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The underlying issue to the proposal by Canada's government to negotiate a trade agreement with the United States government: "Canada's ability to respond to the changed global economic environment in ways that ensure future growth in Canadians' living standards." Some of the major changes that have occurred in the world economy. An examination of the adequacy of Canada's institutions and policies to anticipate and respond to those changes. Some of the themes of the annual "Policy Review and Outlook", published by the C.D. Howe Institute. Five key trends influencing what is happening right now. How to respond effectively to changed circumstances. An optimistic view of the economic outlook for 1987. Two major caveats. The importance of Canadian-U.S. trade talks and the Uruguay round of GATT talks. Strategies to manage trade actions and complaints. Reducing the federal deficit. What to expect in the spring budget. An economic course that aims at excellence. Sensible and cooperative leadership needed from industrial sectors and all levels of government.