Poloz talks trade: Canada’s services a bright spot

Although global trade disputes are contributing to a slowdown in exports and business investments, job creation and incomes are rising—especially in the economy’s rapidly expanding services sector. In a speech in Iqaluit, Governor Poloz explains what this means for Canada.

Trade growth is slowing

Trade disputes and a shift away from the globalization of production are slowing growth in global trade. Companies used to offshore their production. Now, more and more companies are reshoring or nearshoring.

• Offshoring: companies reduced costs by moving production to low-wage countries
• Reshoring: automation and the rise of wages in countries like China are now encouraging some firms to move production back home
• Nearshoring: some firms are locating production closer to their customers

But in Canada, the trade in services is growing

Trade in services has been growing at a much faster pace than goods. Last year, many service sectors saw exports growing at near double-digit rates or faster, including:

• financial services
• tourism
• telecom, computer and information
• intellectual property

Growth in Canada’s economy, which was based on trade in natural resources in its early years, is now driven mainly by service industries. Roughly 80 per cent of Canadians are now employed in services.

Statistics don't fully capture the contribution of services

Trade in services is difficult to track and is probably underestimated. For example, many manufactured goods include a large services component that is buried in the price. By some estimates, as much as 30 per cent of the value of goods exports is actually created through services.

The risks of trade wars

Uncertainty affects investment

Uncertainty about global trading rules means some business investment decisions have been scrapped. Even if the uncertainty lifted completely tomorrow, these decisions could not be reversed, and some of the damage done over the past two years would remain.

The costs of tariffs

When a country imposes tariffs on imports, those tariffs are paid by its own consumers and companies. Our research shows that such trade actions lower economic output while raising prices. Companies facing tariffs on their exports will urge their governments to retaliate and, in the end, the global economy will be worse off.

Looking ahead

Canada’s economy has many advantages:

• a well-educated and diverse workforce that is growing through immigration
• a portfolio of established trade agreements
• a solid economic base in natural resources

Canada can build on these strengths by remaining committed to global free trade and encouraging freer trade between provinces and territories.

And by keeping inflation low, stable and predictable, we will continue to promote the economic welfare of Canadians.