10 June 2018

Why Canada Needs a Strong U.S. Economy

To say the economy of Canada has significant dependency on the United States would be an understatement. This is evidenced by the fact that one-fourth of Canada’s GDP comes from its U.S.-bound exports. This dependence is even sharper when viewed in terms of Canada’s most lucrative and important export – petroleum oils. That’s because the U.S. is practically Canada’s only customer for this critical commodity. In fact, 99.1 percent of Canada’s crude oil exports went to the United States, according to Canada’s National Energy Board. At the same time, only 44 percent of U.S. oil imports comes from Canada.


This dependence would endanger the Canadian economy if:
the U.S. decided to import more its oil from other countries; or,
if it decided to increase domestic oil production.The U.S. is extremely unlikely to start importing oil from other countries at Canada’s expense.

However, a significant increase in U.S. shale oil production is very likely at some point.

If either of these two scenarios came to pass, Canada’s economy would suffer significant damage.

Another problem Canada faces is the price of oil.

The overall downturn of oil prices in recent years has had a significant negative impact on the Canadian economy.

Consider that, in terms of volume, Canada exported about as much oil in both 2015 and 2016 as it did in 2014.

Yet the value of its oil exports to the U.S. in 2016 was worth about half as much as in 2014.

In U.S. dollar terms, from 2014-2015 Canada’s GDP decreased in value by 13 percent because of low oil prices.

The bottom line is Canada’s economy is heavily dependent on exports to the U.S., particularly oil exports.

For that reason, Canada will continue to do everything it can to maintain its level of exports to the U.S. – NAFTA or no NAFTA.


No comments: