Glen Hodgson is senior vice-president and chief economist at the Conference Board of Canada, and Danielle Goldfarb is director of the Global Commerce Centre at the Conference Board of Canada.
Canada faces a dramatically changed global economy compared to just a couple of years ago. It can no longer rely on high commodity prices or traditional manufacturing for its future export successes and overall wealth. Data-driven business is the future of commerce and all Canadian firms will have to be tech-savvy to succeed. Government trade and economic policies should lay the foundation for their success.
This new economic context presents challenges for Canadian policy makers. Canada's future trade and international business will look very different than the recent past. Focusing strictly on merely eliminating tariffs for exports is insufficient to position Canada effectively for the future. Policy makers will need to focus on the freer movement of ideas, data, people, services and investment. Agreements such as the Canada-Europe trade deal and the Trans-Pacific Partnership have begun to address newer types of services and digital trade, but each is now facing challenges in ratification and governance. Moreover, better ways to track and evaluate the evolution of the newer types of trade are needed.
The Conference Board of Canada has just released a report, Canada's New Trade and Technology Paradigm, that evaluates the dominant emerging forces in international trade and technology that will drive the next generation of Canadian international business.
The Canadian economy has struggled in recent years with weak growth, due in part to the end of the China-driven commodity price super-cycle. Fortunately, the U.S. consumer is finally back and Mexican growth has picked up, which offers the prospect of renewed sales growth to our regional neighbours. Growth in once-booming emerging markets is slowing, though some remain more promising than others, offering scope for trade and investment diversification for Canadian firms.
At the same time, digitization is permeating traditional businesses. Firms still sell products and services, but increasingly through digital channels. In the future, manufacturing and engineering companies will become data companies at their core, with huge amounts of valuable behaviour and logistics data. For example, Internet of Things sensors can track products across supply chains and control product rotation on shelves and in warehouses. Or a product might be shipped abroad, but the company keeps a digital representation of how it was made, and can track where it is, how it is being used and how well it is working. This allows engineering, sales and marketing teams to identify problems or opportunities instantly.
Digitization has also created new types of trade; data flows are both permeating traditional industries and creating entirely new industries that disrupt incumbents. Airbnb is one example – the company owns no hotel rooms, but matches people who want rooms with those that have them. Countless other examples of new types of business have sprung up, such as those that meet data archiving needs, or those that allow people to transfer money across borders instantly, threatening traditional financial services.
The ability to digitize information and send it anywhere means any tech-savvy business has the potential to trade globally – but the flip side is intensified competition almost everywhere. Firms have to be more nimble and technologically advanced to compete successfully. Those firms that can leverage the acceleration of data flows will be best positioned to take full advantage of global markets in the future.
More disruptions are on their way. Potentially disruptive technologies include automated vehicles, intelligent software, cloud computing and advanced robotics. Canada will want to position itself to leverage the benefits of new technological developments, while mitigating negative impacts. Our thinking, policies and activities at home will need to transform accordingly to facilitate this integration of goods, services and technology, ideally creating a competitive advantage.
Climate change and related climate policies will simultaneously shape Canada's future trade and value chains. In addition to the evident environmental impacts, climate change and expected policy changes present both risks and opportunities for Canadian businesses. We will want to capture our fair share, and more, of the takeoff in green technologies and services by fostering both the supply of green tech and ideas and demand for the green economy globally.
Geographically, a forward-looking focus on the United States and China, already our two largest markets, will be critical to advancing Canada's trade interests. Following decades of underspending, domestic investment in core trade infrastructure such as ports, roads, airports and rail should be a priority. Digital infrastructure, such as reliable Internet connectivity across the country and with the rest of the world, is just as crucial to building and maintaining links with partners and customers.
In short, investment in technology and innovation – and in the human talent to utilize it and leverage the vast amounts of data it will yield – will be the differentiators in making businesses and economies competitive in these digital times. Recognizing this new trade and technology paradigm and taking full advantage is key for a prosperous future Canada.
This is part of an occasional series on Canada's economy and its shift away from resources.