How Canada抯 International Trade is Changing with the TimesWednesday, September 20, 2017 > 10:08:01
Bank of Canada
My theme today is international trade, which is the lifeblood of the Canadian economy. Throughout our history, we have successfully relied on our exports and imports, particularly during the vast expansion of global trade in the decades following the Second World War, to support our rising standard of living. Today, exports and imports represent about 65 per cent of our output, one of the highest ratios among the G7 countries.
Few places in Canada illustrate the importance of trade and innovation as vividly as Saskatchewan. Historically, people living on the Prairies relied on exporting grain—and, more recently, potash and oil—to markets outside Canada’s borders. They imported many of the products they consumed and the tools they used, from T-shirts to tractors. In the first several decades of Confederation, they often chafed at the trade barriers that were put in place to protect and nurture the growth of the manufacturing industries of central Canada. What is remarkable is how nimble businesses in this province have been. They have adapted and innovated not only to grow market share but also to develop new products and markets for them.
In recent years, the pattern and drivers of trade both nationally and in Saskatchewan have evolved dramatically in response to forces that have been acting at the global level. Innovations in many areas, notably information and communications technologies (ICTs) and logistics, have given rise to the development of new products and new ways of producing and trading them. A particularly important trend has been the emergence of global value chains (GVCs), with various stages of production located in different countries.
In this context, the progressive lowering of trade barriers worldwide has had outsized effects. Trade agreements have enabled much closer economic integration, and trade flows have burgeoned, leading to increases in productivity and living standards.
These trading relationships are now being called into question. Populist movements in some of our major trading partners are demanding new trade barriers. However, such protectionist measures would undoubtedly mean less trade, which would reduce economic growth. While I can’t comment on the specifics of any particular agreement, we have certainly been assessing this shift toward protectionism, how it might affect the outlook for growth in Canada and its trading partners and ultimately what it would mean for the conduct of our monetary policy.
In my presentation today, I’ll review the changing nature of international trade, the factors, such as innovation, that are propelling it and the benefits to Canada. I’ll discuss the challenges Canada faces in its international trade and how they affect our economic outlook. I’ll conclude with what this means for monetary policy.
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