Jim Stanford, writing in the Globe and Mail (Canada's curious de-globalization, April 9, 2007, page A13) argued the other day that Canada has been de-globalizing rapidly.  He argues that since 2000, the share of exports in Canada's GDP has declined from 45.6% to 36.5%.  The share of exports is not a sufficient statistic or even the right metric to measure Canada's globalizing trends.

If we were to use Jim's yardstick for globalization, America's economy should have de-globalized by now because exports account for merely 11% of America's GDP.  Contrary to what Jim has argued, Canada's economy has been rapidly globalizing in the recent past.  The goods and services we consume in Canada travel for much greater distances today than they ever did before. 

Our trade with the rest of the world has been increasing significantly. We are buying Christmas decorations from countries that do not even celebrate Christmas!   In 2002, China became Canada’s third largest national trading partner after the United States and Japan.  Canada's merchandise exports to Germany, Korea and the Netherlands experienced a double-digit annual increase in 2005. These are signs of a globalizing economy, and not the other way around. 

 Here is what Jim had to say in the Globe.

Canada's curious de-globalization

Everyone knows globalization is an irresistible worldwide process enveloping every economy, including Canada's, in its market-driven tentacles. Right?

Wrong.

In fact, since 2000, Canada's economy has been curiously de-globalizing before our eyes. The importance of global markets to our employment and production has been diminishing, not increasing — and at a remarkable pace. Year-end GDP numbers for 2006, recently released by Statistics Canada, confirm this surprising trend.

In 2000, Canada's total exports were equivalent to 45.6 per cent of our GDP. That was the highest share ever, and reflected the effect of globalization on our economic orientation. After then, however, globalization began to unwind for us, and the export share began to fall. By 2006, it had shrunk to just 36.5 per cent of GDP.

This occurred despite a historic expansion in Canada's energy exports (especially oil, and especially to the United States), which almost doubled in the same time. Non-energy exports, therefore, fell even faster: from 40 per cent of GDP in 2000, to 30 per cent last year.

In other words, an amount of output equivalent to one-10th of our entire economy has been redirected away from global markets (and toward our home market) in just six years.

This decline in the importance of international trade is utterly unprecedented in Canada's postwar economic history. Incredibly, Canada's economy (excluding energy) is now less dependent on exports than it was in 1994, when the North American free-trade agreement was signed. Exports are now falling in economic importance more quickly than they expanded in the early years of continental free trade.

A word of caution is required here, because this measure — exports as a share of GDP — is somewhat misleading. It includes the value of imported commodities (such as auto parts) that are then processed and re-exported in another form (such as finished vehicles).

In reality, Canada's actual production is less dependent on exports than this imperfect measure implies. But until we get a more accurate measure of trade flows, this one will have to do. And it captures the trend in globalization, if not its precise level.

A few more statistics round out our understanding of this curious economic about-face. Exports of services have declined proportionately as much as exports of merchandise. About half the decline in the importance of exports since 2000 reflects falling relative prices for our exports (again, despite rising energy prices), and half is due to declining real trade. Imports have declined, too, but only two-thirds as much as exports.

The tribulations of Canada's auto industry (which once accounted for a quarter of total exports) are key to this story. Flagging auto sales account for much of the decline in our total exports since 2000.

Why has the engine of globalization been suddenly thrown into reverse? Most of the decline in trade has occurred since 2002 when our loonie first took off — fuelled by rising commodity prices, and ratified by the Bank of Canada's what-me-worry attitude. This undermined Canadian exports dramatically. Developments in the U.S. market, which absorbs most of our exports, have also hurt — especially China's growing share of that market.

On the whole, this de-globalization is a negative development. Canada is reallocating labour and other resources away from export industries (which are highly productive, and pay wages 25 per cent above the rest of the economy) to purely domestic sectors, many of which (like fast food, retail, and personal services) feature dead-end jobs and lousy productivity. Indeed, this de-globalization is a key reason for Canada's abysmal productivity performance this decade, despite all the business-friendly policies we've implemented in the name of efficiency.

And if we are concerned with boosting exports (as we should be), then it's abundantly clear that free-trade agreements are not the way to do it. Countries such as China and South Korea export successfully on the basis of proactive policy strategies, not free trade. These numbers prove that Canada needs to learn that lesson, too.

On the other hand, there may be a silver lining to Canada's surprising de-globalization. We are now less dependent on the vagaries of world trade than in many years. The flip side of this coin is that we're increasingly masters of our own economic destiny. The standard argument of the tax-cutters and downsizers —namely, “globalization made me do it” — rings more hollow with every downtick in our actual trade.

Jim Stanford is an economist with the Canadian Auto Workers union.