initial Canada-U.S. free trade agreement (in 1989) and the subsequent NAFTA (in 1994). The gross value of exports (more on what this means below) reached a peak of 45% of Canadian GDP by 2000.

That export-reliance then began to unwind, however, for various reasons. Services make up a growing share of the economy, and most services are not traded internationally. Meanwhile, Canada’s manufacturing sector (highly export-dependent) contracted painfully in the 2000s, driven down by both trade pressures and a then-overvalued currency.

By 2010, the share of our economy represented by gross exports had fallen back to 30% of GDP, where it has languished since.

Moreover, that measure of gross exports is misleading. Almost one-third of the value of our exports consists of inputs, materials, and parts imported from other countries.

If we adjust for import content built into those exports, and instead measure the true domestic value-added of our exports, their relative importance shrinks further. Net (or value-added) exports constitute a bit more than 20% of GDP. The rest, almost 80%, is produced here. And stays here.

Expanding that huge non-traded portion of our economy will be essential to successfully rebuffing Trump. Boosting Canadian investments in infrastructure, housing, public services, and domestic trade will help.

Without doubt, our export industries are critical. We must do everything possible to protect them: finding new markets in other countries, new customers at home, and (hopefully) one day negotiating an end to this madness with our former ally.

But Trump’s claim Canada can’t survive without the U.S. is utterly false. We’re the tenth largest economy in the world. We have 40 million people: workers, consumers, citizens. We survived without depending on the U.S. in the past, and we will again.

Thinking global is important. But it isn’t everything. And if you get too obsessed with the global, you can miss what’s right here in front of us.