U.S. – Canada Spat Shines Spotlight on Importance of Global Trade to West Virginia

U.S. – Canada Spat Shines Spotlight on Importance of Global Trade to West Virginia
U.S. President Donald Trump meets with Canadian Prime Minister Justin Trudeau at the G-7 summit, Friday, June 8, 2018, in Charlevoix, Canada. AP photo.

The ongoing war of words between the White House and the Canadian Prime Minister, and threatened tariffs from both sides, are clear reminders of how much of West Virginia’s economy depends on trade.

Canada and the U.S. are arguing over tariffs on steel and aluminum imported to the U.S. from many of its trading partners, including Canada. The White House has also complained about Canadian tariffs on timber and milk, which is a protected industry there. Canada, in turn, pointed out that the 24-year-old North American Free Trade Agreement, which the White House has also threatened, has benefited both countries massively by lowering or eliminating most tariffs across the board.

The White House has targeted trade and threatened tariffs on a number of foreign trading partners, including Canada, as a way of, it says, reducing the U.S. trade deficit. This is a political message designed to appeal to the voter base of President Trump. In fact, tariffs have much less of an overall impact on trade imbalances than the relative wealth of trading partners: The U.S. is richer than any country in the world and therefore buys much more than it sells overseas.

Since globalized trade really took off in the second half of the 20th century, with the widespread adoption of the intermodal shipping container and purpose-built ships, nearly every business has the opportunity to be a global business. Even West Virginia, which has the reputation of being merely an extraction-based economy, is heavily dependent on global trade. Why? Because most of the state’s coal goes overseas.

And a lot of it goes to Canada.

Canada and the U.S. are each other’s largest trading partners. Trade with Canada accounts for about 18 percent of total U.S. trade, slightly ahead of Mexico and more than double China.

By category, the top three exports to Canada are vehicles, machinery and electrical machinery. Rounding out the Top 5 are mineral fuels and plastics.

Canada, not surprisingly, is West Virginia’s No. 1 import and export destination.

In 2017, West Virginia exported $7.1 billion worth of goods and services. Some $1.5 billion of that — or 21 percent — went to Canada. Coal was West Virginia’s No. 2 export to Canada, after engines and turbines.

New trade barriers with Canada could hurt West Virginia’s industries. But Canada is not the only foreign market were West Virginia is vulnerable to tariffs. West Virginia exports its coal all over the world.

In 2017, West Virginia exported $3.2 billion worth of coal. Which means that coal accounted for a striking 45 percent of all West Virginia exports. No other export category comes close. The No. 2 West Virginia export in 2017 were engines, which accounted for $520 million in revenue, or only 16 percent of coal exports.

It is critical to West Virginia’s economy that the state be able to continue coal exports that are largely unhindered by tariffs and trade barriers because U.S. demand for coal is not growing; essentially, West Virginia’s biggest and best market for its coal is outside U.S. borders.

Further, West Virginia has been on an export roll. According to IHS Markit research, from January to October of last year, West Virginia was the fastest-growing exporting state in the U.S., with a 51 percent surge in exports compared to the previous year, thanks to coal. Coal exports have been a key driver in the West Virginia economy, and retaliatory tariffs or trade barriers erected by trading partners could significantly damage West Virginia’s export growth.

Impeded trade between the U.S. and Canada would impact more than just big coal operators. Mom-and-Pop West Virginia businesses have become globalized, as well, and depend on Canada for their livelihood.  

In Berkeley County, B’s Beverages exports bottled tea to Canada, and Mountaineer Brand exports health and beauty products to Canada. Brooke County’s Eagle Manufacturing exports industrial safety products to Canada. Marshall County’s Best Business Strategies exports accounting software to Canada. Morgan County’s Washington Homeopathic Products exports medicine to Canada. The list goes on.

In addition, Canada is responsible for West Virginia jobs.

Calgary-based TransCanada operates more than 2,500 miles of natural gas pipelines and 34 compressor stations in West Virginia, which account for 400 jobs. Montreal-based Bombardier, a maker of plans and trains, has an aircraft maintenance facility in Bridgeport that employs 400 West Virginians, and plans to hire more.

As the world has become more interconnected by trade, West Virginia has not been left behind. Many of its industries, from Big Coal down to small businesses that run out of garages, have enjoyed the benefits of global trade — especially from America’s largest trading partner, Canada. The ongoing trade tensions may put all of that at risk.

Frank Ahrens, a West Virginia native and WVU graduate, is a public relations executive in Washington D.C. He was a Washington Post journalist for 18 years and is the author of “Seoul Man: A Memoir of Cars, Culture, Crisis, and Unexpected Hilarity Inside a Korean Corporate Titan.” Contact him at www.frankahrens.com.

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