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Economy, Foreign Trade

foreign-owned corporations, NAFTA agreement, Canadian tourists, Canadian exports, effects of NAFTA

Canada has just 0.5 percent of the world’s population, but accounts for 4 percent of total exports in world trade. Exports have always been important to Canada’s economy. In the early colonial period, the leading Canadian items of export were fish and furs. During the 19th century, timber became the staple export item. With the improvement of railway lines early in the 20th century and settlement of the prairies, wheat became the chief item of export. The contribution of mineral products to Canadian exports also accelerated in the early 20th century as metal resources in the Laurentian and Canadian Cordilleran regions were exploited. Gradually, manufacturing industries emerged and now produce more than half of Canada’s exports.

The growth of Canada’s trade in goods since 1945 has been remarkable. The value of exports in 1946 was C$2.3 billion; by 1995 this figure had grown to C$253.8 billion. Canada has one of the world’s highest ratios of goods exported to GDP: 33.6 percent. Goods imported have also grown, from C$1.9 billion in 1946 to C$225.4 billion in 1995. The surplus of exports over imports was C$28.4 billion in 1995. In the 1990s Canadian international trade in both exported and imported goods grew by an average of over 17 percent per year.

However, in the services sector, Canada’s imports exceed its exports. The largest components of this sector are interest payments on debt, the transfer of profits to foreign-owned corporations, and spending by Canadian tourists abroad. For this type of trade, Canada’s imports in 1995 exceeded its exports by C$39.6 billion. When this figure is combined with the figure for the trade in goods, Canada’s overall trade balance, called the balance of payments, is negative: Total imports exceeded total exports by C$11.2 billion. A negative balance of payments depreciates a country’s currency, reducing the cost of its exports and increasing the market for them. On the other hand, it makes imports more expensive. Canada almost always has a negative balance of payments, yet continues to have a high standard of living.

Most of Canada’s foreign trade is with the United States, which typically buys about four-fifths of Canada’s exports and supplies about three-quarters of its imports. A large portion of this trade is made up of motor vehicles and motor vehicle parts. Because so many corporations operate on both sides of the Canada-U.S. border, much of the trade between the two nations actually consists of transfers within firms. Trade between Canada and Mexico is growing rapidly, but the total amount is still quite small—about 2 percent of imports and less than 1 percent of exports.

Canada also has significant export trade with other countries, including in descending order: Japan, the United Kingdom, Germany, South Korea, the Netherlands, and China. Canada’s leading export commodities in descending order of importance as of 1994 were motor vehicles and parts, mineral fuels, machinery, wood products, paper and paperboard, electrical equipment, wood pulp, aluminum products, and cereals. Leading imports were motor vehicles and parts, heavy machinery, communication equipment, office equipment (especially computers), and industrial machinery.

Canada-U.S. trade is the largest bi-national flow in the world and, recognizing this fact, the two countries signed the Canada-United States Free Trade Agreement (FTA), which came into effect in 1989; it removed the trade barriers between them. In 1994 the FTA was expanded to NAFTA by including Mexico in this free trade zone. The effects of NAFTA are hotly debated in Canada, and supporters and critics have interpreted recent events in opposite ways. For example, the decline in Canadian manufacturing employment is seen by critics as evidence that the treaty is biased against Canada, while supporters argue that without it Canadian industry would have suffered even greater losses. It has proved extremely difficult to identify the specific impacts of NAFTA when so many other economic changes are taking place at the same time.

Since World War II (1939-1945), Canada has been at the forefront of the movement to reduce tariff barriers. Canada emerged from that war with the industrial capacity to supply consumer products that the world needed; another incentive was the feeling that trade barriers had partly contributed to both world wars. Canada was a founding member of the General Agreement on Tariffs and Trade in 1948 (reorganized as the World Trade Organization in 1996) and has since helped initiate other agreements. The most important are the Caribbean Agreement of 1986; the FTA, 1988; the Asia-Pacific Economic Cooperation (APEC) group of 1989; and NAFTA, 1994. In 1994 Canada also participated in the Summit of the Americas, a group of 34 countries dedicated to implementing tariff-free trade by 2005. Canada has favored allowing Chile to join the NAFTA agreement.

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