Evidence of meeting #51 for International Trade in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was data.
A recording is available from Parliament.
12:25 p.m.
Conservative
The Chair Conservative Leon Benoit
Mr. Marston, I don't think that question is one that can be answered by any of these gentlemen. Could you maybe go to another question?
Gentlemen, do any of you want to respond to that? It seems like a policy question to me.
Mr. Marston, do you have another question?
12:25 p.m.
NDP
Wayne Marston NDP Hamilton East—Stoney Creek, ON
We'll move along then. I'm a little surprised, because I saw Mr. Burger's light go on and I thought that meant he had an opinion. It seems interesting that the opinion was short-circuited by the chair.
Anyway, on exports of the Canadian dollar, automotive manufacturers are concerned about the rising Canadian dollar eroding our costs and productivity advantage. What do you estimate is the manufacturing cost advantage at the current exchange rate? Is there an ideal Canadian-U.S. exchange rate for our exports?
12:25 p.m.
Acting Director and Deputy Chief Economist, Policy Research and Modelling Division, Department of Foreign Affairs and International Trade
Is there an ideal exchange rate? The first point is that Canada has a market-determined exchange rate that reflects the demand for the Canadian dollar from a wide variety of sources and the supply of the dollar as well. The bank, of course, focuses on price stability in Canada as its main policy objective and not on a specific level of the exchange rate.
In terms of the very long run, the dollar tends to gravitate towards its purchasing power parity level, but in any medium term--and that can be for a fairly extended period of time--the dollar can vary quite significantly from that particular level. If one were to say in economic terms what the long-run value would be in some sense, it would be the purchasing power parity level. That would tend to equate prices in Canada with prices abroad, and it would be the level at which, in a sense, the law of one price would rule; effectively there would not be competitive advantages for one country over another country in trade.
That is a very long-run concept. In the medium term and in the short term, prices are moving in all industries, and there is no one exchange rate--particularly for a country like Canada, which has both manufacturing and resources--which is “ideal”.
There's a concept of a common currency zone, an optimal common currency zone, in the economic literature. It says if your production were fairly homogenous of a certain kind of product, then the exchange rate could move towards what is optimal for that particular product. When you produce a very wide range of products, as Canada does, no one industry can ever be satisfied that it has the optimal currency. Does that satisfy your question?
12:30 p.m.
Chief Economist, Office of the Chief Economist, Department of Foreign Affairs and International Trade
I've just had one little fact, which is that in 2005 we produced 2.6 million units of cars and light trucks and the U.S. produced 11.5 million units. It was 2.6 million in Canada and 11.5 million in the U.S., suggesting that we still have a competitive edge, because otherwise you might imagine it would be 1:10.
12:30 p.m.
Conservative
The Chair Conservative Leon Benoit
Okay. Thank you very much.
Thank you, gentlemen, all of you, for coming today. It's been an extremely informative and interesting meeting, and I thank you for that.
We'll take about a three-minute break before we go to the committee's examination of the subcommittee on agenda and procedure report. That meeting will be in camera, so I will ask anyone who doesn't have clearance to be here to please leave.
Thank you very much, gentlemen.
[Proceedings continue in camera]