Governor Tiff Macklem talks about how geopolitical, economic and social forces are changing global trade. He also discusses how Canada can benefit from trade shifts and prepare for future supply shocks.
Watch Governor Macklem speak to the Canada-UK Chamber of Commerce in London, United Kingdom. Read the full speech.
Benefits of open trade
In the decades following World War II, open trade flourished around the world. This drove innovation, efficiency and productivity. It provided consumers with more choice for less money. It also led to higher incomes and raised standards of living worldwide.
Global trade remains crucial for small open economies like Canada. We rely on exports for roughly one-third of our income. Imported components feed into many of our key industries, such as manufacturing. However, over the past 15 years, global trade growth has slowed. The countries producing manufactured goods are changing, geopolitical tensions have caused friction, and public support has faded.
Now global trade is being rewired, recast and redirected—and that has major implications for a country like ours.
The big trends in global trade
Three major trends have emerged in global trade:
- Advanced economies are leading the slowdown in global trade.
- Trade in goods is slowing, while trade in services is rising. This growth is happening because services like training or technology support can now be delivered from anywhere.
- Global trade relationships are changing. In particular, China’s exports are now competing more directly with goods being produced in advanced economies. This has led to trade tensions and national security concerns.
These three trends are affecting Canada. Our export growth is slowing even though the advanced economies we trade with are consuming more. However, our exports of services—particularly online services—are rising. Digital delivery is driving international demand for Canadian computer, management and financial services. Trade tensions and disruptions, meanwhile, are adding to the supply chain risks facing Canadian businesses.
While there are many uncertainties, one thing looks clear: international trade will be different in the years ahead. Canada needs to be ready for the opportunities and the disruptions.”
Preparing for the future
Trade challenges lie ahead, but so do opportunities. As global trade is rewired, Canada’s trade partners are looking for new suppliers to replace goods from China and other regions. We need to leverage our position as a stable and reliable alternative. And we need to sell the products the world wants.
Canada also must build on its existing trade relationships, and we have to secure our seat at the international table, to influence how global trade is recast and redirected.
The rewiring of global trade will likely lead to more supply shocks in the future. These disruptions will affect businesses and jobs, and they could drive up inflation. Trade disruptions may also mean that inflation will be more volatile.
The Bank’s role is to manage the inflation risks and work to ensure a strong economy for all Canadians.
The Bank of Canada doesn’t set trade policy. But we need to understand shifts in global trade because they affect lives and livelihoods, and they drive costs and inflation.”
Watch Governor Macklem answer questions from the media following his speech.
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