In the context of the renegotiation of NAFTA, the Centre for Productivity and Prosperity (CPP) wanted to compare the evolution of the competitivity of Canadian industries versus those of the United States, based on the relative evolution of productivity and costs of production in Canada and the United States.
Here are the main facts to be noted:
Too low productivity gains
The authors’ results show that productivity gains for Canadian companies were not big enough to maintain their competitivity when the Canadian dollar began to appreciate in the early 2000s.
Canadian industries, which have not invested enough in improving their productivity, are now vulnerable to the imposition of trade barriers.
According to the authors, for many years Canadian firms have relied on the favourable exchange rate to increase their exports without concern for their productivity or the competitivity of their production. They are now caught up in their inaction and are less and less able to absorb a trade or a currency shock.
The authors found that the competitivity of the Canadian economy declined globally between 2000 and 2014.
At first glance, and ignoring exchange rate evolution, the authors noted significant productivity gains. But taking into consideration its evolution, they found that the effective competitivity of the Canadian economy fell by 16.7% over this period, which proves that Canada’s competitive position has become considerably more fragile.
Productivity, the key to competitivity
In conclusion, one thing must be concluded: Canadian companies can no longer use the lower Canadian dollar as a diversion and more than ever, they must increase their productivity. Indeed, their productivity is one of their only ways of increasing their resilience to factors beyond their control (such as an increase in trade barriers or exchange rate variations).
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