7 Reasons Why Canada Imports So Much

Canada is one of the world’s largest economies, with a gross domestic product (GDP) of $1.9 trillion in 2022. It is also one of the world’s largest importers, buying $567.4 billion worth of goods from foreign suppliers in 2022. That amounts to about 30% of its GDP, which is higher than the global average of 25%.

Why does Canada import so much? What are the main factors that drive its demand for foreign products? Here are seven possible reasons:

1. Geography:

Canada is a vast country with a diverse landscape and climate. It has 10 provinces and three territories, spanning from the Atlantic to the Pacific oceans and from the Arctic to the US border. It also has a population of 38.7 million people, which is relatively small compared to its land area. This means that Canada faces high transportation costs and logistical challenges to produce and distribute goods domestically. Importing goods from other countries can help reduce these costs and increase efficiency.

2. Trade agreements:

Canada is a member of several trade agreements that facilitate the flow of goods across borders. The most important one is the North American Free Trade Agreement (NAFTA), which creates a free trade zone between Canada, the US, and Mexico. The US is Canada’s largest trading partner, accounting for 35.6% of its imports and 60.8% of its exports in 2022. Other major trade agreements that Canada is part of include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), and the Canada-United Kingdom Trade Continuity Agreement (CUKTCA).

3. Natural resources:

Canada is rich in natural resources, such as oil, gas, minerals, metals, forests, and fisheries. It is the world’s fourth-largest exporter of crude petroleum, the third-largest exporter of natural gas, and the second-largest exporter of uranium. However, these resources are not evenly distributed across the country, and some regions have more than others. For example, Alberta produces most of the oil and gas, while Quebec produces most of the hydroelectricity. This creates regional imbalances and interprovincial trade barriers that limit the domestic supply and demand of certain goods. Importing goods from other countries can help balance these disparities and diversify the economy.

4. Consumer preferences:

Canada is a multicultural country with a high standard of living and a well-educated population. Canadians have diverse tastes and preferences for different products and services, which may not be met by domestic producers. For example, Canadians like to eat a variety of foods from different cuisines, such as Chinese, Indian, Italian, Mexican, etc. They also like to travel, shop online, watch movies, play video games, etc. These activities require importing goods from other countries that offer more choices and better quality.

5. Innovation:

Canada is a leader in innovation and technology, ranking 11th in the world according to the Global Innovation Index 2022. It has a strong research and development (R&D) sector, with many universities, institutes, laboratories, and companies engaged in scientific and technological activities. However, Canada also faces some challenges in commercializing its innovations and competing globally. For example, Canada has a low patent intensity, a high dependence on foreign direct investment (FDI), and a low share of high-tech exports. Importing goods from other countries can help Canada access new technologies, ideas, skills, and markets that can enhance its innovation performance.

6. COVID-19 pandemic:

The COVID-19 pandemic has disrupted global trade and caused significant economic and social impacts around the world. It has also affected Canada’s imports and exports in various ways. For example, Canada’s imports of medical supplies, such as masks, gloves, ventilators, vaccines, etc., increased significantly in 2020 and 2021 to cope with the health crisis. On the other hand, Canada’s imports of travel services, such as transportation, accommodation, entertainment, etc., decreased sharply due to travel restrictions and lockdowns. The pandemic has also highlighted the need for more resilient and diversified supply chains that can reduce dependence on single sources or markets.

7. Environmental issues:

Canada is committed to addressing environmental issues and reducing greenhouse gas (GHG) emissions that contribute to climate change. It has signed several international agreements on environmental protection and sustainability, such as the Paris Agreement, the Montreal Protocol, the Convention on Biological Diversity, etc. It has also implemented various policies and programs to promote green growth and clean energy transition at home. However, these efforts also have implications for Canada’s imports and exports. For example, Canada’s imports of renewable energy equipment, such as solar panels, wind turbines, batteries etc., increased in recent years to support its green transition. On the other hand, Canada’s exports of fossil fuels, such as oil, gas, and coal, may face lower demand and higher carbon taxes in the future.

Canada’s Top Imports: Trends and Implications

Canada is one of the world’s largest economies and trading nations, importing goods and services worth over $567 billion in 2022. This blog post will explore some of the trends and implications of Canada’s top imports, based on data from World’s Top Exports and OEC – The Observatory of Economic Complexity.

Machinery and Vehicles Dominate Canada’s Import Basket

The top two categories of imports for Canada are machinery including computers and vehicles, accounting for 14.1% and 13.9% of total imports respectively. These categories include items such as computers, optical readers, turbo-jets, cars, delivery trucks, motor vehicle parts and accessories. Canada relies heavily on these imports to support its domestic industries, such as manufacturing, transportation, telecommunications, aerospace and automotive.

Canada’s main sources of machinery and vehicle imports are the United States, China, Mexico, Germany and Japan. The United States is by far the largest supplier, accounting for 35.6% of Canada’s global total imports. Canada benefits from the free trade agreement with the United States and Mexico under the USMCA (United States-Mexico-Canada Agreement), which facilitates the cross-border movement of goods and services.

However, Canada also faces some challenges and risks in its import dependence on machinery and vehicles. For instance, Canada may be vulnerable to supply chain disruptions due to geopolitical tensions, trade disputes, natural disasters or pandemics that affect its trading partners. Moreover, Canada may face increased competition from other countries that are developing their own capabilities in these sectors, such as China, India or Brazil.

Energy Products Remain a Major Import Despite Being a Net Exporter

Another significant category of imports for Canada is mineral fuels including oil, which accounts for 7.9% of total imports. This category includes items such as crude petroleum, refined petroleum, petroleum gas, coal and coke. Canada is a net exporter of energy products, producing more than it consumes domestically. However, Canada still imports a large amount of energy products from other countries, mainly due to regional differences in supply and demand.

Canada’s main sources of energy product imports are the United States, Algeria, Norway, Saudi Arabia and Nigeria. The United States is again the dominant supplier, accounting for 54.8% of Canada’s energy product imports. Canada imports mainly crude oil from the United States to refine it domestically or re-export it to other markets. Canada also imports refined petroleum products from the United States to meet its domestic demand.

However, Canada also faces some challenges and opportunities in its import dependence on energy products. For instance, Canada may be exposed to price fluctuations and market volatility due to global supply and demand factors that affect the oil industry. Moreover, Canada may need to diversify its energy sources and reduce its greenhouse gas emissions to meet its environmental commitments and goals under the Paris Agreement.

Consumer Goods Reflect Canada’s Diverse and Growing Demand

The fourth largest category of imports for Canada is consumer goods, which accounts for 4% of total imports. This category includes items such as plastics, plastic articles, pharmaceuticals, gems, precious metals, optical, technical, medical apparatus, furniture, clothing, footwear and toys. These imports reflect Canada’s diverse and growing demand for various products that enhance the quality of life and well-being of its population.

Canada’s main sources of consumer goods imports are China, the United States, Mexico, Germany and Italy. China is the leading supplier, accounting for 22% of Canada’s consumer goods imports. China offers a wide range of products at competitive prices and quality levels that appeal to Canadian consumers.

However, Canada also faces some challenges and opportunities in its import dependence on consumer goods. For instance, Canada may need to ensure that its consumer goods imports meet its standards and regulations for health, safety and quality. Moreover, Canada may need to foster its own innovation and competitiveness in these sectors to create more value-added products and services that can meet the changing needs and preferences of its consumers.

Canada’s top imports reveal a lot about its economy and society. They show that Canada is a highly integrated and diversified trading nation that relies on imports to support its domestic industries and consumption. They also show that Canada faces some challenges and opportunities in its import dependence on various sectors that affect its economic performance, environmental sustainability and social welfare.

References:

https://www.international.gc.ca/gac-amc/assets/pdfs/publications/State-of-Trade-2019_eng.pdf

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

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

World’s Top Exports: Canada’s Top Imports 2022

OEC – The Observatory of Economic Complexity: Canada (CAN) Exports, Imports, and Trade Partners
https://www.worldstopexports.com/canadas-top-10-imports/
https://oec.world/en/profile/country/can/
https://www.international.gc.ca/gac-amc/publications/economist-economiste/state-of-trade-commerce-international-2020.aspx?lang=eng