27 June 2016

Shared values support Canada-U.S. trade corridors

Companies that want to grow should take advantage of the economic power and networks these corridors provide

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The ties that bind Canada and the United States are as strong as those between any two nations on earth. Shared values and mutual respect are the pillars of the solid alliance, but it's the trade relationship between the two countries that keeps them standing.

As with cross-border tourism, trade between the two countries has typically flowed North-South and vice versa. Two prominent corridors are the Great Lakes region in the east, and the Pacific Northwest's so-called Cascadia region. For Canadian businesses seeking growth south of the border, it pays to understand the foundations and market dynamics of these and other U.S.-Canada trading blocks and their global impacts.

Trade corridors linking Canada and the U.S. along the entire length of the 8,900km common border facilitate goods and services worth more than USD2.4-billion (U.S.)1 crossing the border every day. Underpinned by the Canada-U.S. Free Trade Agreement in 1989 and then by the North American Free Trade Agreement (NAFTA), which superseded it in 1994, that trade has more than tripled in little over 25 years to almost USD880-billion (U.S.) in 20152 annually, according to the Canadian government.

Canadian exports to the U.S. now support one in seven jobs in Canada3 and about nine million jobs4 in the U.S. are dependent on trade between the two countries. Canadian exports to the U.S. were about USD450 billion in 2015, representing more than 72 per cent of all Canadian exports5, and is the top export destination for 35 American states6.

The two countries trade goods and services in a wide-range of sectors, including oil and gas, automotive and manufacturing, health care and technology.

Leaders of Canada and the U.S. recently refocused their cross-border partnership and are looking at new initiatives to help increase productivity including border trade facilitation, strengthening supply chain benefits, innovation, and cyber security.

These initiatives will further support an already strong investment climate between the two countries. U.S. Foreign Direct Investment (FDI) in Canada increased by more than 40 per cent over the past decade to USD360 billion, accounting for almost 50 per cent of FDI in Canada in 20147. Europe was the second most popular investment destination for Canadian direct investors in 2014, rising by just under 1 per cent to USD191.5 billion8.

The U.S. is the leading destination for Canadian foreign direct investment, totalling about USD350-billion in 20149. Last year, U.S. direct investors increased their holdings in Canada by USD19.5-billion, to USD361.4-billion10 which accounts for almost half of all direct investment in the country, according to Statistics Canada.

All these factors present a major opportunity for Canadian companies to sell into the much-larger U.S. market, with a population of 323 million11 compared to 35 million in Canada12.

Canada-U.S. trade is supported by two major regional corridors: The Great Lakes-St Lawrence, which includes the Great Lakes states as well as Ontario and Quebec; and the Pacific Northwest, which includes California, Oregon, Washington and British Columbia.

Canadian companies that want to grow in the U.S. should take advantage of the economic power and networks these corridors provide, to help them successfully sell their goods and services into the world's largest economy.

"We view the U.S. as the global platform to sell to the world," says Robert Pelletier, chief representative, United States, International Business Development Group, Export Development Canada.

He recommends companies find a buyer in the U.S. that has a global sales piece. The advantage: "It's a more natural trade flow," he says.

Pelletier says trade between the two countries is buoyed in part by the lower Canadian dollar, which makes the country's goods and services more attractive to companies and individuals south of the border.

While there are still challenges to cross-border trade, including regulatory hurdles, tax implications and the ability to hire skilled workers across the respective borders, Pelletier believes the trend is towards more ease of goods and services flow amid the growing trend of globalization.

The Great Lakes-St Lawrence corridor

The Great Lakes states and the Canadian provinces of Quebec and Ontario are a major driver of North American economic output, accounting for about one third of both employment and trade, according to Mark Fisher, President and CEO of the Council of the Great Lakes Region.

The region's economic output was estimated at about USD5.8-trillion (U.S.) in 201513. If the region were a country, it would rank as the third largest economy in the world behind the U.S. and China.

"It's a huge economic engine for both countries," says Fisher.

The largest sector is manufacturing, including automotive and aerospace, as well as the hundreds of suppliers that support these industries with a broad range of goods and services.

Beyond manufacturing, Fisher says the region is seeing a boost in other sectors such as information technology, financial services, clean technology, hospitality and tourism and both educational and health services.

"The services sector is definitely increasing its role and its presence in the regional economy," he adds.

Many of these emerging sectors are being supported by a growing knowledge base in the region, according to Fisher who says about 70 per cent of Canadian research and development (R&D) spending happens in Ontario and Quebec, while 25 per cent of America's R&D spending occurs in the Great Lakes states.

Cross-border challenges include updating and boosting critical infrastructure to help support the flow of goods across the region, finding skilled workers to help boost productivity over the long term, and addressing unemployment in the areas, especially among youth.

There's also the issue of regulatory hurdles and increased border security and protectionism, which is making the border less permeable.

The Canada-U.S. Beyond the Border Action Plan, released in 2011, is intended to help improve legitimate trade between the two countries.

"Beyond the Border is crucial for us in looking at how we develop a smart border for the 21st Century," says Fisher. "We want to make it as seamless as possible to move products and people across that border."

Pacific Northwest

The Pacific Northwest, which includes Alaska, British Columbia, California, Oregon and Washington, has a combined GDP of more than USD3-trillion (U.S)14. Bilateral trade in the region totals more than USD71.6-billion annually, including Washington, Oregon and California15. About 98,100 jobs in Orego16 depend on trade and investment with Canada, 223,300 in Washington17 and nearly 1.2 million in California18.

Trade across the Pacific Northwest is focussed largely on resources, including mining, oil and gas and forestry, as well as agriculture and manufacturing, in particular aerospace, a major industry in Washington state.

The region also includes tech-focused Silicon Valley as well as the movie production capitals of Hollywood in California and B.C.'s "Hollywood North."

"It's important for people in the U.S. to understand the immensity of the U.S.-Canada relationship, being the largest in the world. The amount of goods and services that cross the border in a day is nearly USD2 billion," says Matt Morrison, Executive Director, of the Pacific NorthWest Economic Region (PNWER), a public-private non-profit that includes Alaska, Idaho, Oregon, Montana and Washington, as well as B.C., Alberta, Saskatchewan, Yukon and Northwest Territories.

It's a message his organization is trying to get across in the lead up to the discussions around the Trans-Pacific Partnership (TPP), a proposed trade agreement among 12 Pacific Rim countries including Canada and the U.S. The agreement as a whole is aimed at promoting economic growth, innovation and job creation, and includes measures such as lower trade barriers.

The Pacific Northwest states are particularly interested in the success of the TPP given their proximity to Asia, a key international market for a broad range of sectors.

Challenges for the Pacific Northwest are similar to those in the Great Lakes-St. Lawrence region, including making the border less of a barrier for people and businesses, which Morrison describes as a "constant struggle."

While resources will always be a key sector for the region given its geography, Morrison says technology, in particular clean tech, is helping to reshape its economic reputation.

The clean-tech sector also touches a number of industries from resources and agriculture to manufacturing and automotive.

Morrison says his organization is working with governments in both Canada and the U.S. to develop cross-border strategies to collaborate on clean energy products.

"We want to work together to build solutions for climate change and high-tech opportunities for clean energy," he says. "We feel there's a great deal of potential in the region to build solutions that not only work for us, but can be exported around the world."

Global Competitive Advantage

While more can, and is, being done to improve trade between Canada and the U.S., the countries will likely always remain each other's most important allies and strongest trading partners.

This is a competitive advantage for companies on both sides of the border. Nevertheless, crossing into new markets isn't a guaranteed path to success for any business.

In its report, Selling to the World: The Keys to International Business Success, the Conference Board of Canada says companies need to turn their unique resources into a Global Competitive Advantage (GCA). In other words, create value through differentiation. The report, commissioned by HSBC, says a firm's GCA is supported by four core resources: skilled executives, market knowledge, innovation capabilities, and international networks.

"The most important relationships for a company's international success vary from one organization to another, depending on its size and its industry segment," the report states. "But as we have seen from the experience of globally successful companies, relationships with existing customers, foreign distributors, government contacts, and professional service firms can all be crucial to a firm's international expansion."

For Canadian companies looking to export, many of these relationships can be found by working not only at home, but also with trade partners fostered over decades, like their neighbours to the south. The same can be said for U.S. businesses looking to boost their brand north of the 49th parallel.

To read the full report of Selling to the World: The Keys to International Business Success, please click here.

If you would like to learn more about how HSBC can help you expand internationally, talk to one of our Relationship Manager today.

  1. PMO March 2016 http://pm.gc.ca/eng/news/2016/03/10/fact-sheet-canada-united-states-neighbours-partners-allies
  2. PMO March 2016 http://pm.gc.ca/eng/news/2016/03/10/fact-sheet-canada-united-states-neighbours-partners-allies
  3. Government of Canada Border Action Plan (June 2013) http://www.cic.gc.ca/english/resources/publications/cross-border.asp
  4. Government of Canada January 2016 http://www.can-am.gc.ca/relations/commercial_relations_commerciales.aspx?lang=eng
  5. PMO March 2016 http://pm.gc.ca/eng/news/2016/03/10/fact-sheet-canada-united-states-neighbours-partners-allies
  6. Government of Canada January 2016 http://www.can-am.gc.ca/relations/commercial_relations_commerciales.aspx?lang=eng
  7. PMO (March 2016) http://pm.gc.ca/eng/news/2016/03/10/fact-sheet-canada-united-states-neighbours-partners-allies
  8. http://www.statcan.gc.ca/daily-quotidien/150424/dq150424a-eng.htm
  9. Government of Canada January 2016 http://www.can-am.gc.ca/relations/commercial_relations_commerciales.aspx?lang=eng
  10. Statistic Canada http://www.statcan.gc.ca/daily-quotidien/150424/dq150424a-eng.htm
  11. US Census Bureau https://www.census.gov/popclock/
  12. Statistics Canada http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/demo02a-eng.htm
  13. Council of the Great Lakes Region report July 2015 https://councilgreatlakesregion.org/new-era-of-cooperation-between-great-lakes-and-st-lawrence-governors-and-premiers-welcomed/
  14. Pacific Coast Collaborative http://www.pacificcoastcollaborative.org/Pages/Welcome.aspx
  15. Government of Canada http://can-am.gc.ca/business-affaires/fact_sheets-fiches_documentaires/index.aspx?lang=eng
  16. http://can-am.gc.ca/business-affaires/fact_sheets-fiches_documentaires/or.aspx?lang=eng
  17. http://can-am.gc.ca/business-affaires/fact_sheets-fiches_documentaires/wa.aspx?lang=eng
  18. http://can-am.gc.ca/business-affaires/fact_sheets-fiches_documentaires/cas.aspx?lang=eng

Canadian companies that want to grow in the U.S. should take advantage of the economic power and networks these corridors provide, to help them successfully sell their goods and services into the world’s largest economy.


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