When the prices of our exports fall relative to those of our imports, our terms of trade deteriorate—and we are getting poorer. So, improving terms of trade are favourable for a country. They result in gains in labour income, in corporate profits, and in government revenues. But changes in our terms of trade—whether in a favourable or unfavourable direction—can cause stress and dislocations.
They can involve significant shifts in production and employment among sectors of the economy. That means loss of jobs in some industries and growth in others. In economic terms, it triggers a shift of resources from less profitable to more profitable sectors. Thus, while the adjustments can be difficult, they are vital to our economic prosperity.