Wealthy Nations Daily Update - Canada/China/SDR

Firstly, our condolences go out to all those affected by the terror attacks in Paris on Friday evening. Our thoughts are with you all.

In September of this year China eclipsed Canada to become the U.S.’s biggest trading partner for the first time in history. Trade between the U.S. and China hit USD 442 bln in the first nine months of the year while U.S.-Canada trade totalled USD 438 bln, according to U.S. government data. The main reason for the reversal is the drop in crude oil, now half what it was in 2014, which equates to a 32 per cent drop in the value of Canada's trade in energy products in September alone compared to the previous year. However this is not to dismiss the meteoric rise in trade between the economic superpowers since the mid 1980s. Since 1985, trade between the US and China has ballooned over 7,500%. Indeed globally China now accounts for about 15% of global GDP, however its contribution to global growth last year was in the region of 40%, one of the reasons economic leaders take such a close interest in the health of the Chinese economy.

Now that Canada is not the US’s biggest trading partner has not gone unnoticed within its government (even if it is due to the price of oil). Stuart Bergman, deputy chief economist at Export Development Canada, (EDC) the federal credit and financing agency said “I wouldn’t say by any stretch that China has surpassed Canada in terms of importance of relationships or economic-trade relationships,”. They have been crunching the numbers, and if you include services, not just goods, the total value of trade between the US and Canada adds up to USD 949 bln, compared with just over USD 942 bln between the U.S. and China, according to the EDC.

Even so, as Bergman states, size does not matter in the bigger trade pictures. He said “In terms of ranking … it’s a little imaginary. It doesn’t necessarily mean much whether you’re ranked first or second. Of course, it is symbolic,” adding “We have very strong ties with the U.S. We share common business culture, language, integrated transportation networks, unified markets — all these types of things.”

Also on Friday, Ms. Lagarde, MD of the IMF issued a statement regarding the renminbi’s inclusion into the SDR, it reads “The staff of the IMF has today issued a paper to the Executive Board on the quinquennial review of the SDR… In the paper, IMF staff assesses that the RMB meets the requirements to be a “free usable” currency and, accordingly, the staff proposes that the Executive Board determine the RMB to be freely usable and include it in the SDR basket as a fifth currency”. Then, Lagarde said, “I support the staff’s findings… I will chair a meeting of the Board to consider the issue on November 30.”

The PBOC immediately issued a statement on its website to welcome IMF staff’s proposal on RMB’s SDR inclusion; “RMB inclusion will help increase SDR’s representativeness and attractiveness. China hopes members will support RMB into SDR and looks forward to decision of the Board on Nov. 30.”