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From the Progressive Economics Forum: A background study for the latest IMF report on Canada (see pages 42 to 51) adds further weight to the argument that the rise in the exchange rate of the Canadian dollar, driven in large part by high commodity prices, has underpinned a sharp decline in the US market share of Canadian manufacturers since 2000 and a major shift in the composition of Canadian exports from manufactured goods to energy and minerals. This report notes that China has taken market share in the US at the expense of Canadian manufacturers without underlining the fact that China’s currency is closely linked to the US dollar ie. the high Canadian dollar puts our manufacturers at a disadvantage compared to both US domestic producers and China based exporters to the US. On page 43 of the IMF report: 1. Canadian merchandise exports have been on a roller coast over the last two decades, surging to 40 percent by end-2000 and falling to 24 percent of GDP in 2010. After 2000, the fall in exports as a share of GDP was predominantly concentrated in manufacturing, while energy exports continued to expand and now represent about one fourth of all merchandise exports. While exporters benefited from a depreciation of the Canadian real effective exchange rate (REER) in the 1990s, commodity prices surged in the 2000s and were accompanied by a large appreciation of the REER. Higher commodity prices may well have an overall positive effect on the Canadian economy (see Carney, 2012).2 But by driving the real exchange rate up, they may have also contributed to Canada’s loss of external competitiveness and faster decline of its manufacturing share of value added over the last decade (chart). In this chapter, we focus on the factors behind Canada’s loss of external competitiveness, and in particular we try to assess the role played by higher commodity prices and the emergence of China as a major trade power. I would qualify that any overall positive effects that they might take as a given rather than a debate point, are still temporary effects that end as soon as the resource starts becoming depleted and more costly to continue extraction. You would think that it wouldn't take a rocket scientist to figure out that a high dollar is going to damage economic activity like manufacturing, which adds value rather than shipping resources off to foreign markets. But the right....especially the oil-funded right, have been vigorously spinning a false narrative that dirty tar sands bitumen benefits all of Canada economically. This should be the final nail in the coffin for the right wing economic policy of just hoovering out oil and other natural resources for export as fast as possible, but I wouldn't count on it yet! There is too much money at stake for Canadian oil and mining companies, and they own too much of our media already to let this report intrude on all of the panicked narratives now that they won't get their pipelines built to ship crud out of Canada to be processed into something resembling oil. The report also notes the negative effects on manufacturing caused by the influx of cheap imports from China and more recently other impoverished third world nations thanks to 'free trade' agreements that allow manufacturers to just close factories and pick up and move production to China or Bangladesh without facing any reprisals when shipping the products back to North American markets. After the double whammy of open door imports and relying on oil exports, it's surprising that we still are making anything for ourselves anymore! The tar sands aren't going anywhere! If it's that important, leave it in the ground for future need if it's really necessary. But the greed-driven oil industry and all of their flunkies who depend on cheques from them (like Alberta Premier Alison Redford) are in full panic mode that the U.S. will be able to get through the near future using gas and shale oil fracking instead. Once non-renewable resources are used up, they're gone for good! That should be obvious, but those who lobby for economies powered by resource extraction, act like it can just go on forever. But, as soon as developers have to start digging deeper for lower quality grades, costs rise and when it's determined that the costs outweigh the rewards of extraction, the mining operation is closed and it's time for the company to move on and dig new holes in the ground. And because the resource-dependent economy has seen their currency values increase due to resource exports, manufacturing exports decline, while the cheap dollar increases imports of all kinds. This is the Dutch Disease that oil extraction has created in every economy that has become dependent on large scale oil development; and should we be surprised that tar sands development has hollowed out manufacturing and other economic activity.