thomas storring - reaching our international trade goals

Reaching our international trade goals

Challenges and Opportunities for the oneNS Coalition Thomas Storring, NS Department of Finance and Treasury Board, 2014-10-02

Goal 5: Value of Exports

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18 NS Exports: International + Interprovincial $billions current

By 2024: Nova Scotia will have increased the total annual value of exports (international and inter-provincial), currently in the $14 billion range, by 50% to exceed $20 billion.

Peak Sable Output (2002)

Sable shutdown, Stora strike (2006)

Gas Price Spike (2008)

Global recession, collapsing trade volumes (2009)

Goal 5: Value of Exports

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65.2

% 82.2

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66.8

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56.6

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61.5

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73.3

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73.6

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99.2

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105.3

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100.5

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98.7

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98.6

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83.7

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61.5

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59.9

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68.3

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18 NS Exports: International + Interprovincial $billions current

Growth: 10 years (R-axis)

NS Exports: International + Interprovincial

By 2024: Nova Scotia will have increased the total annual value of exports (international and inter-provincial), currently in the $14 billion range, by 50% to exceed $20 billion.

NS has failed to meet this target in the past four ten-year spans. But met it in previous 18.

Recent merchandise trade growth: 2013: +10.8% 2014: +41.1% YTD

How does our trade compare? Export less, import the same, $000 per capita 2012

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60 Exports Interprovincial-Services

Interprovincial-Goods

International-Services

International-Goods

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60 Imports Interprovincial-Services



International-Goods

How does our trade compare? Comparison is dominated by the resource-rich provinces

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Canada

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PQ

ON

MB

SK

AB

BC


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Canada

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Canada

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Interprovincial-Services

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Canada

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Exports International-Energy&Minerals

Other InternationalGoods

How does trade work? In the eyes of an economist

Find our comparative advantage… – Specialize in making goods and services that have the lowest

opportunity cost of production

– Focus our resources on making the most value of our factors of

production, given our ability to import other things

Export surplus so we can import things: – Cheaper, better, more varied than we could otherwise make for

ourselves

– Imports include important factors of production: natural resources,

technology, capital

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Why does trade matter so much?

Trade and non-residential investment are the key variables that fluctuate to establish short run business cycles. Trade drives the investment (and vice versa) that will determine future levels of production and income for long run growth – For small jurisdictions like NS, domestic market is too small to be self-sustaining – We need to trade or face higher costs of production and consumption – IE: less competitive and lower standard of living

A national issue: there are large variations in levels of trade and investment across the Federation, based on resources – Drives exchange rates and monetary policy – Not supposed to be a problem, if there are mechanisms in place to compensate

for differentials across the country. – Depopulation and deindustrializing non-resource provinces doesn’t count

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Where are the opportunities to grow?

Simple analysis of 2010 exports: – $ per capita gross output by sector – Share of gross output exported to

other provinces and other countries

Question: is NS not trading as much because it has a lower share of exports or because it simply has lower gross output? – Or both? – Should growth come from more

output, greater trade intensity or overhauling both?

Answer: primarily from increased output

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NS, $1162

per capita,

32.5%

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60%

0 500 1000 1500 2000 2500 3000 3500

Administrative and support, head office, waste management and

remediation services

Avg. NL PE NS NB PQ ON MB SK AB BC

Where are the opportunities to grow? Opportunities to expand per capita exports

Transportation & Distribution: $726 million

Professional/Finance/Admin/Education:

$951 million

Food & Beverage: $315 million

Manufacturing: $973 million

Technology & Intellectual Property: $310 million

Personal/Tourism $218 million

Other Utility/Resource $101 million

TOTAL $3.6 billion (+25.3 per cent)

So it’s that easy?

No – this exercise just provides perspective on where NS might see its growth, based on other production and trade patterns found elsewhere in Canada. What actually causes trade to grow? Trade depends on how businesses make their choices – Factors that matter: natural resource endowments, access to clients’ markets,

cost of inputs (labour, materials), foreign exchange rates, financing & interest rates, taxes…

– Factors that matter: natural resource endowments, access to clients’ markets, cost of inputs (labour, materials), foreign exchange rates, financing & interest rates, taxes – compared against everywhere else

These determinants are not under any particular group’s control. We have little capacity to influence them. It’s up to our entrepreneurs to find the business cases.

What to watch out for

Watch out for: – Those who want to be protected from international competition.

– If they cannot win the business on international markets at world

prices, they have no business case.

– Sometimes takes the form of charging higher prices to local

consumers by restricting imports or charging tariffs.

– This beggars our consumers and lowers their standard of living

(often imperceptibly), concentrating the benefits (visibly) among a

selected few.

– We need these firms to find the successful business case that

respects consumers’ right to choose.

– Or we need to deploy our resources in firms who have found a

successful business case

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Watch out for: – Those who require subsidized factors of production like labour or

energy.

– They can promise increased economic activity if their factors of

production are cheaper…so can any business.

– If they cannot pay the market rate, they have no business case.

– We need them to make the adjustments and innovate to make them

winning competitors on global markets.

– Otherwise, we are interrupting the critical process of adaptation that

is spurred by competition.

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Watch out for: – Those who need cash infusion to compete.

– If they cannot earn financing from the financial sector (who

specialized in judging risks and business cases), they have no

business case.

– Whatever it is that impedes their access to Canada’s abundant

financial sector should be addressed.

– Otherwise, we are interrupting the critical process of building a

business case that commands capital from the financial sector.

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Watch out for: – Those who demand privileged access or favour in the local market.

– If they think small, they are not likely to grow our exports

– Might not have a business case either

– We need these firms to be able to compete and win in much bigger

markets than just Nova Scotia.

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Exception to these rules: – International competitors who get protection, subsidy and privilege

from their own or other governments.

• This is a big part of Canada’s trade agreements (disarmament)

• Should be a national policy issue to resolve.

– Positive externalities: research, infrastructure

This happens ALL THE TIME, so there are lots of

exceptions

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So what can institutions do to support our trade production?

Key principle: allow competition to take place – Spurs innovation, justifies financing

– Interrupting the process of business case development impairs our growth;

sends signals that we can short-circuit competitive forces

– This is the critical imperative of entrepreneurs. The process of being exposed to

unshielded competition is what hardens entrepreneurs and drives them to global

success. Stifling competition diminishes this.

Acknowledge that open and unimpeded competition also means that

individuals and communities face (large) economic dislocations – We cannot prevent such dislocations from happening. They are part of global

competition. This has been the folly of European economic policy for decades.

– We can collectively ease the burden that comes from adjusting to these changes,

but not by preventing the changes that are a natural consequence of competition

and entrepreneurship

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Some more practical steps – for government: Adopt global competition as the main principle of decisions about programming and assistance to business. – The first question should always be: does this impair the process or results of fair competition? – If it does, then say NO – If if doesn’t, consider it. If the reason why it doesn’t is because the competition isn’t fair, consider

carefully whether protection/subsidy/favour is justified (and legal) as a countervailing measure

Concentrate on institutional framework for trade: – Canada’s international trade agreements (bilateral and multilateral), internal trade arrangements (AIT) – Do not use these agreements to protect/subsidize/favour

Undertake research into key markets, opportunities, partners, technologies, best practices – Make them available (inexpensively) to any entrepreneur who can benefit from them.

Build the foundations of strong business cases: – Skilled workforce – Infrastructure to get goods and services to global markets – Attitude: NS can compete and can win, without short-cuts

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Some more practical steps – for entrepreneurs:

Seek the opportunities to be a full participant in global

competition – Avoid the unfair/protected/subsidized/favoured markets

– (or break down those barriers)

– It is your creativity as entrepreneurs that will win financing and

customers, not short-cuts

Lever the foundations of strong business cases: – Skilled workforce

– Infrastructure to get goods and services to global markets

– Attitude: NS can compete and can win, without short-cuts

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Some more practical steps – for workers and their communities: Do not try to stop the process of global competition – If you try to stop it, it sends a signal to entrepreneurs that yours is not the place

to benefit from it either.

Seek instead to mitigate the harm – Success will come to those who adapt most quickly and flexibly – That means large changes will become more frequent

This is the most difficult advice of all these practical steps

Lever the foundations of strong business cases: – Skilled workforce – Infrastructure to get goods and services to global markets – Attitude: NS can compete and can win, without short-cuts

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“We have to trade to grow…”

We have to grow to trade. – That is easier said than done

– Complex process that is full of challenges

– It’s the job of entrepreneurs and financiers to navigate that

complexity

Increasing our production should concentrate where we

have comparative advantage

Finding these areas of comparative advantage requires

exposure to the forces of global competition

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