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The Conference Board of Canada has prepared a series of primers for Globe readers on the top economic and social issues our next federal government must address.

Daniel Muzyka is CEO and Glen Hodgson is senior vice-president and chief economist of the Conference Board of Canada.

Our first three briefings discussed domestic policies that could strengthen Canadian economic growth. This fourth primer is on the international trade policies needed to adapt and succeed in a globalized economy.

Globalization is clearly the dominant international business model today. It has been with us in one form or another for centuries; the spice trade between Europe and Asia, or the development of North America as a source of inputs and goods for European consumers. Globalization has always been about the unrelenting pursuit of competitiveness, which is producing the highest value at the lowest sustainable cost. And globalization is here to stay, although its form is constantly changing and with cycles in both trade and investment.

What is driving the process of globalization?

First, multilateral and regional action has reduced barriers to international trade and investment. Second, firms have greater ability today to separate the production of goods and services into global value chains, and to conduct trade in inputs as well as final goods and services. And third, there are much more efficient global communications and transportation networks that expedite business around the world.

The core economic policy choice for a trading country such as Canada is whether to try to resist these forces of globalization, or to embrace it and take full advantage of opportunities by constantly adapting, while addressing competitive and social impacts. In our experience, countries that try to resist these forces by creating barriers to trade and investment, or significantly slow the impacts of globalization, have only suffered. Globalization is like gravity: it is ever-present and ultimately wins.

Canada has been built on international trade and investment. There is abundant evidence that freer trade and investment is a net creator of wealth, and Canada benefits from globalization as a small export-driven country dependent upon world markets. But our policy environment over the decades has been uneven and at times ambivalent, as have some pockets of the business community.

Moreover, some Canadian sectors and interests continue to resist freer trade, wishing to protect their own narrow interests (often ultimately hurting themselves) at the expense of wider economy. Political decisions would be required to overcome these vested interests.

For Canada to extract the full benefits of globalization, reforms would be needed to both international and domestic policies. On the international front, Canada is a small market compared with massive business opportunities in North America, Europe, Asia and globally, so trade is critical to our current and future wealth.

More than 20 years ago, Canada secured and benefited from a free trade deal for North America, and it has begun to embrace free trade beyond the continent. The next test case is the Trans-Pacific Partnership. The next government will quickly need to embrace the benefits of the TPP and ensure that Canada has a level playing field for trade in the U.S. market in particular – or risk missing the opportunity and give an advantage to other TPP players.

China is a very special case. It will soon pass the United States as the world's largest economy and it is still growing at a faster pace than most other countries, despite recent slowing. However, Canada may have already missed its window of opportunity for enhanced trade with China.

Our share of Asia's trade in general, and China specifically, has fallen in half over the past decade, which is a worry for policy-makers and should be a specific concern for many Canadian businesses.

Similar policy choices and decisions will be faced on foreign direct investment, both into Canada and by Canadian companies abroad. If Canadians and Canadian firms are to succeed in the global marketplace, there are several questions we might wish to ask all candidates about their trade policy agenda:

  • What would your government do to build and mobilize interest in our global opportunities?
  • What is your position on the various trade partnership opportunities being negotiated – most notably the TPP?
  • Are you ready to address specific vested interests?
  • If you aren’t in favour of free trade, what practical alternative do you support?
  • What would you do differently to capture Canada’s fair share of commerce with China?

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