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Should we lock Canada's Dollar at Par with the American Dollar?

By Charles Moffat - February 2008.

There are advantages and disadvantages of the above scenario, but the same is true of the current floating dollar.

Under the current system Canada's exports to the USA gets hurt if our dollar rises too much and/or too fast. If our dollar drops in value, our exports to the USA will rise over the long term.

Back in 2000 86.9% of Canada's exports went to the good ol' US of A. At the time approx. 9% of our exports went to Europe and the remainder went to Asia, South America and other continents.

By 2006 however that number had dropped to 54.9% as our exports to Asia soared dramatically. China is now Canada's 2nd largest trading partner. We are becoming less reliant on our exports to the USA.

Exports account for approx. one third of Canada's GDP, which in 2007 was $1.2 trillion US

Canada's labour force by occupation: Agriculture 2%, manufacturing 13%, construction 6%, services 76%, other 3%.

The things Canada exports to the USA (in order of importance) are cars, car parts, minerals/metals, oil, and other high demand goods.

In theory we could be sending more to the USA if we had a stable and equitable currency that wasn't fluctuating wildly up and down.

But there is a catch. It isn't Canada's currency that is growing stronger or fluctuating wildly. It is America's dollar that is getting weaker. The US dollar is going down the toilet due to the American recession and a complete lack of economic leadership coming from the Bush administration.

So the worst thing we could do is lock our dollar to a currency which is growing weaker and weaker.

China preferred trading partner

China More Promising Market for Canadian Exports Than the United States Says Nationwide Opinion Poll

A national opinion poll by the Asia Pacific Foundation of Canada and The Globe and Mail suggests that Canadians believe China holds greater potential for Canadian exports and investment than the United States. Forty-two per cent of respondents identified China as the market with greatest potential, well ahead of the United States at 29 per cent. The next most important markets were Japan, India, Southeast Asia, and the European Union.

The poll was conducted between August 2-9, 2006 by The Strategic Counsel on behalf of the Asia Pacific Foundation and The Globe and Mail. Results for the national sample are accurate to within 3.1 points 19 times out of 20.

When asked about the importance of different countries/regions for Canada's prosperity and well being, the United States was selected by 89 per cent of respondents, followed by China at 77 per cent, the European Union at 66 per cent, and Japan at 65 per cent.

"The poll demonstrates that Canadians are attuned to the rise of China as an economic power. Whether or not China in fact holds greater potential than the United States, Canadians are embracing economic relations with China as a necessary and positive development," said Yuen Pau Woo, Foundation President and Co-CEO.

Only 38 per cent of respondents believe that China's growing importance as an economic power is more of a threat for Canada than an opportunity. Seventy-three per cent agree that increased Canada-China trade will "mostly help" Canadian consumers.

At the same time, Canadians are concerned about possible job losses due to increased Canada-China trade. Fifty per cent of respondents believe that increased trade will lead to job losses, compared to 43 per cent who think increased trade will create jobs. A sharp regional difference reveals that the fear of job losses is strongest in Quebec, with 61 per cent who believe that employment will be negatively affected. In the rest of the country, there was an even split between those who felt that job losses would dominate and those who believed that there would be jobs gained.

There were a number of other striking regional differences in views about China. While Quebeckers were split on whether China or the US holds more potential for exports and investment, the rest of Canada chose China over the US by a margin of 18 percentage points. The gap in favour of China was even larger in western provinces, especially British Columbia, where 57 per cent of respondents said China had the most potential, compared with only 18 per cent who chose the US.

Canadian exports to China Skyrocketing

Canadian exports to China grew strongly last year despite Ottawa's increased focus on human rights, says Canada's trade minister.

Exports rose about 27 per cent according to preliminary figures, International Trade Minister David Emerson said following a ceremony to open a new commercial annex at the Canadian Embassy in Beijing.

"We're starting to the turn the corner. It's not where you want it to be, but you've got to start somewhere," Emerson said, referring to Canada's substantial trade deficit with China.

Emerson said there have been no signs of Chinese retaliation against Canadian business following a recent meeting between Prime Minister Stephen Harper and the Dalai Lama - the first time a Canadian prime minister has met with the Dalai Lama at federal government offices.

China reviles the exiled Tibetan leader as a separatist bent on ending Chinese rule there.

Similar meetings between the Dalai Lama and German Chancellor Angela Merkel and U.S. President George W. Bush have drawn political and economic retaliation from Beijing.

However, asked if the October meeting had resulted in specific Chinese threats against Canadian business, Emerson said: "None that have been directed at me."

"They've been outspoken about that," Emerson said in acknowledging China's irritation over Harper's meeting with the Dalai Lama.

"(But) I do not believe that it will fundamentally derail the relationship," said Emerson, speaking at the beginning of a trade mission to China, Mongolia and Hong Kong that winds up Jan. 11.

Canada recorded a $26.8-billion trade deficit with China in 2006 against an overall trade surplus of $43.6 billion.

"We are of the view that Canada has underperformed over the last 10-15 years in terms of trade with China and our export performance in particular," Emerson said.

He said Canada hoped to improve the trade balance with China with agreements boosting air transport, tourism and investment.

Emerson plans to visit Mongolia later this week, where mining companies have made Canada the second-largest foreign investor.

Emerson is accompanied on the trip by James Moore, parliamentary secretary for the Pacific Gateway and the Vancouver-Whistler Olympics.

The trip is aimed at providing an opportunity for Canadian companies to pursue trade and investment opportunities in Asia, particularly in the air services field.

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