Free trade within North America has brought us great benefits. Ideally, though, what we should be striving for is the removal of multilateral barriers to trade, so that the whole world can be open for business. We should not lose sight of this goal by focusing only on freer trade within North America.
However, there are still some issues to be resolved along the road to freer movement of goods across the U.S.-Canada border. We appreciate and share concerns about border security. At the same time, both Canada and the United States have a strong interest in keeping trade moving expeditiously in both directions.
There are other areas that merit further examination. We both could look at certain policies of our states and provinces that affect the flow of goods and services. We could work to remove any remaining national barriers to trade. And we could consider areas where we might benefit from further harmonization of regulatory regimes. We also have some distance to travel towards closer integration of the Canadian and U.S. labour markets.
Emerging Market Competitors
Most of what I've been discussing so far pertains to bilateral economic relations between Canada and the United States. But it's clear that the global economy counts for a lot these days. In particular, both of our countries face strong competitive pressures coming from China, India, and other emerging Asian economies.It is true that low-cost and efficient production capacity in Asia puts considerable pressure on industries that are important sources of employment in our economies. With advances in technology, we are also seeing much more global competition in the services sector. These developments imply changes for many firms, and a shift in resources among sectors in our economies.
But while the emergence of these new markets means more competition, it also presents us with new opportunities. It creates new markets for our products—especially raw materials, machinery and equipment, and high-end technology goods.
What does all this mean?
Our experience in North America shows how important it is to resist protectionist pressures, and instead embrace competition, free trade, and open capital markets as the key to rising incomes and prosperity over the longer term.
We also need to continue to focus on doing what is right for our domestic economies. This means establishing a stable macroeconomic environment, making our economies more flexible to meet growing competition, and facilitating the transfer of resources from shrinking to expanding sectors. In this context, a flexible exchange rate is an important mechanism that makes adjustment to changes in the world economy easier.
Our experience in Canada suggests that appropriate macroeconomic and structural policies, including more flexible exchange rateregimes, could also help emerging market economies as they become more integrated into the world economy. A key element here is China's fixed exchange rate, and how successful the Chinese authorities will be in meeting their stated goal of moving to a more flexible currency regime. Such policies would also help with the process of adjustment more globally.
