Fraser Forum

Your trade war is my export opportunity

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Amazon CEO Jeff Bezos is renowned for saying “your margin is my opportunity.” Canada and other countries may soon be in position to paraphrase Bezos’ iconic boast as an emerging trade war involving the United States and China creates export opportunities for other countries.

Last week, President Trump directed the U.S. trade representative to levy tariffs on about $50 billion worth of Chinese imports following a seven-month U.S. investigation into Chinese intellectual property theft. This latest U.S. action was preceded by a 25 per cent tariff on steel from which a number of countries, including Canada but not China, received temporary exemptions. Beijing quickly responded to last week’s announcement by outlining new import taxes of its own on U.S. products worth $3 billion.

It is, of course, impossible to know how prolonged and extensive the U.S.-China economic tit-for-tat will go on. It’s also impossible to predict what trade actions the Trump administration will take against other countries. What is predictable, however, is that unless the Trump administration changes its mercantilist and bullying trade policies (which seems unlikely), the potential for trade flows to be redirected away from the U.S. will become increasingly relevant.

While there are costs to this consequence for Canada, since the U.S. is by far its largest trading partner, there are also opportunities. Identifying and exploiting those opportunities will be a major strategic imperative for Canadian businesses. In specific cases, the federal and provincial governments may also have a direct role to play.

An example of an emerging trade opportunity, which Canadian governments can help materialize, involves selling educational services to foreign students including—or perhaps especially, given the emerging trade environment—to Chinese students. The economic potential of this market is substantial for Canada. While it’s difficult to obtain precise and reliable numbers, one estimate is that some 676,000 Chinese students were enrolled in universities and graduate schools in the 10 foreign countries with the largest enrolments. Canada accounted for a relatively small share (6 per cent) of this enrolment. In contrast, the U.S. was the single largest destination country accounting for almost 39 per cent of all Chinese students enrolled in universities and graduate schools outside China.

To gain some perspective on the economic implications of this segment of the education services export market, simply multiply the number of Chinese students in Canada (using the 2015 enrolment figure) by the average tuition of C$25,180 charged to international students studying in Canada in 2017/18.

This amounts to almost $1.1 billion.

While this might not seem like a large source of export sales, if the number of Chinese students studying in Canada doubled (from around 42,000 to 84,000) and average tuition for international students remained constant, the resulting export revenues would equal almost 43 per cent of the value of steel Canada exported worldwide in 2016.

In other words, educating Chinese students is a substantial export opportunity for Canada. (Obviously, the export opportunity is significantly enhanced if one includes students from other foreign countries besides China who might purchase educational services provided by Canadian organizations.)

Clearly, export revenues earned are only one consideration when determining whether to increase (and by how much) international student enrolment in Canadian universities. This discussion is merely meant to illustrate the opportunities for Canada that the Trump administration’s “America First” policies are creating.

But it’s a particularly apt illustration, since there’s evidence that the enrolment of Chinese students in U.S. universities is declining. Since Trump assumed the presidency, F1 visas issued by the U.S. government to students from China’s mainland have dropped by roughly 46 per cent. Escalating strife between China and the U.S. will almost certainly discourage all types of trade in services between the two countries including tourism and educational services.

While a trade was between the two countries would certainly be bad news for the world economy, it will create significant opportunities for Canadian organizations that are willing and able to market services to a fast-growing market of middle-class consumers.


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