I invented the phrasing “integrative trade” because I was trying to find a simple brand that people could get their heads around and really understand. That reflects what's happened with liberalization of trade all the way back to the end of the Second World War. There has been steady, step-by-step progress. The tariff barriers have come down. That's allowed businesses to reposition parts of their production around the world because they don't face the same added costs of manufacturing something in one country and then shipping it to another. And that's being driven by foreign investment. This is a phenomenon you see in Canada, and you can actually trace it. For example, in looking at the foreign share of our exports--it's a hard concept--I'll flip it around: the Canadian content of our exports has actually fallen very progressively year after year, until recently, for a long period of time. I think in 1990 the Canadian content of our exports in aggregate was about 70% or 71%. Now it's about 65%.
Think about the auto industry. The auto industry is probably the most striking example, because it is arguably one of the most, if not the most, globally integrated industries in the world. In Canada, we make machine tools, which are then shipped to the United States to make parts, which are then shipped back to Canada to make bigger parts, which are then shipped back to the United States. Pieces of a car can cross the border apparently as many as seven times before the end product is made.
Of course, we're making more than our fair share of end products in Canada. We have a clear advantage in final fabrication in Canada. We're a net exporter of automobiles by about 1.6 million a year. So that's a clear example of where the auto companies fit within an integrated North America.
We've had the Auto Pact since 1965. We chose quite deliberately, as a trade policy way back then, to try to integrate ourselves into the North American economy. And they use that repositioning of pieces of their whole production chain within North America to create their greatest possible advantage. That's the most striking example of the integrated trade concept.
Of course, you have to invest on both sides of the line to do that. You may draw parts in from other countries. You might make seat cushions or pieces of glass in Brazil or in Poland and fit it into your supply chain. That is the new trade paradigm.
When I went to grad school--I did my undergrad at the University of Manitoba many years ago--we were taught about trade in end goods. One country was making cotton and one country was making shoes and you traded them. You traded based on comparative advantage, which was relative efficiencies. Modern trade is all about trade in inputs. Something like 40% of all global trade now is traded within companies, intra-firm trade, and that's because companies all around the world are looking to gain their competitive advantage by putting pieces of their supply chain wherever it makes the most sense.
Our thinking, as a country that has resources, but what we really have is brain power, is that we want to position ourselves at the end of the supply chain where we can make the most money by using our brain power. So the way forward is we think about a trade policy. It's wonderful to export coal and unfinished logs, but it's far better to export brain power and to invest in brain power. And that's why so much of our report goes back to human capital, investing more in our education system.
As you think about trade investment policy, you really have to take all the pieces on board and think about how to make the national economy as competitive as possible and where to make the right kinds of investments going forward.
One of the things I liked in Advantage Canada, but I also liked in the Liberal statement a year earlier--that's because the Conference Board doesn't do politics, we try to do policy--was the emphasis on post-secondary education. I think the federal government has a really significant role to play going forward and investing far more in post-secondary education, because human capital is ultimately very portable.
So as you think about trade policy you really do have to think about all the pieces and where you want to fit within those supply chains.