‘canada, the americas and the world economic linkages in the new era of globalisation

8/6/2019 Canada, the Americas and the World economic linkages in the new era of globalisation

1/20

BRITISH ASSOCIATION FOR CANADIAN STUDIES

UNIVERSITY OF WARWICK

33rd Annual Conference

CANADA IN THE AMERICAS

Ca nad a , the Americ as and the World : ec onom ic linkages

in the new era of g lob a lisa tion .

Tim Rooth

(University of Portsmouth)

Ca nada s internationa l econo mic linkages a re d istinc tive in tw o respec ts. In the

first p lac e Ca nad a has an excep tiona lly op en e c onom y. As the w orld entered

the sec ond grea t era o f globa lisa tion in the 1970s, the p rop ortion o f Ca nad ian

GDP rep resented by internationa l trade rose sha rp ly, and whe n it pe aked in

2000 it stoo d a t 85.6 per cent, the highest exposure o f any OECD c ountry1. This

was reinforce d b y a sec ond aspec t, very high levels of interna tiona l investment .

Measured by the stoc k of inward Foreign Direc t Investment (FDI) to GDP,

Ca nada ranked a s the sec ond mo st op en c ountry in the G7 afte r the UK in

2005.2

While h igh levels of internationa l trade a nd investment a re w holly c onsistent with

g lob a lisa tion, the sec ond d istinc tive a spec t of the Canada s internationa l

ec onom y, its hug e dep end enc e on exports to the USA, is mo re surp rising . By

2001, 87% of Ca nad ian m ercha nd ise exports were sold to its neighbour. While

there a re m any historic a l examp les of c ountries selling a very high prop ortion o f

exports to a single trad ing p a rtner, suc h a s New Zea land , South Afric a orDenma rk to the UK during the m idd le o f the 20th c entury, this wa s a t a t ime of

restric ted inte rna tiona l trade w hen g lob a lisa tion wa s in retrea t. Ric h c ountries

1 Dfait, Third Annua l Rep ort on C ana das Sta te of Trade, (Otta wa , 2002) Tab le 1. Expo rts andimports of go od s and services as % of GDP.2 Dfait, Seve nth Annual Rep ort on Ca nada s Sta te o f Trade(Ot ta wa, 2007), p.52. The figure is31.6% c ompared w ith the UKs 37.1%.

1


2/20

typic ally enjoy a ge og raphica l sp rea d of their trad e, and in c ontrast to Ca nad a

c ountries suc h a s Austra lia and New Zea land have rec ently widened their

trad ing links (see Figures A-1 and A-2). But, signific antly, the p owerful trad ing t ies

betw een Ca nada a nd its southe rn neighbour a re ma tc hed by fellow NAFTA

partner, Mexic o, which in 2006 is rec orde d as ha ving sold nea rly 85 per ce nt ofits exports to the US.3

This paper see ks to expla in the Ca nad ian experienc e. It first examines three

pha ses of Canada s history during the pa st thirty yea rs, the p eriod of g row ing

geo graphica l d iversific a tion to c irc a 1990, the reve rsa l during the fo llow ing

dec ade and finally the rec ord since the o pe ning o f the 21st century.4 It

c ontinues with a brief exp loration of Canada s ec ono mic linkages with the rest

of the c ontinent before c onc luding with an ove rview of rec ent d evelopm ents.

Phase One: 1970s to 1980s

During the post-wa r period p lenty o f po litic ians and othe r c om me nta tors had

wo rried about the extent o f Ca nada s ec ono mic linkages with the USA. Prime

Minister John Diefenb aker had announc ed a trade d iversion initiative in 1957

explic itly to broa den Ca nada s trad ing p a tterns,5 and during the fo llow ing

dec ade growing unea se w as exp ressed ab out the p enetration of Canad ian

industry by Americ an investment. In the 1970s step s we re taken to wea n the

Ca na d ian ec onom y from its hea vy relianc e on the USA. Prime Minister PierreTrudea u launc hed a re-examination of Ca nad ian trade p olic y, and the resulting

Third Op tion , announc ed la te in 1972, wa s a c lea r a ttem pt to d istance

Ca nada from the Americ an economy. Trudea u, a rguing tha t p reservation of

the sta tus quo wa s unac c ep tab le, and d ismissing the polic y o f streng thening

ec ono mic ties with the United Sta tes, pressed instea d for the third op tion of

ac tive ly see king d iversific a tion of externa l ec onom ic links. In ma ny respec ts this

was unsuc c essful, not least b ec ause the t iming wa s so p oo r, the troub led 1970s

3 IMF Direc tion of Trad e Sta tistics Quarte rly, Dec em ber 2007. The 84.7% rep orted p rob ab lyove rstate s the a mo unt go ing to the US and unde rstate s sales to Ca nad a.4 A p ortion o f the p ap er draws on a n ea rlier artic le by T. Roo th a nd P. Wa lsh, Cana da in theTwent ieth Ce ntury: Co ntinenta l Drift?, Lond on Journal of Ca nad ian Stud ies, 19, pp. 1-18.5 T. Roo th, Brita in, Europ e, a nd Diefenb akers Trad e Diversion Proposals, 1957-58 in P. Buc kner(ed.), Cana da and the End of Emp ire, (UBC Press, Vanc ouve r and Toronto , 2005), pp . 117-132.

2


3/20

providing a n unp rop itious ec ono mic e nvironment for trade expansion.6 The

Ca na d ian sha re o f bo th the Japanese a nd British imp ort ma rkets fell during the

dec ade (Britain had joined the EEC in 1974). None theless Ca na da 's trad ing

pa tterns we re a ffec ted during these yea rs by the g rea ter dispersion o f glob a l

ec ono mic pow er. Althoug h this had only a limited a nd transitory imp ac t onexports in the la te 1970s, it w as far more p ronounc ed in the sources of imp orts. In

the 1980s the EU and Japan made c onsp ic uous ga ins and the Americ an share

of imports fell from 67.5 per cent in 1980 to 62.6 per cent in 1990.

The Trud ea u government was a lso w orried by Americ an involveme nt in

Ca na d ian industry. By the end of 1970 non-residents, predom inantly Americ ans,

c ontrolled 36% of a ll c ap ita l emp loyed in nonfinanc ia l industry in Ca nada. In

response to the growing anxiet ies about U.S. ownership, in 1974 the Foreign

Investment Review Ag enc y wa s esta b lished to sc reen inc om ing investment. The

Nationa l Energy Program o f 1980 a lso invo lved restric tions on foreign ownership.

Ca nad ians moved to rec la im owne rship o f their ec ono my, and by the 1980s

non-residents ow nership ha d retrea ted to 23% of a ll c apital outside the fina nc ial

sector.7 The sources of inwa rd investment were a lso beg inning to d iversify. One

c ause o f this wa s tha t the p rep ond eranc e o f the USA bec ame less p rono unc ed

and pow er in the internationa l ec ono my b ec ame inc rea singly dispersed . This

wa s reinforc ed by the inc rea sing glob a lisa tion of internationa l ca p ita l markets.

The integ ra tion of dom estic financ ia l ma rkets me shed with g row ing internationa l

c apital mob ility: the em ergenc e o f Euro c urrenc y ma rkets in the la te 1960s, the

re-c yc ling o f the OPEC surpluses in the mid-1970s, and the relaxation or

sc rapp ing of c ont rols on internat iona l investment b y several countries

c ontributed to a grea t surge in interna tiona l c apital mo b ility. This had a

c onsiderab le impa c t on the sourc es and type o f inwa rd investment to Ca nad a .

Portfo lio investment rose sha rp ly and the U.S. sha re o f tota l investment dec lined

noticea b ly. Bond s, ma inly governme nt de bt, inc rea sed as a p rop ortion of tota l

external liab ilities. While up to the ea rly 1970s the United Sta tes had ac c ounted

for 80% of to ta l foreign ownership o f bond s this ha d fa llen to 29% by 1989. Japan

in partic ula r bec ame imp ortant, but othe r c ountries partic ipa ted too . FDI a lso

c ame inc rea sing ly from Jap an, the Europea n Union, and other sourc es. By

6 G. Mac e and G . Hervouet, Ca nada s Third O pt ion: A Com p lete Failure? , Ca nad ian PublicPolicy, Vol. 15, No. 4, pp . 387-404, em pha sise the poo r internationa l ec ono mic environmentrat her than lac k of Fed eral end ea vour.7 L. La libert, Glob a lisa tion a nd Ca nada s Interna tiona l Investment Position , 1950 to 1992.Sta tistic s Ca na da , Ba lanc e o f Payments Division, Research Pap er No. 6 (1993), p .6. Nea rly four-fifths of t hese investments we re held by the USA.

3


4/20

1991 the U.S. sha re of tota l stoc ks of fo reign investment in Ca na da had fa llen

from its 1980 level of 79 per ce nt to 43.8 per ce nt. Ano ther striking fea ture w as

the rap id ac c umula tion of ove rsea s assets by Canad ians. Portfolio investment

bec ame more imp ortant with mutua l funds, inc rea singly liberalised , playing a

prominent p art.8

The ho ldings of imm igrants, espec ially from the Far East, a lsoc ontributed to the rap id ac c umulation of funds. There wa s a lso a limited

d iversific a tion o f Ca nad ian FDI away from the USA, and by the mid -1980s a

sha rp inc rea se to Europ e, nota b ly the UK, Franc e a nd the Nethe rlands.

Phase Two: forging closer links with the USA

While the Trudea u go vernments had been wa ry of the USA a nd had soug ht to

d istanc e the Ca nad ian ec ono my from its neighb our, the Prog ressive

Co nservative administra tion o f Brian Mulroney enthusiastica lly ushered in a new

era of ec ono mic c onsolida tion w ith the Am eric ans. The mod est sc reening

devices of the Foreign Investme nt Review Agenc y we re rep lac ed in 1985 by the

Investment Cana da Age ncy the task of whic h wa s to encourag e funds to

Ca nada. Deve lop ments in the USA, moreove r, were to e xert a p ow erful

influenc e on Ca nada s trad ing pa tterns and polic ies. Consc iousness of a

c ha lleng e to the w orld sta tus of the USA tha t went we ll beyond ec ono mic

d isc om forts, the ne w President, Rona ld Rea gan, dete rmined tha t Americ a

should Stand Ta ll . The ec onomic imp lic a tions of this we re c onfusing . While tight

moneta ry polic y both squeezed the do mestic ec onom y and drove the value of

the dolla r sha rp ly up wa rds, tax c uts c om bined with m assive inc rea ses in m ilita ry

spend ing wrought ha voc with the na tiona l financ es. Milita ry Keyne sianism

boug ht rap id rec ove ry, initia ting a susta ined expa nsion o f the ec onomy tha t

sucked in imp orts that w ere m ad e a ll the c hea per by the app rec iation of the

Ame ric an dolla r. Ca nada bene fited , but bec ame inc rea singly exposed . The less

favo urab le ec ono mic c ond itions of the 1970s had a lrea dy led to a p rolifera tion

of no n-ta riff ba rriers in the USA: vo lunta ry expo rt restraints, orderly marketing

agreements and b uy-Americ an req uirements inc rea sing ly hampered trad e.9

Intense import c om petition, pa rticu la rly in the rec ession, hit smo kestac k

8 Lalibert, p.12.9 P. Nivo la, The New Prote c tionism: U.S. trad e policy in histo rica l pe rspec tive , Politica l Sc ienc eQuarterly, 101, pp . 577-600, 1986; P. Lindhe rt, U.S. and Fore ign Trad e and Trad e Polic y in theTwentieth Century in S.L. Engerman a nd R.E. Ga llman (Eds) The Camb ridge Ec onom ic Histo ry ofthe United Sta tes: the 20th Century(Cam bridg e, 2000).

4


5/20

industries, savage d jobs and, c om bined with a burgeo ning b a lanc e of

payme nts defic it, fed a grea t p rotec tionist reviva l. By the m id-1980s there w ere

some 300 protec tionist b ills c irc ulat ing in Congress.10 Mounting protec tionism

and em erging trade d isputes formed the ba c kdrop for deb ate in Canada

about the Mac dona ld Co mm ission Rep ort. A p rod uc t of its era, this expresseda la rm about the relentless rise of g overnment expend iture. The Co mm ission was

a lso dee p ly pessimistic about the future for natural resourc e exports, arguing

that Ca nad a had to ha ve a sop histic ate d ma nufac turing b ase. The p re-

req uisite for this was c onside red to be a market o f 100 million p lus; this, the

Rep ort rec om mended , c ould be found by negotiating substantia lly free r trade

with the U.S. But the negotia tions for this soon turned , und er U.S. pressure, into a

far more wide -rang ing pac t tha n the Comm issione rs had first envisage d.

Althoug h ec ono mists were a lmo st una nimo usly in fa vour of the Free Trade

Agreeme nt that emerged , the high d egree of relianc e o f Cana da on a ninc rea sing ly protec tionist Americ an ma rket ensured tha t the na tiona l deb ate

that e nsued during the elec tion o f 1988 was c ond uc ted in an a tmosphe re o f

fea r and vulnerab ility.11 The Ca na da-U.S. Free Trade Ag ree me nt, imp lem ented

in 1989 following the victory of the Progressive Co nserva tives, ga ve institutiona l

forc e to Continenta lism.

Seve ra l fac tors inc rea sed the o verall exposure o f Canada s ec onomy to the

USA d uring the 1990s. In a n increa sing ly op en ec onom y, interna tiona l trade

expa nded far more rap id ly than d om estic trade. Figure 4 c ontrasts the virtua l

sta gna tion of inter-p rov inc ia l trade a ga inst the d ynamism o f inte rna tiona l sa les:

by the m id 1990s eve ry province b ar Princ e Edward Island exported mo re to the

USA tha n the rest of Cana da 12, and exports c ontinued to rise spec tac ularly

during the rest o f the dec ade. In 1989 internationa l trade rep resented 51 per

c ent o f overall Ca nad ian ec ono mic a c tivity; by 2000 the figure wa s 87 per

cent.13 The rea ssertion of Americ an he gem ony d uring the 1990s served to

tighten Cana d ian links even further. The triumph of the Ang lo-Saxon model

10 Me l Wa tkins, A C ana da -US Free Trade Agree me nt: For and Ag a inst , British Journa l ofCa nad ian Studies, 1, pp . 185-204, 1986.11 But see Ma lcolm Fairbrother, Why d id C ana da Globa lise Its Ec onomy? (this c onferenc esession) for an a rgume nt tha t em phasises the grow ing p refe renc e o f the business sec to r for amo re op en ec onom y and a n ac c ord w ith the USA.12 Step hen Cla rkson, Unc le Sam a nd Us: Glob a liza tion, Neo c onservat ism, and the CanadianSta te . (Toronto and Washing ton: University of Toronto Press and Woodrow Wilson Ce nte r Press,2002)13 Dfait, Sec ond Annua l Rep ort on C ana da s State o f Trade, (Ottawa , 2002) Tab le 1. Expo rts andimports of go od s and services as % of GDP.

5


6/20

ow ed muc h to the c ont rasting fortunes of the Ame ric ans with those o f the USSR,

Jap an a nd G erma ny. The c ollap se o f the Soviet em pire a nd the p oo r

ec onom ic p erforma nce of Japa n and G erma ny contrasted w ith the dynamism

of the Americ an ec ono my. The Germa n a nd Japanese mo dels lost the ir lustre

while Americ an g lob a l hege mo ny was rea sserted. The we akness of the Germa nand Japanese ec ono mies during the 1990s wa s reflec ted in slow grow ing

imports.14 As Figure 2 shows, the relative shrinkage of non-US markets after 1989

wa s rapid and persistent; Japan led the w ay, but the Europ ea n Union a nd

partic ula rly the rather amo rphous Rest of the World group we re no t fa r behind.

In cont rast the United Sta tes ec onom y experienc ed its longest eve r period of

uninterrup ted expansion b etwe en 1992 and 2001; a lthough this wa s not the

fastest g row th in Americ an history, job s and tota l outp ut inc rea sed imp ressive ly,

and towa rds the end o f the d ec ad e p rod uctivity growth a c c elerated too.

Ame ric an imp orts p rove d ra ther too d ynam ic . Acc ordingly the US inc rea sed itsweight in wo rld imp orts: while in 1990 it a c c ounted for 14.4 per c ent of w orld

imp orts, by 2000 tha t share ha d rea c hed 19 per ce nt.15 Moreover, aided by the

trad e a greements and the dep rec iation of the Ca nad ian do lla r,16 Canada

ma de inc rea sing inroa ds into the Americ an market, although its share of the

ma rket rose o nly mo destly from 18.7 per cent in 1990 to a pea k of 19.6 per cent

in 1999. Trade in the newly libe ra lised sec tors grew sub sta ntia lly faster tha n in the

non-liberalised groups.17 These forces c om bined to increa se still further the high

prop ortion o f Ca na d ian sa les to the USA: by 2002, 87.2 per cent of to ta l

me rc ha nd ise e xports went to its neighbour (measured on a Customs basis).

Figure1Cana da : international and inter-provinc ial trad e ($billion)

14 Betw een 1990 and 2000 the c om b ined sha re o f Ge rma n a nd Japa nese imp orts fell from 16.1%to 13.2% of w orld imports. UNCTAD Hand boo k of Sta tistic s On-Line. Me asured in curren t USdollars.15 UNCTAD, Hand boo k of Sta tistics On-Line. Measured in current U dollars.S

s i16 From 89 c ents US in 1991 to 62 ce nt n 200317 Clarkson, p . 190.

298 299

353341

541

751

100

200

300

400

500

600

700

800

Interprovincial

International

6


7/20

Figure2

Sourc e: IMF, Direc tion o f Trad e Statistics(Washington, va rious years)

The inc rea se in Ca na d ian exports wa s mirrored in the b eha viour of imp orts from

the USA. The proportionof to ta l imp orts c om ing from the USA ha d rema ined

sta b le sinc e the 1950s but d uring the 1990s the position c hanged d rama tica lly.

Not o nly d id the va lue of sa les rise rap idly but the United Sta tes inc rea sed its

7


8/20

share o f Ca nad ian imp orts until, hampered by the a pp rec ia tion o f the US dolla r,

it d rop pe d bac k after 1998.

Figure3

Source: Dfa it, Sec ond Annua l Rep ort on Canada s Sta te o f Trade(Ottawa,

2001).

The Americ an share of Canad ian c ap ita l imp orts a lso revived, a nd this wa s

apparent b oth in bonds and stoc ks. The Jap anese retrea ted ; the Europ ea n

Union reta ined the sha re it sta ked out in the 1980s, so the U.S. ga in wa s a t the

expense o f Japan but a lso o f the o ther investors tha t had appea red in the

1980s. As indic a ted in Figure 4, be tween 1991 and 2003 the U.S. sha re o f the to ta l

stoc k of foreign investment in Canada rose from 43.8 pe r c ent to 60.4 pe r c ent

while tha t of Jap an d rop ped sharply18. Ca nad ian outw ard foreign investment

(see Figure A-5) c ontinued to g row apac e, and rema ined c osmo politan in

range.

18 Dfait, Sixth Annua l Rep ort on Ca nadas Sta te of Trade, Tab le 8 (Ott awa , Ap ril 2005)

8


9/20

Figure4

Source: Sta tistics Ca na da , Ca na da 's Interna tiona l Investment Position(Ottawa,

various years)

Phase Three: c . 2002-2008

The third phase in Ca nad ian international ec ono mic history follow ed c lose on

the hee ls of the op ening of the new m illennium. While trad e linkag es with the

USA ha ve rema ined of suprem e imp ortanc e the y have b ec ome slightly less

overwhe lming. The p ronounc ed trend s of the 1990s have b ee n reversed . Exports

to the USA fe ll sha rp ly in 2003, and a lthough they rec overed in the next two

yea rs va lues have subseq uently tailed off a ga in. As indica ted in Figure 8, the

prop ortion o f Canad ian merc hand ise exports destined for the Am eric an ma rket

dec lined from 87.1% of the to ta l in 2002 to 78.9% in 2007.19 One fac tor in this is

the d iminished interna tiona l weight of the USA a s a trad ing p ow er. In c ontrast to

the 1990s, the rela tively slugg ish p erformanc e of the Americ an ec ono my has

been reflec ted in a reduc ed sha re o f world imp orts.20 Comp ound ing this for

Ca nad a has be en the intense c ompe tition it has fac ed in that market, ab ove all

from China, and a sharp ly red uc ed sha re o f imp orts. The a pprec ia tion o f the

19 PFACT, Ca nad ian Trad e, February 2008. Exports plus re-exports on a Customs basis.20 UNCTAD, Hand boo k of Sta tistics On-Line. The Ame rica n sha re o f wo rld imports dec lined from19% in 2000 to 15.7% in 2006.

9


10/20

Ca nad ian do llar has be en a hand ic ap to e xpo rters, and in rec ent months the

Ca nad ians have b een overtaken b y the Chinese a s princ ipa l supp lier to the US

market.21

Figure5

Source: Sta tistics Ca na da , PFACT Cana d ian Trad e, Marc h 2008

Imp ort sourc es have a lso bec om e mo re d iversified . Figures 6 and 7 outline the

ma in c hanges betw ee n 2002 and 2007. Althoug h the USA a c c ounts for 54% of

Ca na d ian imports, this is we ll down on ea rlier yea rs, and the trend s of the 1990s

have been reve rsed . Japan ha s a lso slipp ed . The ma jor ga ins have been w idely

distributed although d ominated by China.

21 In 2007 China sup p lied 16.5% of US imports of g oo ds, Ca nada 16% and the third sup p lier,Mexico , 10.8%. US Census Burea u, Foreign Trad e Sta tistic s(Washing ton, 2008).

10


11/20

Figure6

Source : Sta tistics Ca na da, PFACT Cana d ian Trade, Marc h 2008

Figure7

Source: Sta tistics Ca na da , PFACT Ca na d ian Trade, Marc h 2008

11


12/20

The them e o f growing d iversific a tion has a lso c ha rac terised Ca na d ian FDI

where the pa ttern of Ca nad ian holdings has be c ome less c onc entrate d on the

US. Figure 9 revea ls the slight ly diminished role of the USA since 1995 and a more

c osmo politan d istribution o f Ca nad ian funds (the pa ttern is rep ea ted for tota l

investment ho ld ings see Figure A-5). How ever, when inwa rd investment toCa na da is examined the d iversific a tion thesis fa ils to hold. The USA ha s

ma inta ined its p rom inent p lac e a s an investor in Ca nada, ac c ounting in 2007 for

57% of the to ta l stoc k of investment, barely less tha n in 2000. Europ e, espec ially

the UK, has bec om e a n a bsolutely and relatively la rger supp lier of fund s while

Japan a nd the Rest o f the World have bec om e prog ressively less imp ortant.

Figure8

Source: Dfa it, 7th Annua l Rep ort on Ca nada s Sta te of Trade, 2007.

12


13/20

Figure9

Source: Dfa it, 7thAnnua l Rep ort on Canada s Sta te o f Trade, 2007.

Canada s Trunc ated Continenta lism

Ca nad ian Co ntinenta lism doe s not extend very fa r south in the Americ as.

Ec ono mic links with Mexic o, sta rting from a low base, have g row n rap id ly sinc e

the fo rma tion of NAFTA, but b eyond Mexic o c onnec tions for the mo st pa rt

rema in we ak.

Exports to Mexic o expanded a t over 10% per annum in the 1990s and have

c ontinued to g row a t a rap id pa c e. Yet a c c ord ing to Ca nad ian statistic s they

still represent only 1.1 per cent o f wo rldw ide sa les. In rea lity the o fficia l figures

ove rsta te exports to the USA and understa te the eventua l destina tion, Me xic o.

Mexic an figures c red ited Ca nada with an add itiona l $4 b illion in 2006, so the

true to ta l ma y be little short of $10 b illon a nd therefo re roughly 2 per ce nt of

Ca nad ian exports. Imp orts from Mexic o ha ve p roved still mo re d ynam ic ,

grow ing faster than expo rts, and from a la rger ba se, and in 2007 Mexicod isp lac ed Japan to rank third a s a source of Ca nad ian imp orts.

Yet it is d iffic ult to rep resent this as pa rt o f a b roa der La tin America n mo veme nt

for Ca na da. Fa r from it, for in a sense Mexico in the 1990s d isp lac ed other non-

US western hemisphere supp liers, the tota l imp orts from whic h fa iled to keep

pac e w ith the ove ra ll expa nsion of Ca nad ian imp orts. Only in the pa st de c ade

13


14/20

has there b ee n som e rela tive rec overy. When it co me s to exports La tin Americ a

has a lso prove d a d isappointing ma rket. Desp ite expa nsion to Mexic o, tota l

sa les to La tin America and the C aribbea n were low er in 2002 than they ha d

been six years ea rlier, having been b ad ly a ffec ted by the financ ia l crises of

2001-2 tha t hit the m a jor South Am eric an ec onom ies of Brazil and Argentina.Despite som e revival, sa les to the reg ion exc lud ing Me xico ac c ount for less tha n

their 2002 prop ortion a nd are we ll below the levels of a de c ade ago .

Nor has Continenta lism ha d muc h bea ring on investme nt linkag es beyond the

USA. La tin Americ a has neve r been a ma jor source of funds into Canada ,

a lthoug h it has been more impo rtant as an outlet. Loo king a t Ca nad ian

investment outflow s to the western hemisphere (m inus the USA), the Ca ribb ea n

c ountries are p articularly p rom inent. The exotic loc a tions of Barbados, Bermud a

and the Ca yman Islands have proved the ma in attrac tion for Ca nad ian

investors, ac c ounting to gethe r for 12 per c ent o f Ca nada s g lob a l FDI holdings

in 2006.22 Figures 8 and 9 give a n idea of the o utlets for Cana d ian FDI hold ings.

Rec ent changes in a long p erspec tive

Taking a long view from Confed eration to the end of the 20th c entury by the

end of the 1990s Ca nada ha d d iverged in two imp ortant respec ts from the

som e of the defining c harac teristic s of its ea rlier eng agement with the

international economy. An increasingly sophisticated trading structure had

red uc ed the relianc e on natural resource e xports. Ca nada ha d b ec om e less a

he wer of wo od and d raw er of wa ter. By the end of the c entury, as indica ted in

Figure 10, Cana dian m anufac tures ac c ounted for more than ha lf of to tal

exports. But two qua lific a tions need to b e made: first, of the ind ividua l p rov inc es

this wa s true only of Onta rio and Quebec , the rest p red om inantly expo rting

natural resourc e p rod uc ts, and, sec ond ly, the Ca nad ian b alanc e o f pa yments

dep end ed on expo rt surp luses of p rima ry p rod uc ts. None the less, co mp ared

with other Settler econom ies, Cana da had be en a great 20th century success:

not only had it experienc ed a muc h faster grow th of expo rts and income b ut it

had d eve lop ed a m ore diverse expo rt struc ture.23

22 With the rec ent take-over of Trinidad s RBTT by the Roya l Bank of Cana da , Canad ians nowc ont rol the Eng lish-spea king Ca ribbea n s three largest b anks with $42 b illion in assets. Economist,29 March 2008, p .67.23 T. Roo th, Interna tional trade and investme nt o f the settler econo mies during the tw entiethc entury: Argentina, Austra lia , Ca nad a , New Zea land a nd South Africa , pa pe r presented a t theInte rnat iona l Ec onom ic Histo ry Co ng ress, Helsinki, 2006.

14


15/20

The o ther ma jor deve lop ment had be en the eme rgenc e o f pe rsistent b alanc e

of payme nts surp luses. From its beg innings Ca nada had run d efic its on its trad ing

and servic es ac c ounts with the rest of the wo rld and financ ed these b y

borrowing.24 By the 1990s Ca nada beg an to ge nerate substantia l c urrent

ac c ount surp luses with the USA, using these to c ove r de fic its with o ther co untriesand , inc rea singly, to financ e net foreign investme nt.25 In 1999 Ca nada e a rned a

sma ll overall c urrent ac c ount surp lus which in the next few yea rs it rap id ly

enla rged (see Ap pend ix Figure A-4).

Figure10

Sources: Sta tistic s Cana da , Canad a Yea rbo oks, 2001 and 2007.

Rec ent d eve lop me nts, nota b ly the rela tive d ec line o f the US ma rket and the

grea t surge in c om mo d ity p ric es, have mo d ified the position. This is mo st obvious

in the struc ture o f expo rts revea led in Figure 10 ab ove. Ma nufac tures ha ve lost

their rec ently won asc end anc y: ac c ounting fo r 56.2 pe r c ent of e xports in 1999,

their sha re had fa llen to 42.6 per cent b y 2007. As the Economistrep orted , the

engines of g row th in the 1990s c a rs and high-tec h industries have slow ed or

shrunk [and ] dowd y perennia ls, suc h as mining , have be c om e the new

stars.26 This has been ac c om panied by som e shifts in prov inc ia l pow er.

24 There ha d b ee n excep tions, c erta inly during WWII and perhaps during som e years of the 1930sdep ression, but these ha d b een few.25 As a result Cana da s ne t e xterna l liab ilities to GDP fell from 44% in 1992 to 18.8% in 2001. Sta tCan.26 A return to a n older pattern of grow th, Economist, 22 Sept. 2005.

15


16/20

Ontario s dom inanc e a s a sourc e o f expo rts ha s slipped : Onta rio s exports in

2006 were still be low the level of 2002, and its sha re o f Ca nad ian e xports had

drop ped from 52 to 45 per ce nt. This has been reflec ted in we ak econo mic

performanc e w ith Onta rio s growth p ersistently lagg ing the na tiona l averag e.

Alberta has ma de the g rea test ga ins.27

The sec ond ma jor deve lop ment disc ussed ab ove wa s the emergenc e of a

ba lanc e of payme nts surp lus a fter 1997, as shown in Append ix Figure A-4. Net

payments have rem ained in surp lus on an a nnua l ba sis but a t a sharp ly red uc ed

leve l, and in the fourth q uarter of 2007 moved into d eficit. With a n app rec ia ting

dolla r inc rea singly taking on the beha viour of a petro-c urrenc y,28 the b alanc e

of p ayments has inevitab ly suffered (and this has ma de life m uc h more d iffic ult

for ma nufac turers).

Conclusions

Ca nada s intense ec onomic rela tions with the USA have b een one of the

ha llmarks of its 20th c entury ec onom ic history. Its sup erior export rec ord

c om pared with other Settler ec ono mies ove r the c ourse o f the c entury has

owed muc h to the relative op enness and rap id growth of the Am eric an ma rket

as we ll as the a dvanc es Ca nada staked out fo r itself in tha t market.29

Yet the high d eg ree of de pe nde nce ha s fluc tuated , pa rtly reflec ting Ca nad ian

polic y but a lso c hanges in the g lob a l econo mic environment. Reg iona l links with

the rest of the c ontinent have rema ined c om para tively slend er notwithstand ing

the NAFTA and other initiatives (a lthough o ffic ia l figures unde rsta te the

imp ortanc e o f Mexic o, and b ila teral trade ha s grown ve ry rap id ly but from a

sma ll base). Three d istinct phases ha ve bee n trac ed in this paper. In the sec ond

of these in the 1990s a c onjunction o f Ca nad ian polic y, nota b ly in the fo rm o f

the free trade pa c ts, and o f Americ an a sc end enc y ope ra ted to ge ther to

intensify ec onom ic relations with the USA. Since then the we akening o f the US

ec onom y and the imp ac t of China on world c ommodity ma rkets has led to

27 Dfait, Seve nth Annua l Rep ort on Ca na das Sta te o f Trade(Otta wa , 2007). Albe rta s sha re rosefrom 12 to 19% betw ee n 2002 and 2006.28 In rea lity driven b y high c om mo d ity pric es as a w hole a nd helped also b y the streng th ofCa nada s fisc a l position. In lat e 2007 the Cana d ian d olla r bec ame wo rth mo re tha n the USdolla r p rom pting p a rity pa rties ac ross Ca nad a!29 This app lies mo re t o the period since 1945; Cana da suffered g rievously from US protec tion inthe 1930s.

16


17/20


18/20

Figure A-3

Source: Sta tistics Ca na da , PFACT Ca na d ian Trade, Marc h 2008

18


19/20

Figure A-4

Source: Statistics Canada, CANSIM, tables 376-0001 and 376-0002.

Figure A-5

Source: Sta tistics Ca na da , Ca na da 's Interna tiona l Investment Position(Ottawa,

various years)

19


20/20

20

‘canada, the americas and the world economic linkages in the new era of globalisation

Documents