Canadian economics Essay Example | Topics and Well Written Essays - 2500 words

Canadian economics - Essay ExampleDuring the first half of 2003, a rapidly appreciating currency cut deeply into bring in exports in most Canadian traded goods industries. The auto industry was among the hardest-hit sectors. Automotive products have traditionally gene sited an important trade surplus for Canada, offsetting continuing large trade deficits in most other high-value and high technology manufacturing products. Already, however, the appreciating dollar has reduced Canadas automotive trade surplus by 50 percent (compared to the first half of 2002). short-run impacts of a higher dollar include both reduced real shipments and shrinkage in the domestic value of Canadian exports (most automotive exports are priced in U.S. dollar terms). Even more important longer-run impacts could include the relocation of new coronation to alternative jurisdictions, as Canadas relative cost competitiveness is eroded. If the exchange rate stays at current levels or higher on a longer-run bas is, Canada could feasibly become a net importer of automotive products within 5 years.On average, periodic labor productivity in Canadas manufacturing sector is approximately 15 percent lower than in U.S. industry. Given the current differential in nominal periodic compensation cost between the two countries (hourly total compensation costs in Canadian manufacturing average just over $25 Cdn., whereas total hourly compensation costs in U.S. manufacturing are about $21.50 U.S.), this creates a nominal unit labor cost disadvantage (measured in national currencies) that must be offset by the exchange rate between the two currencies. When the Canadian dollar trades at approximately 72 cents U.S., average manufacturing unit labor costs in the two countries are equalized. If the dollar is above that level, therefore, Canadian manufacturing (on average) faces a unit cost disadvantage that will spark the long-run outward migration of investment and employment (the opposite of what occurre d in the late 1990s when the Canadian dollar traded for less than 72 cents U.S.).The Rising Canadian Dollar and its Impact on the Canadian Auto Industry, Testimony of Jim Stanford Economist, Canadian Auto Workers Before the Standing Committee on Foreign Affairs, Senate of Canada, October 8, 2003http//www.caw.ca/visual&printlibrary/speeches&briefs/briefs/senatetestimonyonthedollar.pdfIs Canada now at hazard of catching the Dutch disease What is the evidenceWhen it gains ground against the U.S. dollar, for example, Canadian exporters lose ground because their products become more expensive for U.S. buyers. Its simply harder to compete.Since 2002, Statistics Canada says 189,000 manufacturing jobs have disappeared in Canada. The role places the blame squarely on the soaring loonie. But some economists say the difficulties of adjusting to a higher loonie will help exporters in the long run, because theyve had to take measures to advance efficiency. The days of relying on a cheap looni e to help them sell in the U.S. are long gone. Cheaper U.S. dollars also provide Canadian companies with an opportunity to invest in U.S.-made tools that make them more competitive. Much of the software and machinery Canadian companies