Exports to non-U.S. nations jumped to 15.6%

Key Concepts

• Multinodal Trade Assemblage: A future trade landscape characterized by distinct nodes – US, China, and a “Plurilateralist” group (EU, UK, CPTPP members) – with trade flowing between them.
• Plurilateralists: Nations prioritizing trade diversification through rules-based systems, including Canada, EU, UK, South Korea, and CPTPP members.
• Bricks Plus: An emerging trade bloc encompassing Brazil, Russia, India, China, and South Africa, plus other nations, representing a significant portion of global trade independent of US influence.
• Kusma (USMCA) Talks: Ongoing negotiations regarding the future of the Canada-US-Mexico Agreement, potentially leading to overhaul, complete agreement, or no agreement at all.
• Trade Diversification: Canada’s strategic shift to reduce reliance on the US market and expand trade relationships with other nations.
• Supply Chain Resilience: Strengthening and diversifying supply chains to mitigate geopolitical risks and ensure stable access to goods and resources.

Canada’s Trade Landscape: Navigating Kusma and Diversification Efforts

The interview with Mark Shelbear, Managing Director at BCG Center for Geopolitics, centers on the evolving global trade landscape and its implications for Canada, particularly concerning the upcoming Kusma talks and the country’s efforts to diversify its trade relationships. Recent data from Statistics Canada reveals that Canada’s exports to the US in October were at their lowest level since 1997, signaling a potential shift in trade dynamics.

The Emerging Multinodal Trade System

Shelbear outlines a future trade system characterized by a “multinodal assemblage” comprised of three key nodes: the US, China, and a group he terms “Plurilateralists.” The Plurilateralists – including the EU, UK, South Korea, and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – are actively seeking to diversify trade away from the US, prioritizing “rules of law” and “normal trading norms.” A third node, “Bricks Plus” (Brazil, Russia, India, China, South Africa and others) represents a significant portion of global trade largely unaffected by US-Canada dynamics.

Kusma Negotiations: Multiple Scenarios

The future of Kusma is uncertain, with Shelbear identifying three potential outcomes: no agreement, a complete overhaul of the existing agreement, or minor adjustments. He notes that the US side has indicated a desire for a “refresh” or “overhaul” of the agreement. The possibility of separate agreements – one with Mexico and the US, and another with Canada and the US – is also considered, given differing demands and expectations. He emphasizes that the current situation is fluid, with the outcome remaining unknown. “Knowing that [an agreement] may not land, Canada is trying to build out trading relationships with other nations.”

Diversification Beyond the US: Feasibility and Opportunities

Shelbear addresses the question of whether Canada can effectively reposition its trade focus away from the US towards the Plurilateralist and Bricks Plus nodes. While acknowledging the challenges, he asserts that diversification is feasible, citing recent trade data from Stats Canada as evidence. He points out that approximately 60% of global trade is not directly or indirectly affected by the US, presenting a significant opportunity for Canada. However, he stresses the need for investment in “pipelines and infrastructure” to facilitate this shift.

Growth Forecasts and Comparative Trade Dynamics

BCG’s 10-year trade forecast projects slower growth for US trade (1%) compared to China (2%) and the Plurilateralists (3%). This disparity is attributed to China’s increasing trade with the Global South and the Plurilateralists’ commitment to diversification. Despite these shifts, global trade is still projected to grow at approximately 2.5%, exceeding GDP growth. Shelbear emphasizes that Canada, as a trading nation, stands to benefit from this overall growth.

Canada’s Competitive Advantages

When asked what Canada offers to potential trading partners, Shelbear highlights the country’s “stability,” commitment to “rules-based trade,” and guarantee of “supply chain” reliability. He believes Canada is not “late to the game” in pursuing international trade, but rather that it’s time to act decisively and accelerate these efforts. He notes the importance of cost productivity in the new world order.

Early Signals of Change and Geopolitical Integration

Shelbear acknowledges early signals of a shift in Canada’s trade strategy, citing the recent election and the appointment of Mark Carney. He observes that Canadian leaders are increasingly integrating geopolitical considerations into capital and strategic decision-making, focusing on enhancing supply chain resilience – both for themselves and as a preferred supplier to others. “Leaders are acting on this and I think they’ve come to the table ready to ready to move.”

Conclusion

The interview underscores a critical juncture for Canada’s trade policy. The declining exports to the US, coupled with the uncertain future of Kusma, necessitate a proactive and strategic approach to trade diversification. Canada’s strengths – stability, adherence to rules-based trade, and supply chain reliability – position it favorably to capitalize on opportunities within the Plurilateralist and Bricks Plus nodes. However, realizing this potential requires swift action, investment in infrastructure, and a commitment to cost productivity. The key takeaway is that Canada is actively converging towards a more diversified trade strategy, recognizing the need to adapt to a rapidly evolving global economic landscape.