In the month of September, Canada posted yet another surplus. This time, the gap held steady at $1.9B, the same as was reported for the month of August 2021. This surplus is again the result of high exports to the United States; Canada remains at a deficit with the rest of the world.¹
The details show near equal decreases in both imports and exports in September. Imports fell by 3.0% to $51.1B, and exports fell slightly to $53.0B, a change of -2.3%.¹ At fault? A familiar foe: the ongoing global semiconductor chip shortage.¹
Headed into the winter months, questions remain around how the supply chain may adjust to increased demand as consumers begin Christmas shopping. Meanwhile, China looms large over Taiwan—and its manufacturing.
“What’s happening in the Taiwan Strait is evidence that Canada should house more national manufacturing,” says William McKinnon, President of Canadian Alliance Terminals. “However, that’s easier said than done.”²
SURVEY: KEY SECTORS IN IMPORTS AND EXPORTS
The semiconductor shortage which began in early 2021 has already had a notable impact on Canadian merchandise trade; in the spring and early summer, some automakers idled plants and waitlists for new vehicles stretched out to a year or more. This effect was felt marginally less in later summer, but as of September the shortage is once again making headlines.¹
Exports of the category including motor vehicles and parts fell by 17.9% from August to a total of $4.6B in September 2021.¹ This represents a remarkable decrease of 40.2% compared with September 2020. Similarly, exports of passenger cars and light trucks also declined, posting a significant decrease of -25.8%.¹ Statcan reports this decrease results from widespread production stoppages in Canada during the month of September.¹
Naturally, imports of the same categories are not immune to this shortage. Imports of motor vehicles and parts decreased by 13.6% from August to September, posting a total of $6.6B and a decrease of 24.4% year-over-year.¹ This decrease in imports results from impacted production on both sides of the Canada-US border. Imports of engines and parts fell by 20.3% reflecting less “vehicle assembly activity” in Canada, while depressed production in the US brought a decrease in the imports of passenger cars and light trucks (-12.5%).¹
Outside of turmoil in the auto sector, exports of metallic and non-metallic mineral products fell by 8.1% in September. These declines were offset—but only subtly—by an increase in crude oil products, which reached a new high of $9.0B.¹
Traffic in the Taiwan Strait
Europe, Canada, and the United States have aligned with Taiwan in condemning China’s aggressive actions in the Taiwan Strait. China has been increasingly crowding Taiwanese airspace and oceanspace without permission in apparent attempts to intimidate the democratic island nation.³
Both Canada and the United States sent warships through the Taiwan Strait in October, eliciting a strongly worded response from China’s military.4 This is only the latest spat between Canada and China, following the begrudging release of Huawei CFO Meng Wanzhou in September. Canada acceded to China’s demands to release the executive in return for the release of Michael Spavor and Michael Kovrig, two Canadians held in China that were, ostensibly, political prisoners.⁵
But much is at stake.
“This is all about the technology,” says McKinnon. “Taiwan is one of the world’s largest producers of semiconductors. They possess vast amounts of intellectual property and manufacturing power. For China to have any degree of control over that technology could pose a serious problem.”²
Should China come to control the manufacturing capacity of semiconductor chips, it could stem the trade of those precious—and difficult to manufacture—parts to the rest of the world.⁶ This could have effects from spiking the costs of consumer goods like laptops and smartphones to impairing the manufacture of goods like hospital equipment, infrastructure, and indeed, military technology.
“Time is stacked against us in this scenario,” says McKinnon. “If China were to control Taiwanese manufacturing, it could have an immediate impact. Meanwhile, if we were to attempt to nationalize such manufacturing within Canada—it would take an entire generation to build those facilities, upskill workers, and start producing at scale.”²
“It’s not an insignificant threat,” says McKinnon. “I’m glad that Canada has taken a firm stance in supporting Taiwan.”²
It’s a delicate dance, however. If Canada falls into China’s poor graces, it could suffer immensely; huge amounts of Canada’s imports are sourced from the Asian nation. The economic ramifications of such a falling out could be severe and lasting.
“Realistically, we need to find a balance. We need to bring some manufacturing back to Canada, back to the United States,” says McKinnon. “It’s always more reliable to have the production of critical goods close at hand. But that will take time and commitment on the part of our governments. It will be a slow process.”²
Freight Prices: A Non-Crime of Opportunity
Meanwhile, freight prices hold steady at three to six times greater than pre-pandemic.
“People are asking hard questions,” says McKinnon. “Especially around collusion. The shipping companies were certainly smart to adapt quickly when demand spiked in 2020.”²
As yet, investigations launched by competition regulators in both Australia and the United States have not found proof of collusion (though the chair of the Federal Maritime Commission did criticize the shipping lines for behaving badly).⁷
There is one possible upside to these exorbitant costs: for decades, the shipping industry ran on such thin margins that there was little extra money to invest in improvements. With this influx of revenue, companies can finally undertake modernization projects. From building new ships to launching research and development, shipping lines are—for the first time in a long time—able to foot the bill.
This could have trickle down effects that ultimately benefit the consumer.
“Better technology may mean the shipping lines are able to do their jobs faster, better, and more efficiently,” says McKinnon. “That is, if Walmart and its chartered ships don’t run them out of business first.”²