W hat a difference a decade makes. Who would have predicted 10 years ago that the main thing shielding the once invincible American greenback from apocalyptic collapse of confidence would be China’s weekly purchases of US Treasury bills?
After centuries of European and American dominance, a new world order is upon us. Stephen Green, chairman of London-based global banking giant HSBC, describes this as a global trade triangle with Asian “workshop” countries forming one side, Western consumers a second, and international resource producers the third.
Trade moves around the triangle with consumers in the West buying goods manufactured in Asia using raw materials and fuel from resource producers.
While the foreign exchange reserves of Asian workshop countries and resource producers have flourished under this arrangement, the West has paid for its shopping spree and energy dependency by going deeper and deeper in debt.
In 2008, the US, together with Spain, Britain, France, Italy, Australia, Greece and Portugal, registered a total current account deficit of US$1.3 trillion. Meanwhile, China and the oil exporting countries registered a combined current account surplus of $1.2-trillion. No wonder economists were wringing their hands over what they term “unsustainable global imbalances.”
Then things got even worse for the West. The financial crisis triggered unprecedented deficit spending, adding borrowing to finance huge domestic fiscal imbalances to already enormous international trade imbalances. The US can’t spend its way to financial solvency and, having only one side of the global economic triangle, must continue to import a large portion of its resource needs. Debt-loaded, demographically shrinking European countries face immediate slashing of social programs and a long-term secular decline in living standards.
Now the good news. Canada is positioned to be an exception to this bleak picture. We have the smallest national debt of any G8 country. Our economy weathered the recession better than others and is currently leading in job growth. But most importantly, Canada possesses two sides of the global economic triangle. We are a consumer of goods from workshop countries and we are also a supplier of resources to them. That’s the primary reason Canada is the only G8 country to consistently achieve current account surpluses.
Driving our trade surplus
In 2009, our resource industries supplied more than half of Canada’s export revenue. In addition to driving our international trade surplus and contributing to federal and provincial tax coffers, resource sector employment is a mainstay across the country.