Time to “follow through” on diversifying trade: Central bank governor

Bank of Canada Governor Tiff Macklem said that lessons were not learned from the 2008 financial crisis regarding the country’s dependence on the United States for economic stability.

Source: Bank of Canada

Bank of Canada Governor Tiff Macklem said that lessons were not learned from the 2008 financial crisis regarding the country’s dependence on the United States for economic stability, and that despite all the talk about diversification, “not much happened.”

Macklem’s speech was addressed to Saskatchewan business leaders regarding global trade disruptions in the wake of U.S. President Donald Trump’s tariffs on American imports.

Macklem noted that the primary reason Canada faced a recession in 2008-09 was because U.S. demand for Canadian “exports plummeted.”

“It was a wake-up call of just how reliant we are on the U.S. If U.S. demand dries up, we get hit very hard,” said Macklem in Saskatoon on Tuesday.

“Around that time, there was increasing recognition that we needed to diversify our exports. We needed to increase our linkages, particularly to fast-growing market economies.”

Many economists and business leaders spoke of this issue in the years following the recession; however, the urgency of those calls faded as time went on.

“Everyone talked about diversification then, too. But not much happened,” Macklem added.

During that period from 2008 to 2013, Prime Minister Mark Carney was serving in Macklem’s role as Bank of Canada governor.

“Canadian leaders – business, political and economic leaders – need to chart a new course. We should have been making these changes 15 years ago. But the next best time is now,” said Macklem.

“The reality is that it’s been easy to do business with the United States. They’re right next door, speak the same language. They’ve had rule of law. We watch the same sports shows. We watch the same TV shows and have a lot in common. Just look at a map; geography matters. It’s relatively straightforward to ship things north-south,” said Macklem.

According to Macklem, those reasons sort of “overcame the broader benefit” of trading with other markets and “so we didn’t really succeed in diversifying.”

However, the central bank governor said that Canada and the U.S. aren’t going through a “cyclical downturn” this time around and things aren’t likely to bounce back in the near future.

He went on to say that while he thinks the U.S. will likely always be Canada’s largest trading partner, the structural changes to the economic relationship will require a structural response.

“To the extent that this relationship has permanently changed, there is a permanent cost to the Canadian economy and I think that underlines that this is a structural change that needs a strategy,” he said.

Macklem said that diversifying trade will also lead to us getting better prices, “even with the United States.”

“You’ve seen that with the TMX expansion. It has increased our ability to get oil to Asia, but importantly, it has narrowed the spread between WCS, the Canadian price and WTI, West Texas,” he said.

“So that for every barrel we’re exporting, regardless of where it’s going, we’re getting a better price.”