Tag Archives: Economy of the United States

Canada Needs to Diversify its Export Strategy

During my last semester as an MBA student, I decided to take a class in International Relations theory. It was certainly a challenging class, especially considering I’d never had a course in political science. There was a steep learning curve in the beginning, but I learn very quickly, so I was able to stay right on track with the material. The last paper I wrote for that course had to do with Canada and NAFTA. I don’t think it’s a good idea to share the whole paper (22+ pages), but I thought I’d include pieces of the conclusion. Any hyperlinks below were added via WordPress’s “recommended links” and weren’t part of the original conclusion. Enjoy!

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At the outset, this paper attempted to shed some light on Canada’s relationship to NAFTA. After the literature review and subsequent analysis, there certainly seems to evidence that Canada made the choice that benefitted the country the most [economically] when it signed onto NAFTA. As the [academic] literature has shown, there will continue to be calls for the three North American countries to further integrate. This certainly may help all of the countries of NAFTA, but it is hard to say that with Mexico still far behind the US and Canada, economically. In time, one would expect that Mexico could become a global economic force, but for now, there is still much work to be done. As it stands now, Canada’s main purpose for being part of NAFTA seems to be because the US is involved. As a result, one would expect that Canada would continue to be part of NAFTA and continue to strengthen its relationship with the US. If NAFTA were just an agreement between Mexico and Canada, there probably would not be a NAFTA.

After analyzing the data, one of the most important takeaways is that Canada needs to continue to diversify its exports strategy. The vast majority of Canadian exports are to the US. In the beginning, this was probably out of convenience. The US market is much larger than Canada’s and it is right there. However, as events like the global financial crisis foreshadow the possibility of similar and bigger events, it is important for countries like Canada to ensure that they are not too invested in the success of one nation. If for instance something were to happen to the US such that it pulls them [the US] down into a recession like Japan saw in the 1990s, Canada would undoubtedly be affected. Although, some may argue that if this were to happen, the whole world would probably be pulled into a recession. However, as Canada demonstrated by its resilience during the financial crisis, it is possible to mitigate the effects of a catastrophic event. This is exactly why Canada needs to continue to seek out free trade agreements with other countries. The more free trade agreements that Canada can enter into, the more insulated it will be against a possible economic collapse in the US.

What is “the Economy,” Anyway?

Earlier this morning, the Bureau of Labor Statistics published a bunch of figures, which collectively is known as the jobs report. The consensus around the numbers seems to be that the news is ‘positive’ for the economy. Hooray! Within the last hour, the Dow Jones Industrial Average broke 14,000 for the first time in almost 6 years. Hooray again! After hearing about these two bits of news, I went on a bit of a rant on Twitter about “the economy.”

At times, this can be a bit bothering — listening to someone opine about the economy when they’re not really specifically pointing to the part of the economy that’s disturbing to them. Part of me wonders if this is because the person doesn’t know what they’re talking about and they’re just repeating the headlines they’ve read in the paper that day or something they heard the newsman say on TV).

The economy is vast — really vast. Let’s just look at the definition on Wikipedia for a moment:

An economy consists of the economic system of a country or other area; the laborcapital, and land resources; and the manufacturingproductiontradedistribution, and consumption ofgoods and services of that area.

Labor, capital, land resources, manufacturing, production, trade, distribution, and consumption — that’s a lot of areas rolled into one! My guess is that when most people talk about the economy, they’re usually referring to that first part: labor. Their perspective on the economy is viewed through the lens of “do I have a job, do my friends have jobs, do other people have jobs, etc.” In this way, when unemployment is high, the economy is “down” or not doing so well.

The ironic part here is that today, with unemployment at 7.9%, the economy could be seen as doing quite well. I mentioned in the tweets above (and earlier in the post) that the Dow broke the 14,000 barrier for the first time in nearly 6 years. That’s pretty substantial as many other folks use the Dow as a proxy for how the economy is doing. “Is the stock market up, then the economy must be doing well…”

Just like unemployment is one facet of the “labor” area of the economy, the stock market could be seen as one facet of the “capital” area of the economy. Another important facet of the “capital” area of the economy: liquidity (cash).

A couple of days ago, Ezra Klein at the Washington Post had an important graph showing the rise in liquid assets over the last 20 years or so. The chart shows a steady (and quick!) rise in liquidity. In fact, liquidity has nearly tripled in the last 20 years! Why does this matter? Well, all that cash on the balance sheet of corporation’s doesn’t do any good for “the economy” nor does it do any good for the unemployment number of 7.9%. If it were up to me, I think that Congress needs to do something to incentivize the corporations for spending all that cash, which represents 11.3% of GDP! While I understand the Keynesian argument for stimulus spending, to me, it appears that coaxing all of that money back into the economy would be the most effective form of stimulus.

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While it may seem that I’ve gone off on a bit of a tangent, I just wanted to illustrate that “the economy” can represent a number of things to a number of people. The next time you hear someone talking to you about the economy, double-check with them the part of the economy they’re referencing.