All items only 67 cents!

>> With the dollar so low, is Canada becoming the bargain basement of the U.S.?

by PHILIP PREVILLE

Economic indicators are like riddles. Gross domestic product, commodity prices, net foreign investment, balance of trade--there are stories about these things in newspapers every day, whatever they are. They probably mean something to people in office towers. But there are a lot of secretaries, office administrators and communications consultants in those office towers, and it's hard to imagine them understanding any of this stuff either.

Even interest rates are a cabal. They only make sense to people who can afford to borrow money. The "prime rate" is currently 6.5 per cent, but for most people the prime rate is around 15 per cent--the rate they're paying on their credit cards.

Whatever. Economic indicators are the domain of economists and currency traders, and most of the time the rest of society is happy to let them deal with it.

Until the dollar takes a plunge. A low dollar is the one indicator everybody understands, whether they want to or not. The Canadian dollar is currently worth around 67 cents U.S. But what most people notice is that, suddenly, they can't afford a basket of peaches.

"Everything is more expensive," says Manuela Mesquita, whose family owns the Soares et Fils grocery store at Duluth and de Bullion. "Most of the fruit we buy comes from the United States, and lots of vegetables as well." Like every other grocer, she says, she doesn't have a choice but to raise prices.

"We're lucky this is happening in the summertime," Mesquita adds. "We're getting more and more produce in from Quebec as the harvest heats up." In February, it's not unusual for a head of lettuce to cost over $2; it would cost even more right now, but thankfully, Quebec lettuce is on the shelves these days.

Even so, everything we import from the United States--food, computers, software, cars, car parts, legal and illegal drugs--is going up in price.

On a more global scale: this year, Canada will buy about $234 billion worth of stuff from the U.S. But that's in Canadian dollars. Assuming an average exchange rate of 68 cents U.S., we will only get about $160 billion worth of stuff in return. By contrast, with a 71-cent dollar, we'd be able to buy $166 billion in U.S. goods. Those extra three cents are worth an additional $6 billion in new cars and computers.

Irrational currency traders

So now it's time for the economists and the currency traders to get to work and fix the problem, right? They're the ones in charge of this stuff, aren't they?

Nope. "Currency trading is not rational," explains economist Harold Chorney of Concordia University. "Currency traders operate in a herd mentality--they do what everyone else is doing." According to Chorney, the problem isn't that our dollar is going down; it's that the American dollar is going up, because everyone is buying U.S. dollars. "Eventually," says Chorney, "our dollar will drop low enough that traders will start buying it again."

Prime Minister Jean Chrétien said last week that the low dollar is good news because it would increase tourism: now it's dirt cheap for Americans to vacation in Canada, so more of them will come up here. But is it really possible, or preferable, to flood Montreal streets with even more American tourists? Not necessarily, says Chorney. "Tourism accounts for only one per cent of Canada's GDP," he says, meaning that Canada doesn't make that much money off tourists anyway. "We will end up with more tourists, but they won't make that big a difference." Meanwhile, we can't travel anywhere else, because it's too expensive to do so. Canadians are held hostage in their own country.

Chrétien also said that the low dollar would be good for exports: because the U.S. dollar is worth so much, Americans will buy even more Canadian-made stuff. But our stuff was already dirt cheap; Americans are buying as many made-in-Canada things as they need.

Cheap Canadian labour

Instead, with the dollar so low, it's not Canadian products that look cheap, but Canadian labour. Quebec's $6.80 minimum wage is now equal to $4.55 U.S. That means our minimum wage is lower than in many U.S. states. "I've been arguing for years that our minimum wage is too low," says Garry Saxe, an economist with Project Genesis, a welfare rights-advocacy group in Côte-des-Neiges. "This proves it: we could raise our rate and still be competitive with the U.S."

With wages so low, says Concordia's Chorney, "it becomes very enticing for foreigners to buy up Canadian companies." Are we about to become a highly-educated, techno-literate version of Mexico, a place where Americans set up shop because they can pay us peanuts? "We're not there yet, but that's the danger in the long run," says Chorney, "if people begin to see Canada as a nation of cheap labour."