 |  Macroeconomics, 9/e Campbell R. McConnell,
University of Nebraska, Lincoln
Stanley L. Brue,
Pacific Lutheran University
Thomas P. Barbiero,
Ryerson University
Canada in the Global Economy
Chapter HighlightsCHAPTER 5- Goods and services flows, capital and labour flows, information and technology flows, and financial flows
link Canada and other countries.
- International trade is growing in importance globally and for Canada. World trade is significant to Canada
in two respects: (a) Canadian imports and exports as a percentage of domestic output are significant; and
(b) Canada is completely dependent on trade for certain commodities and materials that cannot be obtained
domestically.
- Principal Canadian exports include automotive products, machinery and equipment, and grain; major Canadian
imports are general machinery and equipment, automobiles, and industrial goods and machinery.
Quantitatively, the United States is our most important trading partner.
- Global trade has been greatly facilitated by (a) improvements in transportation technology, (b) improvements
in communications technology, and (c) general declines in tariffs. Although North America, Japan,
and the Western European nations dominate the global economy, the total volume of trade has been lifted
by the contributions of several new trade participants. They include the Asian economies of Singapore,
South Korea, Taiwan, and China (including Hong Kong), the Eastern European countries (such as the Czech
Republic, Hungary, and Poland), and the newly independent countries of the former Soviet Union (such as
Estonia, Ukraine, and Azerbaijan).
- Specialization based on comparative advantage enables nations to achieve higher standards of living
through trade with other countries. A trading partner should specialize in products and services for which
its domestic opportunity costs are lowest. The terms of trade must be such that both nations can obtain
more of some products via trade than they could obtain by producing it at home.
- The foreign exchange market sets exchange rates between currencies. Each nation's imports create a supply
of its own currency and a demand for foreign currencies. The resulting supply-demand equilibrium sets
the exchange rate that links the currencies of all nations. Depreciation of a nation's currency reduces its
imports and increases its exports; appreciation increases its imports and reduces its exports.
- Governments influence trade flows through (a) protective tariffs, (b) quotas, (c) non-tariff barriers, and (d)
export subsidies. Such impediments to free trade result from misunderstandings about the advantages of
free trade and from political considerations. By artificially increasing product prices, trade barriers cost
Canadian consumers billions of dollars annually.
- Most-favoured-nation status allows a nation to export goods into Canada at its lowest tariff level, then or at
any later time.
- In 1947 the General Agreement on Tariffs and Trade (GATT) was formed to encourage non-discriminatory
treatment for all member nations, to reduce tariffs, and to eliminate import quotas. The Uruguay Round of
GATT negotiations (1993) reduced tariffs and quotas, liberalized trade in services, reduced agricultural subsidies,
reduced pirating of intellectual property, and phased out quotas on textiles.
- GATT's successor, the World Trade Organization (WTO), has 135 member nations. It implements WTO agreements,
rules on trade disputes between members, and provides forums for continued discussions on trade
liberalization.
- Free-trade zones (trade blocs) liberalize trade within regions but may at the same time impede trade with
non-bloc members. Two examples of free-trade agreements are the fifteen-member European Union (EU)
and the North American Free Trade Agreement (NAFTA), comprising Canada, Mexico, and the United States.
Twelve of the EU nations have agreed to abandon their national currencies for a common currency called
the euro.
- The global economy has created intense foreign competition in many Canadian product markets, but most
Canadian firms are able to compete well both at home and globally.
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2002 McGraw-Hill Higher Education