timothy lane : how canada's international trade is changing with the times remarks by mr timothy lane, deputy governor of the bank of canada, at the saskatoon regional economic development authority, saskatoon, saskatchewan, 18 september 2017. * * * introduction my theme today is international trade, which is the lifeblood of the canadian economy. throughout our history, we have successfully relied on our exports and imports, particularly during the vast expansion of global trade in the decades following the second world war, to support our rising standard of living. today, exports and imports represent about 65 per cent of our output, one of the highest ratios among the g7 countries. few places in canada illustrate the importance of trade and innovation as vividly as saskatchewan. historically, people living on the prairies relied on exporting grain — and, more recently, potash and oil — to markets outside canada ’ s borders. they imported many of the products they consumed and the tools they used, from t - shirts to tractors. in the first several decades of confederation, they often chafed at the trade barriers that were put in place to protect and nurture the growth of the manufacturing industries of central canada. what is remarkable is how nimble businesses in this province have been. they have adapted and innovated not only to grow market share but also to develop new products and markets for them. in recent years, the pattern and drivers of trade both nationally and in saskatchewan have evolved dramatically in response to forces that have been acting at the global level. innovations in many areas, notably information and communications technologies ( icts ) and logistics, have given rise to the development of new products and new ways of producing and trading them. a particularly important trend has been the emergence of global value chains ( gvcs ), with various stages of production located in different countries. in this context, the progressive lowering of trade barriers worldwide has had outsized effects. trade agreements have enabled much closer economic integration, and trade flows have burgeoned, leading to increases in productivity and living standards. these trading relationships are now being called into question. populist movements in some of our major trading partners are demanding new trade barriers. however, such protectionist measures would undoubtedly mean less trade, which would reduce economic growth. while i can ’ t comment on the specifics of any particular agreement, we have certainly been assessing this shift toward protectionism, how it might affect the outlook for growth in canada and its trading partners and ultimately what it would

strength in business investment and exports, in conjunction with a global economic expansion that is becoming more synchronous ( chart 6 ). imports are also expanding ; the increases we are seeing in imports of machinery and equipment and of various intermediate products are early signals of rising business investment. it was in this context that the bank of canada decided, in july and again earlier this month, to raise our 7 / 10 bis central bankers'speeches policy rate. we will be paying close attention to how the economy responds to both higher interest rates and the stronger canadian dollar. looking ahead, canada ’ s openness to international trade is an important determinant of canada ’ s economic growth potential — that is, of how fast the canadian economy can grow without giving rise to inflationary pressures. that growth potential could be greater than we think — if businesses find new ways to engage with gvcs and develop new products and processes to make them more productive and competitive. as in the past, further expanding canadian firms ’ access to markets and to imported inputs could unlock more opportunities. an example is the canada – european union comprehensive economic and trade agreement, most of which will be implemented in the next few days. but some other developments are more concerning. with the rise in protectionist sentiment in some parts of the world, we have been entering a time of heightened uncertainty about the rules of the game on international trade. the possibility of a material protectionist shift — particularly regarding the outcome of negotiations on possible changes to nafta — is a key source of uncertainty for canada ’ s economic outlook. given the nature of international trade in the 21st century, the stakes are very high. as i discussed, the economic benefits we have experienced from trade liberalization were not only in expanding the markets for canadian exports. we also benefit from the greater efficiencies that can be achieved by those exporters that do expand, the heightened competition and better access to imported inputs that come with greater openness to imports, and the resulting spur to innovation throughout the gvcs. if trading rules are changed in a way that undermines these benefits, the result would be both lost external demand for exports and lower potential growth for canada as well as for the united states and other trading partners. 8 / 10 bis central bankers'speeches conclusion as an open economy, canada ’ s fortunes will continue to rise or fall with trade, as they have throughout our history. global economic forces — the sharp movement of commodity prices ; the great recession