1. TOPIC 12 TRADE PATTERNS

2. Learning Goals We will be able to:  Understand the importance of trade.  Use and understand trade terminologies.  Use the balance of merchandise trade.  Identify historical and evolving patterns of trade in both goods and services in capital flow.  Apply the trade patterns to the global economy.

3. The Importance of Trade  No reasonable social being can afford to be totally self-sufficient.  The primary reason is that it allows industries to specialize, achieving greater economic efficiency.  This improves market prices and living standards for people in both importing and exporting nations.

4. Terminologies of Trade  Merchandise Trade: Goods that are grown, extracted, or manufactured in one country and sold to another. The tangible nature of goods makes it visible trade. Eg. Fur, Steel, Wood etc.  Non-merchandise Trade: Exchange of services, tourism, investment incomes, and other transfers of funds. (Invisible Trade)

5. Balance of Merchandise Trade  On a global scale, volume and value of imports = volume and value of exports.  For individual nations, it is not necessarily at equilibrium at every given time. (Imports = Exports)  It is the difference between the value of merchandise exports and merchandise imports.  If Exports > Imports, a nation is said to have favorable balance.  If Imports > Exports, a nation is said to have unfavorable balance.

6. Trade Patterns in Canada  Most years, Canada has a favorable balance of merchandise trade.  However, non-merchandise trade typically posts a negative balance and has been increasing steadily in recent years.  From this, we can tell that the Canadian economy is extremely dependent on foreign capital to support domestic industrial activity and to carry the large public/government debt.

7. Trade Patterns in Canada  Canadians tend to sell the world inexpensive, semi- processed natural resources then buy back these resources once they have been processed into final goods by workers in foreign economies.

8. Skill Builder on Page 387  From the data, we can see that from 1975-2000, as trade is increasing, there are significant increases in Exports and Imports. However, to most countries, Canada has an unfavorable balance of merchandise trade.  In 1990(US), Unfavorable balance of merchandise trade of $17390. However this improved in 2000 whereby the exports > imports of $91877.

9. Skill Builder on Page 387  However, when trading with other countries, it has always been unfavorable towards Canada.

10. Development of Canadian Trade Policy  During the past 150 years, trade restrictions have generally decreased globally, with a few notable exceptions.  The United States has greatly influenced the evolution of Canada’s national trade policy.

11. Timeline of Canadian Trade Policies 1854-Reciprocity Treaty 1879- Canada’s first prime minister, Sir John A. Macdonald succeeded in passing the National Policy into law 1930s- Great Depression and World War II 1947- General Agreement on Tarrifs and Trade (GATT) 1994- North America Free Trade Agreement (NAFTA) 1995- World Trade Organization (WTO) replaced GATT

12. Reciprocity Treaty  In1854, British and US governments signed the Reciprocity Treaty  Established a qualified free trade relationship between British North America(Canada included) and the United States  By 1866, this reciprocal trade agreement had fallen victim to political and economic pressures.  Thus, it was cancelled and trade tariffs rose sharply.

13. National Policy into Law  Canada’s first prime minister, Sir John A. Macdonald succeeded in passing the National Policy into law  Main components: Imposition of high tarrifs on imported manufactured goods. Building of a transcontinental railroad (Canadian Pacific) Promotion of Prairie Settlement (Provision of free land for settlers)  US manufacturers open branch plants in Canada to evade high trade tarrifs.  Tarrif rates peaked around 1890, then trend was to slowly reduce trade tarrifs.

14. Great Depression and World War II  1930s, To combat rising domestic unemployment, protective tariffs were increased.  This however hurt the economies of all industralized nations.  1939, Great Depression had been addressed, tariff rates reduced to promote trade.  1939, World War II, world trade adversely affected, Canadian tariff rates quickly increased in the early 1940s.

15. Terminologies  Multilateral trade negotiations: Simultaneous agreements among a number of nations.  Bilateral negotiations: Agreements between two nations.  Unilateral action: When a nation acts alone, without negotiation, in matters that also involve other nations.

16. General Agreement on Tarrifs and Trade (GATT)  In 1947, after the second world war, Canada, US and 21 other nations signed the GATT.  An international agreement designed to reduce trade barriers among its member nations.  Through 8 successive rounds of multilateral negotiations, tariffs in member nations fell from an average of 40% in 1947 to an average of 5% in 1988 while the volume of international merchandise trade multiplied 20-fold.

17. The road to the North America Free Trade Agreement (NAFTA)  In 1965, the Canada-US Automotive Products Agreement (Auto Pact) was signed.  This was to establish free trade in automotive vehicles and parts between the two nations to combat the problems.  In 1989, the Free Trade Agreement (FTA) was signed as Americans were unhappy that the Auto Pact were starting to favor Canada.  This increased trade between the 2 countries but there were repercussions within the Canadian economy as it was during the period of global recession and also resulted in Canada’s reliance on the US economy.  In 1994, NAFTA was signed into effect.  This established a free trade area with 360 million people and a combined economic output of US$6 trillion.

18. World Trade Organization (WTO)  In 1995, the GATT was ultimately replaced by the 132-member World Trade Organization (WTO)  It has 4 essential principles: Trade must be conducted without discrimination. Imported products must be treated the same as domestic products. Protection of industries have to be done through quantifiable customs tariffs instead of through fees and other charges. Any country wishing to join must submit a listing of all presently negotiated tariff levels with member countries and all non-tariff trade restrictions.  As more members join up with the WTO, average tariffs have continued to fall.  This increases trade among members and as members grow and tariffs fall, trade on a global scale is increasing significantly.

19. Global Trade Patterns  Major international trade agreements such as the WTO, NAFTA and the European Union (EU). These agreements contribute globally and regionally.  The EU is the largest and most powerful common market. The European Union introduced a common currency for 11 of its nations in 1999, the euro. This aids trade among its member nations.

20. Global Trade Patterns  The WTO, NAFTA and the EU are all working to promote trade among countries.  Total exports in the world have increased, which means that there is an increase in volume of international trade.

21. Globalization  As more nations are joining trade organizations and signing trade agreements, many nations have removed, or are now removing, various barriers to cross-border trade, this results in a huge increase in the volume of international trade, which is a driving force of globalization.

22. Trend of Trade  As can be seen, trade in Canada has experienced significant changes from the 1800s to trade at present. The government is always looking to improve trade with other nations.  Mostly, global and international trade too has experienced a sharp increase as free trade or trade agreements are signed by nations.  Large organizations such as the WTO facilitate trade significantly by lowering tax tariffs.  Among certain countries, free trade agreements have already been put into place such as the NAFTA.  The EU also facilitates trade among its member nations.  All these results in a huge increase in the volume of international trade.  This is a driving force of globalization.

23. THANK YOU

24. Works Cited Bolotta, Angelo, Charles Hawkes, Rick Mahoney, and John Piper. Economics Now: Analyzing Current Issues. Canada: Oxford University Press, 2002. Print. "Changing Patterns of Global Trade.". Ed. Tamim Bayoumi. INTERNATIONAL MONETARY FUND, 15 June 2011. Google. Web. 26 May 2013..