Thank you, Chair.
I'm also going to speak to the dollar, mainly in relation to the manufacturing jobs crisis. I agree with everything that Jim said. I was going to touch on a number of similar points, so I'll try to talk around the points that Jim made rather than simply repeat what he said.
I agree with Jim, we've lost 100,000 jobs in manufacturing this year already on top of the 200,000 already lost. We're going to see at least that many jobs lost again, moving forward.
In terms of the role of the federal government, one thing we would call for is the establishment of a high-level task force on the future of manufacturing in Canada and how we deal with this crisis, with business, labour, and government representation on it. I do note that task forces have now been struck along those lines in both Ontario and Quebec. I notice Jim there is involved in that with Jayson Myers from the Canadian Manufacturers and Exporters.
We believe that we really need that strong concerted response at the federal government level as well. We think that task force should consider how to reverse the growth in our manufacturing trade deficit. Last year we had a deficit in the trade of manufactured goods of $30 billion, and that's mounting very strongly.
As Jim quite correctly said, what we're seeing as the result of the soaring dollar is quite a severe erosion of our balance of trade. Overall we're barely running a trade surplus now. As Jim says, the idea that the exchange rate appreciation is justified by an increase in manufacturing or trade surplus just doesn't link up with the facts.
We think we need a serious examination about how to increase productivity and value-added in Canadian manufacturing, including in the resource-based sectors, through government support for new investment in innovation, in machinery and equipment, and in workers' skills. I'll come back to that in terms of the role of tax incentives versus other ways to support new business investment, which we certainly strongly support.
Thirdly, we think governments, and by that I mean federal and provincial governments, could very concretely assist Canadian manufacturers at the moment through “buy Canadian” public procurement strategies, linked to new infrastructure investments and to environmental investments. We see real potential in twinning investment and environmental sustainability, meeting the climate change challenge, linked to green industrial strategies for Canada.
Again, I think the second key point beyond industrial policies, industrial development policies, is monetary policy. I think it's interesting that the Bank of Canada continually, in public, takes the position that their only mandate is to address inflation and ensure a low and stable inflation rate, and that they have no particular target level for the exchange rate in mind.
I'd just remind you that the mandate of the Bank of Canada, as set out in the preamble to the Bank of Canada Act, is to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit, and to mitigate by its influence fluctuations in the general level of production trade prices and employment.
Now, we would certainly argue, given the huge impacts of the overvalued dollar on production and employment, that the bank's mandate does indeed extend to having a serious concern with an extremely overvalued exchange rate.
I don't need to remind this committee, given the fine work that you've done recently around the manufacturing sector and issues it's facing, of its central importance to our economy, even though this is shrugged off by many economic commentators.
The labour movement recently commissioned a major study from Informetrica Ltd., which I'd be glad to provide to you. It's on their website. Just by virtue of showing the linkages from manufacturing to the rest of the economy, they showed that if we had a $10 billion a year increase in manufacturing exports, which sounds like a big number, but it's just a 3.3% increase, that would generate 67,000 new manufacturing jobs, but on top of that we'd see an extra 48,500 spinoff jobs in the service sector. That's everything from financial services to other parts of the service sector.
From that stimulus to manufacturing, most of the positive job impacts, as one would expect, would be in Ontario and Quebec—about half in Ontario and a quarter in Quebec—but a quarter of those job gains would be felt in Atlantic Canada and western Canada.
As we are constantly told, Canada has to adjust to a changing global economy by shifting to production of goods and services that sell on world markets because they're innovative, high quality, or unique—and not just compete on the basis of cost. This demands investment in innovation, new machinery and equipment, and so on and so forth.
I guess the point I would make here, to reinforce what Jim was saying, is that the scale of the exchange rate appreciation compared with a realistic level in the low to mid-eighties range is so great that any tinkering around with the general corporate tax rate would have almost no significance for our weathering this crisis.
At the CLC we did support the accelerated depreciation measures that were recommended by this committee. It's imperative that industry adjust to this problem by investing, rather than going out of business. Certainly that measure should be continued. We would recommend turning it into an investment tax credit so that companies that are losing money will also be able to benefit from the measure.
But much more importantly, from looking at new manufacturing investments over the last number of years, we see that the measures that have been most effective are closely targeted measures, such as those in support of new auto industry investment. By contrast, if we were just to cut the general corporate tax rate across the board, much of that benefit would go to the already booming resource sector, in terms of even greater profitability, which would actually compound the problems of the rising dollar. And much of that benefit would go to the financial sector. As a share of total profits now, manufacturing profits are a relatively modest and falling share of the total, so if we were talking about targeted measures, I think further across-the-board tax cuts would not be the most desirable way to go.
I might add, just in terms of the new economy or the need for restructuring our economy towards more innovative areas, I absolutely agree with that. We should be aware that 55% of all research and development expenditure in Canada is within the manufacturing sector. Much of the high value-added parts of our service sector are very closely tied to that. So the idea that we can simply wave goodbye to manufacturing and weather this crisis somehow, and survive as a strong resource-based economy with a service sector just attached to it, I think is quite profoundly wrong.
As I've said, our manufacturing trade deficit has just exploded—and it's continuing to, and is really in jeopardy. You really have to address the question, how is Canada going to pay its way in the world if our manufacturing trade surplus and manufacturing exports continue to decline? We can only pay for something in the order of 20% of our imports through the exports of the energy sector.
As Jim has alluded, there's this widespread perception that Canada has a petro-currency. Our total energy exports are only equivalent to our auto industry exports. The oil sector is much less than that, or about 12%, if you take all oil products and refined oil products. So in many ways this is the tail wagging the dog of the whole economy. I think there's a misperception on the part of international investors about the extent to which the Canadian economy is truly driven by the resource sector, and a real underestimation of the importance of the manufacturing sector to our overall well-being.
Just to say a word about the interest rate issue, I think the conventional wisdom—and it's true to a degree—is that our dollar has been very strong because of the increase in resource prices and because of U.S. dollar weakness. With respect to the whole issue of U.S. dollar weakness, the fact of the matter is that we have appreciated much more against the U.S. dollar than any other currency; about one-third of the entire depreciation of the U.S. dollar in trade-weighted terms against the rest of the world has been borne by us. We're bearing a really unfair share of that U.S. dollar depreciation versus the rest of the world.
It's easier to talk about it than do anything about it, but the fact that the Asian currencies—the yen, and the Chinese currency—are so tightly linked to the U.S. dollar is just a huge, huge problem for us. The U.S. has not been gaining market share in Canada while their dollar has depreciated against ours. All of our domestic market share is going to Asia, not to the U.S. Meanwhile, our market share in the U.S. isn't going to U.S. manufacturers; it's going to Chinese exporters, Asian exporters, to the U.S.
We really, I think, face a very fundamental and disturbing balance in trade as between North America and Asia, which has to be addressed.
I sense I'm running out of time.
I'll just make the point that, as Jim has alluded, there is an important influence of interest rates on the value of the dollar. Compared to when we were at the mid-eighties level at the beginning of this year, we raised and then just now reversed Canadian interest rates. We raised by a quarter point. It looked like we were going higher. They changed track slightly last week. The U.S. has cut its interest rates by now one full percentage point. So compared to where we were with the 85¢ dollar, that interest rate difference has really converged.
We certainly think if we'd been matching those U.S. interest rate cuts as they were taking place, and certainly matched them moving forward, that would take some of the steam out of the dollar. Now we're going to still end up with it being uncomfortably high, but certainly monetary policy can and should make a real difference at the moment.
Thank you.