7 Reasons Why Canada’s Main Imports Matter for Its Economy

Canada is one of the world’s largest economies, with a gross domestic product (GDP) of over 2 trillion US dollars in 2022. It is also a major trading nation, importing and exporting goods and services worth hundreds of billions of dollars every year. But what are Canada’s main imports, and why do they matter for its economy? Here are seven reasons to pay attention to Canada’s import trends and patterns.

1. Imports provide essential inputs for domestic production and consumption.

Canada imports a variety of goods that are used as inputs for its domestic industries, such as machinery, vehicles, electrical equipment, mineral fuels, plastics, and pharmaceuticals. These imports help Canadian businesses produce goods and services more efficiently and competitively, as well as meet the demand of consumers for high-quality and diverse products. For example, Canada imported over 80 billion US dollars worth of machinery in 2022, which accounted for 14.1% of its total imports. This machinery was used by various sectors of the Canadian economy, such as manufacturing, construction, agriculture, mining, and services.

2. Imports reflect Canada’s comparative advantage and specialization in the global market.

Canada imports goods that it cannot produce domestically or that are cheaper or better quality than its own products. This allows Canada to focus on its comparative advantage and specialization in the global market, which are based on its natural resources, human capital, technology, and innovation. For example, Canada imported over 44 billion US dollars worth of mineral fuels in 2022, which represented 7.9% of its total imports. This was mainly because Canada does not have enough domestic oil production to meet its domestic and export demand, and because it benefits from lower oil prices in the international market.

3. Imports enhance Canada’s economic growth and development.

Canada imports goods that contribute to its economic growth and development, such as capital goods, intermediate goods, consumer goods, and technology. These imports increase Canada’s productive capacity, improve its productivity and efficiency, expand its consumer choice and welfare, and foster its innovation and competitiveness. For example, Canada imported over 20 billion US dollars’ worth of pharmaceuticals in 2022, which accounted for 3.5% of its total imports. These pharmaceuticals improved the health and well-being of Canadians, as well as supported the research and development activities of the Canadian pharmaceutical industry.

4. Imports support Canada’s trade diversification and integration.

Canada imports goods from a variety of countries and regions around the world, which reflects its trade diversification and integration. This helps Canada reduce its dependence on any single market or supplier, increase its access to new markets and opportunities, and enhance its economic resilience and stability. For example, Canada imported goods from over 200 countries and territories in 2022, with its top five import partners being the United States (35.6% of total imports), China (7.5%), Mexico (5.2%), Germany (5.1%), and Japan (4%).

5. Imports influence Canada’s trade balance and current account.

Canada imports goods that affect its trade balance and current account, which are important indicators of its economic performance and position in the global economy. A trade balance is the difference between the value of a country’s exports and imports of goods and services, while a current account is the sum of the trade balance, net income from abroad, and net transfers from abroad. A positive trade balance or current account means that a country earns more than it spends from its international transactions, while a negative trade balance or current account means the opposite. For example, Canada had a negative trade balance of 5.22 billion Canadian dollars in May 2023, which was mainly due to its large imports of cars, motor vehicles parts and accessories, delivery trucks, commodities not elsewhere specified, and crude petroleum.

6. Imports affect Canada’s exchange rate and inflation.

Canada imports goods that influence its exchange rate and inflation, which are key macroeconomic variables that affect its economic activity and stability. An exchange rate is the price of one currency in terms of another currency, while inflation is the rate at which the prices of goods and services increase over time. A higher demand for imports means a higher demand for foreign currencies to pay for them, which tends to depreciate the domestic currency and make imports more expensive. A higher supply of imports means a higher supply of foreign goods and services in the domestic market, which tends to lower the domestic prices and inflation. For example, Canada’s exchange rate against the US dollar weakened by -0.5% from 2018 to 2022, while its inflation rate was 3% in June 2023.

7. Imports shape Canada’s foreign relations and diplomacy.

Canada imports goods that shape its foreign relations and diplomacy, which are essential for its national security and international cooperation. By importing goods from other countries, Canada establishes and maintains trade and economic ties, as well as political and cultural links, with its partners and allies. These relations help Canada advance its interests and values, resolve conflicts and disputes, address global challenges and opportunities, and promote peace and stability in the world. For example, Canada imported goods from the United States worth 355 billion US dollars in 2022, which reflected its close and longstanding partnership with its neighbor and ally on various issues, such as trade, security, energy, environment, and human rights.

Canada’s Main Imports: Trends and Implications

Canada is one of the world’s largest economies, with a gross domestic product (GDP) of over 2 trillion US dollars in 2022. As a highly developed and diversified country, Canada imports a wide range of goods and services from its trading partners, mainly to meet the needs and preferences of its consumers and businesses. In this blog post, we will examine some of the main imports of Canada, their trends over time, and their implications for the Canadian economy and society.

Machinery and Vehicles: The Top Two Import Categories

According to the World’s Top Exports website, the top two import categories of Canada in 2022 were machinery including computers, and vehicles. Together, they accounted for 28% of Canada’s total imports, worth 159 billion US dollars. These categories include items such as cars, trucks, parts and accessories, computers, laptops, smartphones, printers, scanners, engines, turbines, pumps, valves, refrigerators, washing machines, and many more.

The high demand for these products reflects Canada’s level of industrialization, urbanization, and digitalization. Machinery and vehicles are essential for various sectors of the Canadian economy, such as manufacturing, construction, transportation, communication, education, health care, and entertainment. They also enhance the productivity, efficiency, and quality of life of Canadians.

However, these imports also pose some challenges for Canada. First, they indicate a high dependence on foreign suppliers, especially from the United States (US), China, Mexico, Germany, and Japan. These countries accounted for 79% of Canada’s machinery imports and 82% of its vehicle imports in 2022. Any disruptions or conflicts in trade relations with these countries could affect the availability and prices of these products in Canada. Second, they imply a large trade deficit in these categories. Canada exported only 29 billion US dollars worth of cars and 1.6 billion US dollars worth of machinery in 2022, resulting in a negative trade balance of 49.2 billion US dollars in cars and 78.6 billion US dollars in machinery. This means that Canada spent more money on importing these products than it earned from exporting them.

Energy Products: A Declining Import Category

Another important import category of Canada is energy products, which include crude oil, refined petroleum products, natural gas, coal, electricity, and renewable energy sources. According to the Observatory of Economic Complexity website, Canada imported 44.8 billion US dollars worth of energy products in 2022, representing 7.9% of its total imports. This was a significant increase from 30.3 billion US dollars in 2021.

The main reason for this increase was the rise in global oil prices due to the recovery of demand after the COVID-19 pandemic and the supply constraints imposed by the Organization of the Petroleum Exporting Countries (OPEC) and its allies. Canada is a net exporter of crude oil but a net importer of refined petroleum products such as gasoline, diesel fuel, jet fuel, heating oil etc. Therefore, it benefited from higher oil prices on its exports but also faced higher costs on its imports.

However despite this increase in value terms energy products have been declining as a share of Canada’s total imports over time. In 2018 energy products accounted for 11% of Canada’s total imports while in 2022 they accounted for only 7.9%. This reflects Canada’s efforts to reduce its reliance on fossil fuels and to increase its use of renewable energy sources such as hydroelectricity wind solar biomass etc. According to Statistics Canada renewable energy sources accounted for 18% of Canada’s total primary energy supply in 2019 up from 16% in 2015.

Reducing energy imports has several benefits for Canada. First it improves its energy security by making it less vulnerable to external shocks or disruptions in energy markets. Second it reduces its greenhouse gas emissions by lowering its consumption of carbon-intensive fuels. Third it creates opportunities for innovation and growth in the domestic renewable energy sector which can generate jobs income and exports for Canada.

Other Major Import Categories

Besides machinery vehicles and energy products there are several other major import categories that are worth mentioning. These include:

Plastics and plastic articles: These products are widely used in various industries such as packaging construction agriculture health care etc. Canada imported 22.5 billion US dollars’ worth of these products in 2022 representing 4% of its total imports.
Pharmaceuticals: These products are essential for the health care system especially during the COVID-19 pandemic when there was a high demand for vaccines medicines and medical supplies. Canada imported 20 billion US dollars’ worth of these products in 2022 representing 3.5% of its total imports.
Gems and precious metals: These products include gold silver diamonds and other precious stones and metals. They are mainly used for jewelry investment and industrial purposes. Canada imported 19 billion US dollars worth of these products in 2022 representing 3.3% of its total imports.
Optical technical and medical apparatus: These products include items such as lenses cameras microscopes telescopes scanners x-ray machines etc. They are used for various scientific research educational and medical purposes. Canada imported 14.5 billion US dollars’ worth of these products in 2022 representing 2.6% of its total imports.

Canada is a major importer of goods and services from around the world. Its main imports reflect its economic and social needs and preferences as well as its trade relations with its partners. Some of its main imports such as machinery and vehicles indicate its level of development and modernization but also its dependence on foreign suppliers and its trade deficit in these categories. Some of its main imports such as energy products indicate its exposure to global market fluctuations but also its efforts to diversify its energy sources and reduce its environmental impact. Some of its main imports such as pharmaceuticals gems and optical apparatus indicate its demand for high-quality and high-value products that enhance its health wealth and knowledge.

References:

http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf

https://www.fcc-fac.ca/fcc/knowledge/ag-economist/trade-ranking-report-agriculture-e.pdf

http://www.oecd.org/eco/50543310.pdf

https://oec.world/en/profile/country/can/

https://tradingeconomics.com/canada/imports

https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2019009-eng.htm
https://www.worldstopexports.com/canadas-top-10-imports/
https://oec.world/en/profile/country/can/
https://tradingeconomics.com/canada/imports
https://tradingeconomics.com/canada/inflation-cpi