Dutch Disease, the Canada – US Exchange Rate and Trade With Asia
Today’s Globe editorial provides further evidence of distorted economic reasoning being rolled out to attack Thomas Mulcair.
“Mr. Mulcair seems to long for a golden age of manufacturing and a low dollar, but his longing wonâ€™t take Canada anywhere. Not only the dollar but Asian competition has inflicted damage on Canadian exporters.”
The implication seems to be that the over-valued Canada-US exchange rate has little or nothing to do with Canada’s huge and growing manufacturing trade deficit with Asia. But that ignores the fact that Canada’s Asian trade partners – most notably China – effectively manage their currencies against the US dollarÂ to maintain a competitive advantage.
Seen from this perspective, the over-valued exchange rate against the US dollar – which almost all economists see as driven in significant part by rising energy and mineral prices – has impacted not just on Canada-US two way trade, but has also contributed to rising Asian exports to Canada, and very limited growth ofÂ non resource exports to Asia. The over-valued Canadian dollar has limited our ability to compensate for a depressed US market by levering off faster Asian growth.