The Economic Role of International Trade in Canada's Future

THE ECONOMIC ROLE OF INTERNATIONAL TRADE IN CANADA'S FUTURE

In the past decade, the Canadian economy experienced stagnation owing to the existence of unfavorable economic trends in the regional and global economy. It is argued that Canadian economy slipped into a recession because of the challenges faced in building its competitiveness in the international trade network. For instance, Canada has been relying on regional trade, especially with the United States which accounts for the highest portion of international exports, and this aspect is linked to the crippling of the Canadian economy. Therefore, internationalization of trade activities appears to be one of the most reliable approaches for aligning the country’s economy with the 21st century global economy. This approach will enable the country to increase its export levels which will, in turn, increase the Gross Domestic Product of Canada. This is probably why Laurin (2013) remarks “There is a growing perception that Canadian businesses need to turn their attention to overseas markets and shift their business strategies to adapt a new global environment’ (p. 6). As such, the current approach by Canadian premiers to establish trade agreements with international trade partners seem to be an amicable answer to economic tantrums in the Canadian economy. The new approach bears significant economic roles in the Canadian economic prospects in the future. According to the Council of the Federation, it is apparent that “strengthening Canada’s trade and investment linkages with the global economy will mean addressing challenges and taking advantage of new opportunities” (p. 4). This aspect is reaffirmed by Passaris (2013) who observes “International trade is both the heartbeat and the lifeblood of the Canadian economy. In fact, international trade has empowered Canada to side-step economic theory” (p. A10).Therefore, this paper will give an overview on the economic role of international trade in Canada’s future.

Canada is known to rely on trade for the largest proportion of its GDP. This is why the Council of the Federation remarks, “With a large proportion of Canada’s gross domestic product linked to trade, international trade and investment are critical to the continued growth and success of the Canadian economy” (p. 2).

Historically, Canada is known to have established international trade links with different international trade partners as early as the fourteenth century. From an economic lens, Canadian economic development is directly tied to international trade, and this aspect is explained by Professor Harold Innis economic model for Canada’s economic development. The ‘Staples Thesis’ explains the significant role played by exports of natural resources to foreign markets in transforming the Canadian economy. This is why Passaris (2013) states “Our economic history bears testimony to our persistent and continuous engagement in selling Canadian natural resources to foreign markets” (p. A10). It is reported that, Canada established its international trade with Britain, her colonial master since 1867 when the Canadian confederation was formed. However, the emergence of the US the world’s economic superpower led to a significant diversion of Canadian exports into the American market.

To date, Canada has entered into free trade agreements with a number of international trade partners. Fafard and Leblond (2012) report “As a small open economy, Canada is at the forefront of this trend and is currently negotiating (or at least contemplating) a wide range of bilateral and multilateral second- generation agreements with a diverse set of countries around the world” (p. 3). It is worth noting that economic necessity prompted Canada to engage in the Free Trade Agreement with the USA, in 1988. Since then, USA has been one of the most principal trading partners for decades. It is reported that Canada and the United States “share one of the most extensive bilateral relationship in the world and have successfully negotiated and implemented comprehensive trade and intergovernmental agreements to facilitate the movement of goods, services, investment, and people” (Council of the Federation, n.d. p. 2). Currently, Canadian exports to the US market accounts for 75% of the country’s export volume, whereas supplies from the US accounts for only 50% of Canadian imports. Evidence shows that Canada’s exports to the United States accounts for about one-quarter of the country’s gross domestic product. This implies that, the US acts as the principal export partner for Canada.

On the other hand, Canada has a free trade agreement with Mexico through the North American Free Trade Agreement (NAFTA). This trade agreement comprises of Canada, Mexico and the United States, and it was signed in 1993. Since then, Canadian exports have gained a substantial increase into the American market leading to the improvement of Canadian economy. However, these agreements formed under economic necessity between Canada and the Americas seem to bear enormous challenges to the growth and development of Canada’s economy in the future. Passaris (2013) states “Canada's export fixation on the U.S.A. is strength, weakness and a missed opportunity” (p. A10). The perceived strength in this trade relationship is based on the fact that the US has provided Canada with domestic opportunities and economic benefits. However, this trade affiliation has disadvantaged Canada by restricting its trade connections for its exports to one geographical destination. As a result, Canada has not expanded its trade network to other regions around the globe. Nevertheless, exports to the Americas remains the principal source of foreign exchange which forms the backbone of the Canadian economy.

Therefore, Canada is required to streamline its trade links with the US and other partners such as Mexico through FTA and NAFTA by redesigning its production system to increase the production of finished products for export. This aspect is reaffirmed by Passaris (2013) whose observes “There is no denying that processed and value-added products generate more significant economic benefits and result in more government revenues than the export of raw materials and natural resources” (p. A10). Currently, most of the exports into the American market are natural resources which are used in manufacturing industries in America. Therefore, reducing the export of natural resources to the American market and increasing the export of finished products will enable Canada to achieve a competitive edge in the American market. This approach may prompt investors from the US to shift to Canada for investment in natural resources; thus, generating revenue through Foreign Direct Investment (FDI) which will strengthen the Canadian economy in the future.

It is argued that Canada’s reliance on the American market for its exports encompass a number of consequences. Despite the projected expansion of the global economy, Canadian economy is expected to experience stagnation owing to the lack of extensive trade networks in the global market. It is predicted that the Canadian economy will mimic that of the United States which has been characterized with weak and sluggish economic recovery process (Passaris, 2013).

However, Canada will experience robust economic growth and development by seizing the EU trade opportunity. It is believed that the recently completed EU-Canada bilateral trade agreement has opened new economic opportunities which will lead to a substantial development of the Canadian economy. This is so because; the EU opportunity has channeled the Canadian economic focus towards new trade opportunities in the 21st trade environment. This is probably why Passaris (2013) expresses satisfaction with the EU opportunity by saying, “the successful completion of the EU-Canada free trade agreement is tangible evidence that Canada has come of age in the 21st century. I have come to that conclusion because we now have evidentiary proof that Canada has gained admission to the big leagues of trade liberalization” (p. A10). Secondly, the EU opportunity has reduced the vulnerability of the Canadian economy to an economic recession because its reliance on the US as the principal trade partner will decrease significantly in the future. Passaris (2013) seems to express the logic of drifting way from over-reliance to the US market by stating, “The over-dependence of our provincial exports to the tune of 75 per cent to the U.S.A. creates a serious economic vulnerability” (p. A10). Therefore, it is apparent that the EU-Canada trade agreement will boost Canadian exports owing to the benefits of opening up new flourishing European markets (Passaris, 2013).

Moreover, Canada’s approach for establishing trade agreements with other international partners including China, India and Africa will strengthen the country’s competitiveness in the 21st global economy. This has been evidenced by the Trans-Pacific Partnership, which represents a GDP of $17 trillion (Government of Canada, 2012). Therefore, international trade will play a significant role in the growth and development of the Canadian economy in the future. This is attributable to expanded export markets, diversification of its products and the lifting of regional geographical barriers.

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