Paradigm

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For the exclusive use of Glen Hodgson, hodgson@conferenceboard.ca, The Conference Board of Canada. Canada’s New Trade and Technology <strong>Paradigm</strong> Finding the Right Policy Mix When the CETA kicks into effect, it will reduce the impact of many barriers to trade, investment, and labour mobility. Using indicators of country growth potential and Canadian business potential, we find that Canada’s most important future markets include the U.S. and Europe as well as several fast-growth economies that are lower on the radar screen. 11 Countries such as Peru and Indonesia represent important potential since they have some complementarity with Canadian business strengths and have experienced rapid GDP growth over the last five years. (See Table 2.) Fading Potential for Most Industrial Countries In contrast to emerging market growth of the past decade and more, the growth performance and underlying potential for most industrialized countries has faded, in some cases badly. The European Union and Japan have both seen significant slippage in economic growth, and are facing an extended period where stagnation or feeble growth is more likely than robust growth. Japan continues to debate and pursue policy reform under “Abenomics.” However, the country’s crushing public debt burden, ongoing battle with deflationary forces, and uneven commitment to structural reform— combined with an aging and shrinking population base and labour force—have limited the ability to boost Japan’s sustained growth beyond 1 per cent annually. Europe continues to grapple with excessive public debt and fiscal austerity, but has not embraced a comprehensive and active market-based, structural policy reform agenda. That said, these large, wealthy markets still represent considerable potential for Canada. (See Table 2.) Britain’s June 2016 vote to exit the EU (Brexit) threatens to unravel the entire EU project and certainly negatively impacts the European economic outlook, perhaps for years to come. Despite Europe’s slower-growth path, it is still a wealthy market of more than 500 million consumers. If the Europeans are not too distracted by Brexit in the near term, Canada and Europe may proceed to sign the CETA as planned in the fall of 2016. If the CETA kicks into effect, it will reduce the impact of 11 Palladini, Canada’s Most Important Future Global Markets. Find Conference Board research at www.e-library.ca. 12
© The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada More globalized production means that Canadian companies that are linked into global markets may be more vulnerable to global risks. many barriers to trade, investment, and labour mobility between Canada and the European Union, opening up opportunities. Canadian companies will need to pick their spots carefully, however. According to a recent Conference Board analysis, 12 southwest Europe’s larger consumer markets—France, Italy, and Spain—may appear to offer the best Canadian business opportunities at first blush, but are relatively closed and difficult to navigate. Still, they represent important potential in the medium term as their growth catches up to the rest of Europe. Since the smaller Nordic and Baltic countries are the most open and integrated into the global economy, they may also represent important longer-term trade and investment potential. The U.K. already has a strong commercial relationship with Canada and serves as an important market with strong demand potential, though that market is mature and highly competitive and will likely be wrestling with the after-effects of Brexit for some time. In any case, the U.K. and Canada may need to negotiate and sign their own, CETA-like deal. The New Global Business Model Rise (and Fall?) of Global Value Chains Declining communication costs and the ability to digitize production have made global coordination easier and more attractive. As a result, companies have rapidly accelerated their use of global inputs and services during the 2000s, locating each aspect of their production chain in the most optimal global or regional location. For Canada, this trend toward optimizing global value chains has meant that competition at each stage of the chain has intensified. Canadian companies need to have a world-leading product and service offering to be able to succeed in global markets. Even Canadian companies that sell only at home often face global competition. 12 Colijn and Goldfarb, Understanding the Four Faces of Europe. Find Conference Board research at www.e-library.ca. 13
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Paradigm

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