North American Economic Integration: Opportunities and Challenges for Canada
Case Synopsis
Someshwar Rao looks at how the impact of globalization has been felt most keenly at the regional level, and presents an analysis of what steps Canada must take to take advantage of its regional location, and to benefit, rather than suffer, from the rapid changes wrought by globalization. As a trading nation historically, with a relatively high dependency on natural resource exports and on access to the U.S. market for all its exports, Canada has become even more outward oriented in the past two decades. This has been accelerated by its two free trade agreements with the United States – first the bilateral FTA in 1989, and the NAFTA accord in 1994. But trade with Mexico has also expanded, in particular Canadian imports and direct investment going into Mexico, though remaining small. The boom in the U.S. in the 1990s, coupled with the increasingly major role played by intraindustry and intrafirm trade within major multinationals in regional and global trade flows, made the regional arena Canada’s primary economic focus in the age of globalization, despite dynamic efforts to promote trade linkages elsewhere. Rao argues that this has been good for Canada, and into the future Canada should focus on how it might “brand” itself as a site for incoming investment that views Canada within its regional, North American strategic context. With highly skilled labor, and investment capital in high-tech and R&D, so mobile, Canada must do more to attract and retain these high value added flows. Most notably, Canada must work towards closing the productivity and income gaps that put it behind the United States. Finally, Canada must reposition itself so that it is not so heavily dependent upon light manufacturing exports, in which it competes with low wage giants such as India and China. At the same time, securing access to the U.S. market remains a key imperative, particularly after 9.11. Rao believes that deeper and more extensive integration within the North American region would benefit Canada; for example, he cites data supporting the view that a customs union would expand trade and real GDP. Rather than look to diversify away from the U.S., Canada should instead diversify away from less highly productive and profitable economic sectors.
Teaching Plan
This paper makes two arguments that can be placed at the center of student in-class debates:
- Free trade has been beneficial for Canada
- The way to compete with China and other ‘emerging markets’ is to move up the value-added chain.
Students can research the contours of these debates, examine Rao’s arguments, and devise some of their own.
Relevant Courses
Although this article is somewhat technical, the broader political implications of its argument make it a fine choice for introductory courses in International Political Economy, Globalization, or in particular an elective in Canada-U.S. Relations.
Useful Links from PNA
- Economic Relations and Cross-Border Organizations Along the 49th Parallel
- Globalization: Myths, Facts, and Consequences
- North American Economic Integration – 25 Years Backward and Forward
- Ontario as a North American Region State
- Policy Implications of a Canada-US Customs Union
- The Emergence of Cross-Border Regions Between Canada and the United States
Suggested Bibliography
Beine, Michel and Serge Coulombe (2007). "Economic Integration and the Diversification of Regional Exports: Evidence from the Canada-U.S. Free Trade Agreement." Journal of Economic Geography January 7(1): 93.
Courchene, T.J. (2003). "FTA at 15, NAFTA at 10: A Canadian Perspective on North American Integration." (Presidential Address to the North American Economics and Finance Association) The North American Journal of Economics and Finance 14: 263-285.
Dodge, David (2003). "Economic Integration in North America." Geneva Park, Ontario: Remarks by David Dodge Governor to the Bank of Canada to the Couchiching Institute on Public Affairs, August 7, available from http://www.bank-banque-canada.ca/en/speeches/2003/sp03-11.html.
Jackson, Andrew (2003). "From Leaps of Faith to Hard Landings: Fifteen years of 'Free Trade'." Canadian Centre for Policy Alternatives, December, available from http://www.policyalternatives.ca.
Keyes, Robert J. "Issues in Canada-US Bilateral Economic Integration," Canada and The New American Empire. Centre for Global Studies and CBC Newsworld, available from http://www.globalcentres.org/can-us/economic_keyes.pdf.
McDougall. John N. (2006). Drifting Together: The Political Economy of Canada-US Integration. Broadview.
Reynolds, Neil (2007). "A realistic take on globalization." The Globe and Mail. October 17, Pg. B2.
Note: PNA is committed to encouraging intelligent discourse among our members. Comments are moderated by PNA, in accordance with the PNA Comment Policy. PNA does not necessarily endorse any of the views posted below.
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