Canada's Global Commerce Strategy 2.0: Implications of High Energy Prices

Abstract

Higher energy prices, an inevitable consequence of the depletion of the least cost sources of fossil fuels, will not end globalization, but it will alter it. Trade declines with increased distance in part because of transportation costs, the more so the heavier the goods and the greater the fuel consumption of the transportation mode in which they move. Accordingly, the direction, composition and mode of trade will change over the next few decades as low cost oil reserves are depleted and replaced by higher-cost sources and the energy supply mix shifts towards forms that are better suited for some forms of transportation than for others. Export supply serving more distant markets will tend to be deflected to regional markets. Multinational corporations will reorganize to service more distant markets through foreign affiliates or licensing arrangements. Trade in intermediate goods and services will follow the shift in production base. The nature of traded goods (value-to-weight and carbon content) will affect their global market access. This paper reviews the implications of these developments for Canada’s Global Commerce Strategy 2.0.

Keywords: International trade, energy prices, transportation costs, Canada, Global Commerce Strategy

JEL Classification: F13, F14