Despite its abundant resources, Canada is essentially a captive exporter. The U.S. absorbs nearly three-quarters of the country’s overall exports and virtually all of its energy exports.

Canada’s need to diversify into other export markets was underscored during the shale boom, when U.S. energy production was so prolific it was literally crowding out Canadian crude from crucial pipelines.

Even so, Canadian oil still found its way to market by rail, barge and even truck. And that gave Canadian politicians a sense of complacency.

Instead of doing whatever it takes to facilitate overseas trade, the country’s politicians, particularly at the provincial level, took their time extracting as many concessions as possible from energy shippers. Then, of course, the boom went bust.

The best (or worst) example of that is what happened to Canada’s nascent liquefied natural gas (LNG) export industry. Global LNG prices are indexed to oil, which would have made such projects incredibly lucrative when crude was trading north of $100 per barrel, while also helping Canada diversify away from the U.S.

Unfortunately, provincial politics dragged on until the boom-bust cycle finally turned to bust, and since then none of the 20 LNG export projects on Canada’s West Coast have received final investment decisions from their backers.

Terms of Trade

It’s too soon to tell what the Liberal government’s ascendance will mean for Canada’s energy exports, which account for 31% of total exports. After all, when tax revenue is at stake, politicians can be surprisingly flexible when it comes to ideology.

But one thing is for sure: China will continue to play an outsize role in setting prices for Canada’s resources, even if the Middle Kingdom only accounts for a sliver of the country’s exports.

As Bank of Canada Deputy Governor Carolyn Wilkins recently observed, “China’s growth has also meant better prices for the resources Canada sells.”

Just as China’s staggering growth helped push commodities prices to dizzying new heights—the country is now the second-largest consumer of oil and gobbles up nearly half of the world’s production of base metals—its slowdown has been a big factor in their crash.

Nevertheless, the notion of a slowdown here is somewhat relative. Even if China’s economic growth slackens to just 6% annually, that would still mean its economy would double in less than 12 years. Most first-world countries would love to have a slowdown like that!

At those levels, Wilkins noted, “One implication for Canada is that China’s demand for commodities should remain high and grow from a higher base.”

Trans-Pacific Tango

Meanwhile, Canadian policymakers remain keen on fostering greater ties with China. While two-way trade between the countries has grown more than fivefold since 2000, the advantage has gone largely to China, with the Middle Kingdom accounting for about 11.5% of Canada’s imports, but just 4.5% of its exports.

There are some areas, though, where China is gorging directly on Canadian commodities. For instance, China bought nearly one-third of British Columbia’s exports of forestry products last year, compared to just 4% in 2001. That shows the size of the opportunity.

However, China is attempting to engineer a major transition from an export-fueled economy to a consumer-led economy. While that has caused major disruptions in commodities and financial markets and will likely continue to do so, if successful it could lead to more stable long-term growth. And that, in turn, could help reset the imbalance between the two countries’ trade.

To that end, the two governments have worked to encourage trade and investment through accords, trade missions and other agreements.

And foreign direct investment by each country has jumped sharply over the past 15 years: China’s investments in Canada reached C$25 billion in 2014, 115 times more than they were in 2001, while Canadian investments in China rose by a factor of 10 during that same period, to C$7 billion, the Bank of Canada said.

One way to expand trade is to make it easier for each country to settle business in their respective currencies. In the past, two-way trade between Canada and China required conversion into U.S. dollars as an intermediary step.

But last year, Canada was able to establish a renminbi trading hub in Toronto, thanks to a C$30 billion swap agreement between the Bank of Canada and its Chinese counterpart.

Of course, China isn’t the only emerging market missing from Canada’s trade equation. Canadian companies have generally done a poor job of finding new markets in the developing world. Even nearby Mexico accounts for just 2.3% of Canada’s exports.

A study by the Conference Board of Canada that examined the country’s exporters from 1994 through 2008 found that top-performing companies nearly doubled their sales in emerging markets every year. Again, the opportunity is there.

But the study also found that numerous companies faced significant challenges in entering these markets, with many opting to discontinue exports to such countries after less than a year.

According to the Bank of Canada, more than 400 Canadian companies have established a foothold in China, in sectors as diverse as life sciences, aerospace and information technology. More please.