1. Connected Cousins: The Canada-U.S. Economic Relationship Dr. Paul Storer and Dr. Erick Lee Erickson NCSS Vital Issues Session on Economics, Denver 2010 Americas Unhappy Borders The Economist, 8/27/05 Peace Arch Crossing State Department Photo

2. Outline of Talk The Importance of Canada-U.S. Trade - National and State Rankings - apples for apples trade - U.S. imports of energy from Canada Lessons from Canada: - The recent recession and banking - Health care

3. Source: Embassy of CanadaEmbassy of Canada

11. Source: http://www.canadainternational.gc.ca/washington / Canadas Rank for States Exports of Goods

12. Making Things Together Many products cross the border several times during the production process. Finished products often have significant content from both countries. Trade is often apples for apples More than 40% of Canada-U.S. trade is within-firm trade (eg Ford or GM).

13. The Modern Canadian Economy: Continental Integration & JIT

14. SeaTac Airport Shuttle Trains: Source: http://www.visitingdc.com/images/seatac-train.jpg

15. SeaTac Airport Shuttle Trains: Made in PA by a Canadian Company Source: http://farm4.static.flickr.com/3379/3198460812_79dd9093c2.jpg

16. Krugmans Model of Trade: Economies of Scale and Apples for Apples Trade Ford Edge: Oakville, Ontario. Canada cbc.ca

17. North American Specialization Ford Escape: Kansas City, MO

18. Trade and Economies of Scale Example: cars in Canada before 1965 Canada in 1964: home-grown car industry Prices were high, wages were low, choice was limited, businesses werent profitable. Solution: a North American auto industry

19. Car Production and Costs Very high fixed cost Lower cost per additional car Per-unit cost of one car very high Per-unit cost falls as we make more cars

20. Economies of scale: average cost falling with production

21. Lowering Total Costs with Trade Canada makes crossovers for North America, U.S.A. makes SUVs for North America We save the fixed costs of two factories Costs are lower so wages and car prices improve We also get a wider variety of car models

22. Energy Trade Canada: An Important Supplier of Secure Energy

23. U.S. Petroleum Imports (2006) (Source: U.S. Energy Info. Agency)

25. Source: http://www.pse.com/energyEnvironment/EnergySupply_NaturalGasProfile.aspx

26. Source: The Worlds Largest Trading Relationship, Embassy of Canada.

27. Oil Sands Reserves Source: www.ubc.ca

28. Source: www.guardian.com

31. A Tale of Two Recessions Why did Canada do better in the recession? Source: The Economist

33. A Reversal of Fortunes 1980-99: Unemployment rates higher in Canada Fortunes are reversed beginning in 2000 Reversal accelerates after 2007 Canada hit harder in 1981 & 1991 United States hit harder in 2001 and 2007

35. September 2010 - Canada: 8.0%, United States: 9.6%

37. What Explain the Differences? The United States suffered through an atypical recession caused by the burst of a property bubble and the end of a financial crisis. The crisis in the United States hit construction jobs Mortgage losses reduced mobility in the United States. Mismatch (2010 Nobel in Economics)

38. Another Hypothesis: U.S. Economic Policies hindered Adjustment and Flexibility Example: 99 weeks Of Unemployment Insurance

39. Why Canada Avoided A Financial Crisis Canadian home-price increases were more moderate Loan default rates were lower in Canada Canadian banks remained profitable No public bailout of Canadian banks!

40. Source: Bank of Canada Web site

41. (90 days plus delinquent) Source: Federal Reserve Bank of Cleveland

42. Banks in Canada and Mortgages Six large, diversified, universal banks. All too big to fail Mortgage interest not tax deductible Much less use of mortgage brokers and loan securitization.

43. Health Care Is the United States following the Canadian path?

44. June 9, 2009

45. Source: http://www.health.gov.on.ca/English/providers/pub/ohip/http://www.health.gov.on.ca/English/providers/pub/ohip/ physmanual/graphics/enhanced_card_security.gif http://www.ghc.org/all- sites/images/membershipCar ds/ghc_med.gif Provincial Health Insurance vs. U.S. HMOs

46. Health Care Spending, % of GDP, 2003

47. Health Care as a % of GDP U.S. Canada

48. The Post-9/11 Reality How do we balance security and integration?

50. Canada: A Source of Vulnerabilities? Source: Bellingham Herald Source: ABC newsSource: International Border Commission

51. Alphabet Soup Programs

53. DHS Secretary Napolitano: Hope and Change? View #1: the myth Im trying to bust is that theres no real border between Canada and the United States View #2: We dont want to damage economic security in the name of homeland security. Source: Globe and Mail