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Canada’s Trade Policy Needs Revitalization

Glen Hodgson, Senior Vice-President and Chief Economist, Forecasting and Analysis
March 15, 2010

Recent attention surrounding the “Buy American” plan underscores the need to revitalize our international trade strategies to secure a 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.

Facing Reality

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 have long since peaked. In fact, when the impact of rising prices (such as those 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 Changing Shape of International Trade

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. People in Western Europe and Japan have high incomes, but these populations 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.

Strengthening Canada’s Competitive Position

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, in a new publication.

Strategy one: Create more internationally competitive Canadian firms, which can no longer rely on a weak Canadian dollar to be competitive. Firms must determine how international trade and investment fit into 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.

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.

Strategy two: Adopt stronger and more forward-looking international trade policies. Canada has some clear trade strengths, based both on natural resource endowments and on brain power. However, 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, such as global and regional value chains, and the role of foreign direct investment as a trade enabler. We need to focus on better aligning regulations with those in the United States. 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, such as supply management.

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. We need to place more emphasis on the building blocks for competing effectively in the global economy. This approach will require us to invest in Canada’s aging urban and transportation infrastructure, retool immigration policies to attract more entrepreneurial talent and address labour market needs, and develop 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. However, without deliberate and re-energized action, Canada should not expect any improvement over the mediocre trade performance of the past decade. A new trade strategy is needed for a post-recession era.

Glen Hodgson Glen Hodgson
Senior Vice-President and Chief Economist
Forecasting and Analysis
Re-Energizing Canada’s International Trade: Strategies for Post-Recession Success

Related Publications
Canada’s Lagging Productivity: The Case of a Well-Educated Workforce Lacking the Much-Needed Physical Capital
Stuck in Neutral: Canada’s Engagement in Regional and Global Supply Chains
Making Integrative Trade Real: Creating a Value Chain Trade Policy for North America
Foreign Investment Review Regimes: How Canada Stacks Up 
The Rise of the BRICs: What Does It Mean for Canada?

Related Networks
International Trade and Investment Centre