set trade policy. but we need to understand shifts in global trade because they affect lives and livelihoods, and they drive costs and inflation. conclusion so let me conclude with the implications for monetary policy. the rapid globalization through the 1990s to around the global financial crisis significantly reduced the prices for many globally traded goods. this contributed to a lower cost of living for many households. going forward, with globalization slowing, the - 13 cost of global goods may not decline to the same degree. all things equal, this could put more upward pressure on inflation. trade disruptions may also increase the variability of inflation. the pandemic taught us a lot about supply shocks and how they can affect the volatility of prices. supply chains are complicated, and shocks affect inputs and outputs in different ways. and while supply shocks are historically transitory, they can persist — and accumulate. we also learned that when the economy is already overheated, disruptions to supply can have an outsized effect on inflation. so what is the bank of canada doing to ensure we ’ re prepared for the supply shocks that come with trade disruptions? we ’ re investing in data and analysis to better understand supply chains, especially at the global level. we ’ re updating our models to use scenarios when periods of uncertainty make central forecasts less reliable. and we ’ re using more microdata to track and understand the consequences of trade and industrial policy. but even with a better understanding and better information, trade disruptions may mean larger deviations of inflation from the 2 % target. supply shocks present central banks with a difficult trade - off — monetary policy can ’ t stabilize growth and inflation at the same time. that means we have to focus on risk management, balancing the upside risks to inflation with the downside risks to economic growth. most importantly, we must avoid adding uncertainty to an already uncertain environment. that means ensuring inflation is low, stable and predictable even as global trade is being rewired, recast and redirected. thank you.

need to be addressed, but it is important they not become a pretext for inefficient protectionism. trade is also being rerouted as businesses try to diversify supply chains and find friendlier partnerships. 4 but the combination of more trade restrictions and shifting trade routes means supply chains have actually gotten longer — with products detouring through other countries such as vietnam instead of going directly from china to the united states. 5 fragmentation has economic costs. businesses have to focus on national security and geopolitical uncertainties, not just efficiencies and productive partnerships. the imf estimates that costs of trade fragmentation could range from 0. 2 % to 7 % of global gdp. 6 but costs go beyond trade — and the losses are unlikely to be distributed evenly. the loss of knowledge spillovers, high - tech partnerships, critical imports and capital flows affect low - income economies in particular. the potential for trade and innovation to continue to lower global poverty will decline. 7 trends in canada ’ s trade so those are the global trends. in many ways, canada is a microcosm of these global shifts. our overall trade growth has slowed in recent years. our export growth has been coming increasingly from services. and global fragmentation is presenting new challenges and opportunities. slowing trade growth canada is a very open economy. over the last decade, trade as a share of gdp has been about two - thirds — the second highest in the g7 and the fourth highest in the g20. we rely on exports for roughly one - third of our income. imported components feed our industry, and imported final goods and services improve the lives of canadians. the united states is, by far, canada ’ s biggest trading partner — accounting for roughly 75 % of canada ’ s exports. thanks in part to the canada - us free trade agreement in 1989, and updates in the years following, canada and the united states benefit from the largest bilateral trade relationship in the world ( chart 5 ). our biggest exports to the united states are oil and gas, and motor vehicles and parts. 4 see l. alfaro and d. chor, “ global supply chains : the looming ‘ great reallocation ’, ” paper prepared for the jackson hole economic policy symposium : structural shifts in the global economy, august 24 – 26, 2023. jackson hole, wyoming : federal reserve bank of kansas city. 5 h. qiu, h. s. shin and l. s. y. zhang, “ mapping