Wednesday, February 15, 2006

Economic impact of currency union

The political impetus for Canada's adoption of a currency union with the United States rests on the cost/benefit analysis of economists who must provide the necessary backbone for political voices. They must produce convincing arguments about the effects of currency union on the Canadian economy. In the end, the question will come to Canadians: is it acceptable to give up monetary autonomy? An affirmative answer will depend on the economic return, the degree to which Canadian industry thrives and adapts to the move away from a flexible exchange rate - the currency regime in place now. Indeed, there would be winners and losers across the diverse Canadian economic sphere, but the heightened level of economic integration between the two countries has now put the balance toward currency union.
One study that looks at this matter concludes that we are much nearer to meeting the conditions necessary for optimal currency union, although it does not expressly prescribe union. Have a look at this case study:
This kind of academic study is an important starting point, and I would expect to find more analysis in the coming years.

Sunday, February 05, 2006

Consumers of the World, unite!

The global economy showed its face in Giant Tiger today. For those of you not from rural or suburban Eastern Canada, Giant Tiger is a chain of discount stores. It's the sort of place you can pick up household items and clothing at dollar store prices. It's the kind of store that many Canadians pick up their weekly wares, their back-to-school clothes - even their groceries. I was tempted by the 99 cent flax bread, since I know the same loaf goes for $2.30 at my grocery. But if you are shopping for clothes, take a look at the racks in Giant Tiger. You will find a world in the labels of these wildly inexpensive clothes.
Jeans for $19, made in Bangladesh. Long-sleeved shirts, khaki pants, and jackets for $13. All made in China. And a well-made bunny hug jacket made in Jordan, of all places. That will set you back $6. The garment makers of the world in Port Elgin, Ontario. That my visit to my wife's parents home town would result in another visit to Giant Tiger is little surprise - there are not many places to shop there. But what are we to make of this consumer mecca. For Canadians who survive on limited or even lower-middle class incomes, the growing global trade has unleashed a wonderful anti-inflationary world.
Silly that economists laud Alan Greenspan and the Fed for controlling inflation. Silly that they would even think that the out-going Fed Chairman had a lot to do with the relative containment of the price level over the past decade. No, the truth about Greenspan is more that he fueled the economy with more paper than we really needed. What consumers really have to be thankful about is not the bankers who control our money supply, rather they should celebrate trade liberalization and the growing global economy. They need to thank the workings of the market economy that brings products from places we would never have imagined before. They need to thank WalMart! (And in Port Elgin they will soon finally get their own WalMart, too.)
Clothes from Turkey and Central America. Juice from Montenegro, boots from Latvia, and scarves from Pakistan. And then, there is China and India. The North American consumer now basks in the affordable choices in front of him. For a family of four, the benefit is very real. Were it not for the competitive price pressure afforded by the global economy and liberalized international trade, the prospect of meeting the non-discretionary expenses in the modern world would be daunting. Inflation would certainly be the primary economic concern.
So what of this consumer world? For the most part, consumers have not had to speak out to protect this burgeoning domain. The loud voices of self-interest, narrow-minded self-interest of the protectionist union forces that seek to dismantle global trade - these are the voices that have garnered the political wings. Their fear-based convictions worry about uncompetitive domestic industries and lost jobs. The media gives full attention to labour unrest whenever the producers feel threatened. But what of the consumer? The silent majority lacks a political champion in the global trade arena. We need a broad consensus that explicitly champions the benefits of unimpeded international trade. We need the customers of Giant Tiger to speak out so they can protect their wallets from the self-interests of the powerful minority.
North America must embrace international trade, and the best way for it to prepare for its impending reality is to formulate even stronger trading relationships on the continent. An economic union of North America would provide a strong base for embracing trade relations with other regions of the world. The competitive advantage of North America, disperse as it is, would deliver new found wealth and protect the North American economy from the ravages of inflation and the unintended deflationary times that so often impede economies when they choose more insular, anti-trade domestic policies.

Saturday, February 04, 2006

Canada - U.S. trade first

The "multi-" in trade is as complex as it is in culture. There is no telling where the complex world of multi-lateral trade agreements can co, but the WTO's relative stalemate at the Hong Kong table instructs us: agreement by committee is no way to pursue aggressive trade liberalization. It is in individual countries best interest to seek bi-lateral agreements - and for Canada, the U.S. and Mexico the trade framework should be a heightened agenda to improve cross-border trade, to build upon NAFTA.

Michael Hart and Bill Dymond are senior trade policy experts, and their recent article found in the February 2006 issue of Policy Options (see spells out Canada's need to step back from the multi-lateral framework and focus on trade issues with the United States:

"The simple fact is that Canada's most basic economic interests are now inextricably bound up with those of the United States and can no longer be addressed multilaterally in the WTO."

Their conclusion:

"Today, however, further multilateral negotiations can make at best a marginal contribution to the most pressing Canadian trade and economic interests. Instead, the opportunities lie in elaborating the bilateral Canada-US agenda and crafting an accommodation with the United States that is commensurate with the reality of deep and irreversible cross-border integration. That agenda involves creating a less intrusive border, pursuing a more deliberative strategy of regulatory convergence, and establishing institutional capacity to manage deepening and accelerating integration. None of these issues can be addressed multilaterally, but they will be at the heart of Canadian tradecraft for the next generation."

North American integration is our best hope for continued economic growth. Better we work on bringing down trade barriers that affect our most important trading relationship than wait for the utopian outcome that is so distant at the WTO table.