 | | Glen Hodgson
Senior Vice-President and Chief Economist |
Recent attention surrounding the "Buy American" plan underscores the need to revitalize our international trade strategies to re-establish our place among the world's pre-eminent trading nations. Canada's economy was built through international trade, all the way back to the fur trade, but weak recent performance is keeping us from reaching our potential.
Many of us may still believe Canada is a world leader in international trade and investment, but the facts say otherwise. Real export growth has been flat since 2000, and Canada-U.S. trade and economic integration has long since peaked. In fact, when the impact of rising prices (such as for oil and gas exports) is removed from the trade numbers, Canada's volume of trade with the U.S. was actually lower in 2008 than in 2000.
The global recession made things much worse -- Canada's international trade collapsed in 2009. The value of Canadian exports plunged by 14.8 per cent and imports are estimated to have declined by 15.6 per cent. More important, trade growth is not guaranteed to bounce back to normal once the global economy fully rebounds and demand growth resumes.
The global economy is undergoing profound structural changes. America faces enormous economic and fiscal challenges; we should not assume it will automatically regain its full leadership status. Western Europe and Japan have high incomes, but are aging quickly and will grow much more slowly in future. And China, India and other emerging markets are pushing their way to the front, both as trade competitors and as markets for export sales and investment.
Successful trade players know that standing still is a recipe for slipping backward. Active steps are required to strengthen Canada's competitive position in the global marketplace. The Conference Board has therefore proposed a three-pronged strategy to revitalize Canada's international trade and investment.
Strategy one: Create more internationally competitive Canadian firms, which can no longer rely on a weak Canadian dollar to be competitive. Firms must determine where international trade and investment fit in their corporate strategies and how they can improve their core competitiveness. In particular, they should incorporate global value chains, opportunities in emerging economies and shifting global trade patterns into their business strategies.
Strategy two: Adopt stronger and more forward-looking international trade policies. Canada has some clear trade strengths, based both on natural resource endowments and brain-power. But it is also up against some hard-nosed and well-armed competitors who are not waiting for us to act.
Canada's trade policy must recognize changing trends in international trade and investment. Our position in relation to the U.S. market needs to be refocused on better aligning regulations with our southern neighbour. A comprehensive strategy is required to succeed in emerging economies. And Canada needs to strengthen its profile in the evolving World Trade Organization, which will require a full re-assessment of some of our trade sacred cows, like supply management.
Last week's Speech from the Throne was a partial step towards a re-energized trade policy agenda. To complete the agenda, Canada should re-commit itself to multilateral free trade negotiations at the WTO, while expanding the list of countries where bilateral free trade talks are being pursued. Free trade with the EU or India would be good; but aggressively tackling non-tariff barriers with the United States, or adding China to the "to-do" negotiating list would be even better.
And strategy three: Foster a more supportive national operating environment. Re-energized trade strategies are unlikely to succeed without improvements in the underlying competitiveness of Canada's economy. Canada needs to remove obstacles that discourage foreign investors, such as interprovincial barriers and excessive regulatory requirements, and deal with poor productivity growth. More emphasis needs to be placed on the building blocks for competing effectively in the global economy. This calls for investment in Canada's aging urban and transportation infrastructure, retooling immigration policies to attract more entrepreneurial talent and address labour market needs, and developing a culture of innovation.
Adopting all three strategies outlined here is a tall order, and would require an exceptional degree of collaboration among governments and with business. But without deliberate and re-energized action, Canada should not expect any improvement from the mediocre trade performance of the past decade. A new trade strategy is needed for a post-recession era.
As posted in the Financial Post on March 17, 2010.
Based on a recent Conference Board report, Re-Engergizing Canada's International Trade: Strategies for Post-Recession Success.