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New Conference Board Economic Indicator

The Conference Board's newly launched Composite Leading Index shows that the Canadian economy will grow in the first half of 2014 — but only modestly. The Index rose 0.3 per cent in December matching the gains made in both October and November. This trend signifies that the economy is growing, but Canadian growth will not pick up the pace until later in the year. The Composite Leading Index sums up the performance of ten components that track the short-term course of the economy.

Features

The Falling Loonie

The biggest economic story of the new year has been the fall of the Canadian dollar. The Conference Board's assessment is that the drop in the dollar, if sustained, would have a small positive impact on economic growth in the short term. Some exporters may stand to benefit, but a declining loonie will also hit all Canadians in the pocketbook. More important than the value of the loonie is the signal it sends about the Canadian economy.

Taxis: That other supply management system

Shopping for milk and hailing a cab are two everyday activities that do not seem to have much in common. Yet, they are more alike than they appear at first glance. Dairy products are managed by a complicated system under which the amount to be produced is predetermined. Taxis are organized much the same way. Taxicab service remains tightly controlled even during times of high demand, such as the holiday season.

Why a Canadian Food Strategy?

Food impacts our lives, our health, our jobs, and our economy. Since 2010, the Conference Board's Centre for Food in Canada has been bringing together stakeholders from different sectors to create a Canadian Food Strategy—one that will meet the country's need for a coordinated, long-term strategy on industry prosperity, healthy and safe food, household food security, and environmental sustainability. The strategy will be launched at the 3rd Canadian Food Summit 2014: From Strategy to Action on March 18–19 in Toronto.

Measuring and Managing Innovation

It is perhaps the worst-kept economic secret in the country. Canada does not take advantage of its innovation capabilities, and that is impeding its growth potential. Canadian firms can use metrics to improve their innovation activities and competitiveness. However, almost 40 per cent of Canadian companies don't measure the success of their innovation activities at all. Of those firms that do, most use the kinds of measures that don't actually link well to their organizations' bottom-line results.

Conference Board of Canada One of the National Capital Region's Top Employers

The Conference Board of Canada is proud to announce that it has again been recognized as one of the National Capital Region's Top Employers for 2014. This marks the fifth time in seven years that the Conference Board has been named to the list of top employers in the Ottawa region. A key to our success is our ability to attract and retain outstanding talent, and this recognition only strengthens our position as an employer of choice.


CBoC Highlights

Photo of the Hon. Jason T. Kenney Photo of Vijay Gill

Satyamoorthy Kabilan, Director, National Security and Strategic Foresight, delivered a presentation on security and intelligence at the Canadian International Council dinner that aired on CPAC on January 18.

Pedro Antunes, Director, National and Provincial Forecast, discussed Canada's December job losses and the economy on CBC's Power & Politics on January 10.



In This Issue

  • New Conference Board Economic Indicator
  • The Falling Loonie
  • Taxis: That other supply management system
  • Why a Canadian Food Strategy?
  • Measuring and Managing Innovation
  • Conference Board of Canada One of the National Capital Region’s Top Employers

Previous Issues

Webinars

How to Manage Workplace Romances: Looking for Love in All the Wrong Places
Mar 11 at 2:00 PM

Moving Forward in a Labour Constrained Economy: Update with the Chief Economist
Mar 23 at 2:00 PM

MyService—The Toronto Police Service’s Journey on Transforming its Culture
Mar 26 at 2:00 PM

Latest Blogs

Inadequate Savings—Not Trade Deals—Account for Much of U.S. Trade Deficit

Apr 28, 2017
Kip Beckman
Principal Economist
World Outlook

In the 1930s, the U.S. ran trade surpluses for almost the entire decade. Had Donald Trump been president at the time, this statistic would, presumably, have made him happy.

However, the trade surpluses in the 1930s were directly linked to the Great Depression, which had such a devastating effect on the U.S. and world economies that American households stopped buying imports. This historical fact highlights how a trade surplus isn’t necessarily a sign of a healthy economy. Nor does a trade deficit imply that an economy is on the verge of ruin.

Yet, during the election campaign, Trump railed against the large trade deficits that the U.S. has with countries such as Mexico and China. He reportedly complained to his staff that he couldn’t find one country that the U.S. ran a trade surplus with.

Trump contends that trade deficits are a result of unfair trade policies. In his version of events, countries with large trade surpluses with the U.S. put high tariffs on imports of U.S.-made goods and services, making U.S. exports uncompetitive in these foreign markets. At the same time, Trump says, the U.S. doesn’t impose the same trade restrictions. Consequently, cheap imports flow into the country and lead to large trade imbalances. U.S. companies can’t compete with these low-cost imports flooding the U.S. market and are forced to lay off workers.

Some U.S. trade partners, including China and Japan, have implemented tariff and non-tariff barriers on U.S. exports that make it difficult for U.S.-made products to penetrate these markets. But the U.S. itself is not exactly a beacon of free trade. For example, it protects different segments of its agriculture sector, among others, against foreign competition.

In contrast to Trump’s view, a more plausible explanation for the chronic trade deficits that the U.S. has been running since the early 1980s can be found in the trends in savings and investment. In simple terms, the U.S. consumes more than it produces and doesn’t save enough. The lack of savings applies both to households, which have elevated levels of debt, and to the federal government, which continues to run large budget deficits. The shortfall in savings is financed by selling U.S. assets, such as government bonds, to foreign buyers. The funds raised from the sales of U.S. assets are used to fund consumption and investment spending. Consequently, the U.S. trade deficit is equal to the flow of foreign capital into the United States.1

The Wall Street Journal’s Greg Ip notes that the links between savings and the trade balance are apparent in the experience of numerous countries. If, as Trump insists, trade deficits were caused by protectionist measures, countries that implement barriers to limit imports should run trade surpluses. However, this is not the case. According to the World Bank, India and Brazil (which are highly protectionist) consistently run large trade deficits because, like the U.S., they save less than they invest. Conversely, Germany and Switzerland have relatively low tariffs and run trade surpluses because they save more than they invest. They lend their excess savings to countries such as Brazil and India to help them fund chronic trade deficits.

Trump also contends that free trade deals such as NAFTA were negotiated unfairly and provide other countries (in the case of NAFTA, Canada and Mexico) with an advantage over the United States. This perception of trade deals was a key factor behind his decision to pull the U.S. out of the Trans Pacific Partnership trade agreement. Just as there is no link between protectionist measures and trade balances, Trump’s claim that there is a connection between trade deals and large U.S. trade deficits is flawed. The U.S. has large trade deficits with Japan and Germany, yet neither of these countries has a trade agreement with the United States.       

In the past, the U.S. government tried to reduce trade deficits by insisting that major trading partners adjust their trade policies. In the 1980s, the Japanese government agreed to voluntarily restrain exports of cars to the U.S. market to address the large trade imbalance between the two countries. This agreement eventually led Japan to shift some of its car production to the U.S. to quell the anger in the U.S. Congress. However, these initiatives failed to arrest the growth in the trade deficit because the U.S. continued to save less than it consumed.

Japan’s experience provides evidence that higher savings can lower trade imbalances. Post-war Japan was a high-savings country and ran large trade surpluses. But these surpluses have started to gradually diminish as aging Japanese workers retire and spend their savings on goods and services, including imported ones. This could eventually happen in the U.S., but not for a while. The U.S. savings rate was generally above 10 per cent until the mid-1980s, but the rate has gradually declined since then and currently sits at between 5 and 6 per cent.

Ironically, by threatening to punish Mexico for its large trade surplus with the U.S., Donald Trump is picking a fight with a country that has a similar problem. Mexico has a healthy trade surplus with the U.S., but runs an overall deficit when its trade with other countries is included in the total. And Mexico has a trade deficit for the same reason as the U.S.—it doesn’t save enough and must borrow from abroad to make up the difference.

Sources

Greg Ip, “Deficits Are a Flawed Guide to Unfair Trade Practices,” The Wall Street Journal (March 15, 2017); Alan Reynolds, “What the China Trade Warriors Get Wrong,” The Wall Street Journal (October 26, 2016).


Related Report

U.S. Outlook Spring 2017

Related Webinars

NAFTA 2.0 and Canada
The Conference Board of Canada, June 13, 2017 at 02:00 PM EDT
Live Webinar by Kristelle Audet, and Danielle Goldfarb

Canadian Outlook with the Chief Economist: Economic Growth Accelerates But Risks Abound
The Conference Board of Canada, June 21, 2017 at 02:00 PM EDT
Live Webinar by Craig Alexander

1    Trade in financial assets are included in the capital account of the balance of payments. The U.S. current account deficit on trade in goods and services is matched by a capital account surplus as capital flows into the U.S. to finance the current account deficit.