Thank you very much, Mr. Chair and committee, for having me.
The CAW represents about 260,000 members in a range of Canadian industries, mostly in the private sector. About one-third of our members work in the auto industry, which is one of the industries hard hit by the rising dollar.
The auto parts sector is feeling the pain most immediately. Over 15,000 jobs have now been lost in auto parts since 2002, when the dollar first took off. I know from personal knowledge that there are literally dozens of auto parts plants facing imminent closure--one more, apparently, announced today. Lear Seating in Windsor is going to close, I understand. Without a dramatic change in the industry's outlook, I would expect at least another 10,000 auto parts jobs to disappear in the coming year.
The situation in auto assembly is not as dire but is still very negative. Auto assembly has lost about 10,000 jobs in Canada since the late 1990s. Thousands more will be lost in coming months due to plant shutdowns and shift layoffs.
Now, it would be wrong to blame the auto industry's problems entirely on the dollar, but the rising Canadian dollar has taken a bad situation and made it far, far worse.
The same story can be told across manufacturing. Canadian manufacturing has lost well over 300,000 jobs since the loonie started rising in 2002, but the job losses we're seeing today are the result of the dollar's rise two or three years ago. There are significant time lags and adjustments resulting from company investment planning, multi-year contracts, the impact of hedging, and other transitional factors. So we have not yet begun to see the consequences of the dollar's rise through 90¢ and then the dollar's rise to and beyond parity.
If the Canadian dollar stays anywhere near parity with the U.S. dollar in the medium term, I project another 300,000 manufacturing job losses in the next two to four years.
Some commentators have said the problem is global and results from a weak U.S. dollar rather than a strong Canadian dollar. This is not true empirically. Most of our problem is that the Canadian dollar has been uniquely strong, not that the U.S. dollar is weak. Consider the evidence. Compared to its 2005 average level, our dollar is up by about 25% against the U.S. dollar. On a trade-weighted basis against all its trading partners' currencies, the U.S. dollar has fallen by 10%, so it's fallen by 10% against the broad basket. Our currency has risen by 25%. That suggests that less than half the problem is a weak U.S. dollar; more than half the problem is a strong Canadian dollar.
The picture is even clearer from a longer-term perspective. If we go back to average 2002 levels as the starting point, our loonie is up 60% against the greenback; the dollar is down only 20% against its trade-weighted basket. That means for every penny of depreciation against the trade-weighted basket, we've experienced three pennies of appreciation of our currency. So, again, more like two-thirds to three-quarters of the problem is the unique strength of our Canadian dollar.
Not all currencies have strengthened against the U.S. dollar. Some have been stable and have even fallen. The yen, the yuan, the peso, the Taiwanese dollar, and others have all been broadly stable or even declining. It is factually false to claim that Canada's experience of rapid appreciation is universal.
Our currency has risen faster against the U.S. dollar than the currency of any of its other major export partners. Look at the list of the 10 largest exporters to the U.S.: our currency has increased faster than any others, by more than twice as fast as the average, yet we are the ones who are the most dependent, along with Mexico, on exports to the U.S. market. The combination of the uniquely rapid rise of our currency and our unique dependence on U.S.-bound exports puts Canada absolutely in a class of its own in terms of the risks we face from currency markets today.
How do we understand the run-up in our currency? Monetary policy is clearly part of the story but not all of the story. Our central bank has increased rates while the U.S. Fed has cut rates. That differential is a consistent determinant of our exchange rate. The Bank of Canada's recent actions were clearly a mistake. They have been guided by an unduly narrow reading of their own inflation-targeting mandate.
The bank should cut rates immediately and substantially. Moreover, it should indicate more clearly that its future interest rate decisions will take into account exchange rate volatility and the long-term economic risks that volatility pose to us.
Those actions alone would release much of the steam from the loonie's bubble, but that would not be enough. The loonie has been driven up in tandem with world oil prices. Some people call Canada's dollar a petro currency. There's no economic justification for that. We export more motor vehicles than oil, but this is the behaviour of financial markets, resulting from record prices for minerals and energy exports, record profits for Canadian energy and mineral producers, the investment boom in energy and resource industries, and the surge of incoming portfolio investment from foreign investors, who are purchasing Canadian resource companies.
The inflow of many tens of billions of dollars of foreign portfolio investment to Canada has been a crucial cause of the loonie's assent in the last year, and the government can take action on this point, too. They can control the pace of Canadian resource development more carefully, they can ensure that Canadians are getting fair value from that resource development in terms of taxes and royalties that make sense, and they can review foreign takeovers to make sure they can add real value to our economy. Merely announcing those measures would be akin to taking down the “For Sale” sign that currently hangs on Canada's door and would cool down the overheated, speculative inflow that's driving up the dollar.
The federal government and the Bank of Canada have both declared they can't do anything about the dollar. In my view, this is an absolutely blatant shirking of their economic responsibility.