Academic journal article British Journal of Canadian Studies

Canada, the Americas and the World: Economic Linkages in the New Era of Globalisation

Academic journal article British Journal of Canadian Studies

Canada, the Americas and the World: Economic Linkages in the New Era of Globalisation

Article excerpt

Throughout its history Canada has been heavily engaged with the international economy, an involvement that reached new heights during the last quarter of the twentieth century. Although the USA has been overwhelmingly Canada's most important trading and investment partner, the intensity of economic engagement between the two countries has varied during the past thirty-five years or so. Three distinct phases of these economic linkages are identified in this article. The limited extent of Canada's integration with the non-US Western hemisphere is also explored, and a brief examination made of the evolving structure of Canadian exports, changes in international payments and recent intimations of de-industrialisation.

CANADA'S INTERNATIONAL ECONOMIC LINKAGES are distinctive in two respects. In the first place Canada has an exceptionally open economy. As the world entered the second era of globalisation in the 1970s, the proportion of Canadian GDP represented by international trade rose sharply, and when it peaked in 2000 it stood at 85.6 per cent, the highest exposure of any OECD country (DFAIT 2002b).1 This was reinforced by a second feature, very high levels of international investment. Measured by the stock of inward Foreign Direct Investment (FDI) to GDP, Canada ranked as the second most open country in the G7 after the UK in 2005 (DFAIT 2007).2

While high levels of international trade and investment are wholly consistent with globalisation, the second distinctive aspect of Canada's international economy, its huge dependence on exports to the USA, is more surprising. By 2001, 87 per cent of Canadian merchandise exports were sold to its neighbour. While there are many historical examples of countries selling a very high proportion of exports to a single trading partner, such as New Zealand, South Africa or Denmark to the UK during the middle years of the twentieth century, this was at a time of restricted international trade when globalisation was in retreat. Rich countries typically enjoy a geographical spread of their trade, and in contrast to Canada countries such as Australia and New Zealand have recently widened their trading links. But, significantly, the powerful trading ties between Canada and its southern neighbour are matched by fellow NAFTA partner, Mexico, which in 2006 is recorded as having sold nearly 85 per cent of its exports to the US (IMF 2007).3

This article seeks to explain the Canadian experience. It begins by examining three phases of Canada's history since the 1970s: first, the period of growing geographical diversification to circa 1990; second, its reversal during the following decade; and third, the record between the opening of the twenty-first century and 2007 when the first intimations of the current recession became apparent.4 It continues with a brief exploration of Canada's economic linkages with the rest of the continent before concluding with an overview of developments.

Phase One: 1970s to 1980s

During the post-war period many politicians and other commentators had worried about the extent of Canada's economic linkages with the USA. Prime Minister John Diefenbaker had announced a trade diversion initiative in 1957 explicitly to broaden Canada's trading patterns (Rooth 2005; Muirhead 2007), and during the following decade growing unease was expressed about the penetration of Canadian industry by American investment. In the 1970s steps were taken to wean the Canadian economy from its heavy reliance on the USA. Prime Minister Pierre Trudeau launched a re-examination of Canadian trade policy, and the resulting 'Third Option', announced late in 1972, was a clear attempt to distance Canada from the American economy. Trudeau, arguing that preservation of the status quo was unacceptable, and dismissing the policy of strengthening economic ties with the United States, pressed instead for the third option of actively seeking diversification of external economic links. …

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