The Role of the United States in Canadian economic development

The Historical Role of the United States in Canadian Economic

Development Since the 1970s

In the current world economy, countries would have mutual relationships which are usually geared towards the development of the states. Historically, every country has relations with another country to which it can be accounted that this country helped them develop in one way or another. One clear situation in this is the role that has been played by the United States of America in the economic development of Canada. The US and Canada are neighboring countries hence, have a high possibility of sharing a lot of bilateral trade relations. Canada is considered a key trade partner to the United States (Norrie, Kenneth, Emery, & Douglas 115).

History is important as it enables us to define the mission of a country, how the country relates and perceives its neighbors, how the country perceives its place in the world, and how the country views itself. A study into the role of the US in the economic development of Canada shall show the deep relations that the two countries have had in terms of trade. By taking insights into Canada, one can understand the attitudes about the roles of its government and business, the relationship between the employees and the managers, the source of power for managers, and the country’s attitudes towards foreign relations. A historical study of Canada will reveal the attitudes which may be reflected in its view of foreign cultures. It helps appreciate the image of the country and its people. Trying to understand the political and business culture of Canada, it is essential to understand the subjective history of the country.

The economic relations that exist between Canada and the US are mostly of economic benefit to Canada. It is because the US is considered as the most significant partner in trade to Canada as nearly 70% of Canada’s exports are being made to the US and the US on its side exports about 30% of its Gross Domestic Product (GDP) to Canada. Consequently, the historical analysis of the relations between the two countries shall reveal that the US has always been providing Canada with a lot of technology and investment capital in the form of foreign direct investments (FDIs). The result of this is the high level of ownership of Canada by the US. One might construe that Canada is another state within the US, a claim which is not true. From an economic perspective, it might appear true. To the US, strengthening Canada economically through enhanced linkages in trade and investment shall imply that the challenges are addressed, and the opportunities are taken care of.

The roles that have been played by the US in the economic development of Canada are quite enormous considering the historical trade relations that have existed between the two countries. For instance, in exportation, Canada is the second-largest customer to the US. This way, the US gets to consume most products from Canada; thus, being able to define the historical economic relations between the two countries. Unless one understands the historical sense of the many challenges that have buffeted Canada, it would be quite hard to comprehend the current behavior of the country. This study will limit itself to the period since the 1980s and determine the roles that the USA has played in the economic development of Canada. It will be based on the study of various correlated studies that have been conducted in the recent past.

Economic Role of the USA in Canada

Trying to present the economic performance of Canada over time for nearly four decades, comprehensive investigations will be required for the determination of the key economic drivers/factors for the growth. The main role that the US has played in the determination of Canada’s economic development and growth has been the widening of the investment and trade relations between it and Canada. For example, any person who has been following the economic issue more closely would relate the successful battle against inflation by the Bank of Canada as that which had its roots in the help that was accorded to it by the US. The war on inflation by Canada culminated in the Canadian cleansing recession that ushered the economic era of the 1990s (Norrie, Kenneth, Emery, & Douglas 75).

The main credit for the success of this would be the substantial trade liberation that followed the implementation of the Free Trade Agreement between Canada and the USA in 1989, as well as the establishment of the North American Free Trade Agreement (NAFTA). Anyone disposed to accord much credit would argue that the rising tide in Canada is what favored the trade growth. However, this includes exceptionally favorable macroeconomic conditions, investment boom, and the extraordinary dynamism of the US from which Canada benefits more.

Second, access to the markets in the USA, technology, and investment usually benefit Canada more. It resulted in great commercial arrangements that have mostly favored Canada, as well as great disparities in populations between the two countries. However, in line with this last argument, the over-dependence of Canada on the US for its economic growth has greatly affected its policies and made it quite vulnerable to the policies of the US. For instance, the recent corporate interests by the US in Canada resulted in the successful enlistment of the US support to Canada in Canada’s widening economic market for the good and services such as banking and data services.

The major subject matter that ran throughout the first 50 years of Canadian-American relations economically was the free trade issue and its perceived benefits. Canadians, have historically opposed the complete free trade agreement between their country and the US, at variance that it would necessitate the eventual loss of political sovereignty of their nation. They have also feared the acceptance of free trade agreement with the US would result in superior economic and industrial policy integrations, and further constrain Canada's capability to implement her autonomous economic policies.

The opponents of a free trade agreement between Canada and the US have contended that even though the US permitted free trade, Congress would use non-tariff barriers to get in the way of any gains that may accrue to Canadians from such preparations. Followers of the free trade agreement on their side have reasoned that, through free trade, and the consequential unhampered admittance to the US markets, Canadian producers can be transformed into efficient and well-organized production units. It will enable them to have sales volumes that are large enough to support the economic growth and development strategies through research and development. The debate has been renewed as free-trade negotiations were industriously undertaken by the Mulroney government around 1986-1987.

Even though the negotiations that lead to the Treaty of Washington in 1817 failed to restore reciprocity of state involvement with external trade affairs or procure compensation for the damage consequential from FENIAN raids, it did result in the US acknowledgment of Canada as a nation in the northern part of North American continent. In the 1891 federal election, the campaigns of the Liberals were carried on a platform that was based on the need for unrestricted free trade.

Notwithstanding the reciprocated opinionated suspicions that the two countries have industrialized from 1875 to 1990, the links that determined the outline for a closer economic integration have remained intact. Americans have invested heavily in Canada, through the establishment of things like branch plants, and through this, they have been able to take over from many Canadian-owned enterprises. For instance, in 1898, the enormous Standard Oil Company acquired Canada's largest oil company, Imperial Oil. It led to augmented trade linking the two counties, and production and financial ties were quickly formed, reinforced by transportation, labor, and other links.

The high-tariff policies of the US national policies are what attracted enormous amounts of US capital and investment into Canada. In 1984, even though a large percentage of nonresident investments in Canada were from the UK, the US also sought to supply double capital that could be used for direct investment purposes in areas such as the mining industry and manufacturing in Canada. The assortments of unions in Canada, which arose at some point in this period, were directly allied to their US counterparts.

Both the US and Canada have industrialization policies that begun in the mid-19th century, and these have extremely led to the expansion of both countries rapidly. Hundreds of millions of US dollars were poured into Canada from the US government with the main aim of helping in the creation of more economic subsidiaries. In the real sense, this was not the intention but to take over possession of the hopeful companies in Canada to be in a better position to serve both the Canadian and British preferential markets in fast-developing new industries such as electric appliances, motor vehicles, chemicals, metal processing, and machinery. With the great economic depression that occurred in the early 1980s, Canadians have become cautious and conscious of the susceptible situation in which they had been positioned by disproportionate reliance upon the US economy. In around 1930, the US Congress approved the Hawley-Smoot Tariff, which raised the duty on US imports to the uppermost levels ever known in history. Canada without delay also responded to the same by setting new high tariffs of its own. In the meantime, the Prime Minister of Canada back then, R.B Bennett, pledged to discharge away Canada into the world markets and condense Canadian reliance on the US financial system. In 1932, the Canadian government hosted the Imperial Economic Conference in Ottawa to revise the tariff systems within the British Commonwealth and Empire.

As a result of the series of meetings that were held back then, the trade relations between Canada and the US improved tremendously especially after the Reciprocal Trade Agreements Act of 1934 was passed into law. Canada and the US thereby began negotiations on the need to lower their tariffs for the sole benefit of increased trade among them. By 1935, another Canadian Prime Minister Mackenzie King concluded the Canada-US trade union that had been started by the former government of Bennett (Norrie, Kenneth, Emery, & Douglas 215).

A second and broad trade agreement was that which was signed in 1938. This new treaty led to a further reduction in the tariffs that were being charged by both countries in the exportation and importation activities of each one. In 1940, a convention between Prime Minister King and President Roosevelt near Ogdensburg, New York, led to the creation of the Permanent Joint Board on Defense (PJBD) that comprised of members selected from the two countries. This meeting also provided for how close economic and other relations between the two countries could be maintained in the future. The Second World War was another historical event that led to the US playing a crucial role in the economic development of Canada. Before the US officially entered into the war, Canada considerably prolonged its industrialized capacity, to a certain extent by purchasing immeasurable quantities of equipment and machinery from the US. By early 1941, Canada's foreign exchange reserves of US dollars had plummeted to treacherously near to the ground levels and Canada sought help from the US regarding the same. The two leaders, King and Roosevelt, went into negotiations about the same and the result was the Hyde Park Agreement. This agreement is significant because it necessitated a significant increase in the US purchases, in Canada, and allowed the British usage of US lend-lease finances for the American war gears that were imported by Canada for use in British military equipment. These procedures led to increased Canadian holdings of US dollars to cover imports from the US.

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The demands for consumer goods during the post-war period, the immeasurable arrival of immigrants, and the urgent need for converting an industrial wartime machine to meet the civilian requirements resulted in a sharp increase in the Canadian imports of consumer goods from the US. However, post-war exports from Canada fell sharply. As a result of this, the economic condition of the country started to deteriorate and as such, the US government came in and played a significant role in the restoration of the same.

By 1947, the imports from Canada were twice as much as the exports to the US. Since Britain and Europe were so much overwhelmed by the effects of the war and having fallen short of the required foreign exchange, Canada could not pay for its trade shortages as it used to do before. However, by 1950, most of these challenges had largely vanished, and Canada was enjoying a period of an investment boom.

Another significant way by which the US enabled the economic development of Canada was during the Cold War environment of the late 1940s and early 1950s. At such times, the corporations from the US embarked on an immense course that aimed at locating and developing the natural resources in Canada ranging from oil and gas to non-ferrous metals such as copper and iron ore, and uranium. Without the intervention of the US at this time in this particular way, it would have taken a long time to economically grow Canada from the post-war effects. This program of investment in natural resources, alongside the parallel investments in some other core industries, helped blend the Canadian economy more intimately to that of the US. A large and growing share of the mining, gas, and oil manufacturing industries were held under the corporate ownership and control of the US.

Even though Canada and the US signed the Auto-Pact agreement which formed a provisional free-trade zone for manufacturers who sought after markets for their motor vehicle parts and motor vehicle production in Canada during the year 1965, scores of Canadians had begun to articulate a yearning to diminish the foreign ownership and influence of their economy by the US. It led to disputes in tax and the principles for banking as well as the diplomatic disagreements over the status of US magazines in Canada.

While attempting to halt the flow of funds abroad from the US, the government introduced a tax that discouraged the outflow of the same funds to countries such as Canada. It sparked immediate financial crises in the Canadian financial markets since Canada highly depended on the US financial markets. Canada negotiated for immunity which was granted but with a condition that if Canadian borrowings in the US rose above traditional levels, the exception would be reviewed by the US. Canada also promised not to enhance its reserves for foreign exchange using the proceeds of the new borrowings from the USA. Through these constraints, the ability of Canada to conduct its economic activities in a more refined manner was lessened. In essence, these restrictions meant that the country was being controlled by the US. Even though this was perceived by many as inappropriate, the restrictions helped the country gain financial independence.

Closer Economic Ties between the Two Countries

While the issue of the free trade agreement between Canada-US has been a recurring subject matter in Canadian history since Confederation, it laid undeveloped since 1948, when it was negotiated for by the Canadian government before they retreated from the bilateral pact with the US. In October 1987, the two countries announced that they had an agreement, which was then consequently taken through ratification by both the Canadian Parliament and the US Congress. Under the proposed agreement, all the trade tariffs that existed between the two countries were to be done away with within 10 years beginning 1 January 1989. In addition to this, a national disagreement settlement system was established to review the relevance of trade-remedy penalties laws of the nationalized trade agencies, on points of law (Davis, Lance, & Robert 145).

In other legal provisions that were made between the two countries, Canada largely agreed to eliminate all the restrictions, which it had put on US takeovers of Canadian companies. It did not, however, include those whose assets were $150 million or more, and did not require the intervention of US subsidiaries in the future to be able to sell shares to the Canadians or compel them to endorse exports. The US-owned companies were now to be accorded the same treatment as Canadian-owned companies. In terms of energy, the US agreed to share oil and gas shortages with Canada on the basis that it does not use the same to create an advantage for Canadian manufacturing industries or consumers through the offering of lower prices.

This agreement also covered the other services shared by the two countries such as financial services. In this context, the US banks would have the same rights in Canada as Canadian financial institutions had in the country. The granting of these exclusive rights enabled the US to establish proper financial institutions in Canada which led to the development of adequate economic institutions.

Mutual Economic Ties that Bind and Divide

Even though Canadians and Americans share a lot of common fundamental values, wide differences in economic, cultural, and social concerns and policies have been exhibited in the relations of the two countries. The US, for example, champions for the reason of free markets and free flows of investment, while the Canadian main apprehension is the preservation of the capacity of a self-sufficient nation. Thus, Canadians are more willing to use their government and the Crown corporations to develop their financial system and industry to meet their own Canadian needs. However, still, the support that has been accorded by the US all these years is worthwhile, and Canada is proud of its relations with the US.

From the Canadian viewpoint, the US must understand that they have justifiable interests and aspirations that are detached from those of the US. However, in support of the Canadian policies, the US strove to maintain the Canadian requirements and desires for greater Canadian ownership and control of their economy. In this context, the US desire for an international code that allows it the free flow of dollars for investment and trade will continue to generate benefits for Canada. The deregulation and changes in technology by the US have had major implications for the Canadian airlines, telecommunications services, and broadcasting services too. In all these scenarios, there have been areas of common interest for both countries, and the binding ties will no doubt persist on the compelling of those that divide.

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The Economic Growth of Canada in a Historical Perspective

The economic history of Canada is unique following her diversity in-laws, culture, and customs, all of which have roots in the development based upon historical relations with the US as a neighboring country. Canada has been able to keenly enjoy the robust and sustained growth in per capita income/output, stronger than that of the US, more specifically from the 1970s to 1980s period. Around this period, its economic productivity converged towards that of the United States of America, which was considered a world economic leader. Consequently, the rate o unemployment in the country went down too. While the US greatly impacted on this aspect, the Great recession of 1980 interfered with this but increasingly reflected the determination of the US government through its Federal Reserve Bank to come to terms with the financial crisis that had gripped various nations.

In the meantime, during the depression period, the growth of strong productivity that had propelled the efficient living standards and the social welfare development of the two countries suddenly lost momentum. It resulted in Canada pursuing a sustained economic recovery plan in collaboration with the United States of America to ensure that it has an economic rebound. The reality of this matter has not been fully realized but, as at the end of the 1990s period, the argument was that it was too soon to speculate on the outcomes of the depression.

In this regard, the US accorded Canada the necessary economic support that was required to help the country recover from the same. It was the beginning of the reversion of the economic swoon that had hit it through the Great depression. By the US establishing appropriate policies that were geared towards ending the depression, it was helping Canada stabilize itself economically too. While the depression is passed, currently, still the US is seen as establishing policies that are aimed at ensuring continued growth between it and Canada. One such move is the complete removal of barriers to free trade between the two countries. It has been achieved through the Declaration of the Shared Vision and Perimeter Security and Economic Competitiveness between them.

Currently, the US is lobbying for the success of the Canada-European Union (CETA) negotiations as through this agreement; Canada will improve its global trade popularity and investment framework, thus, allowing the two countries to have an informed basis for addressing their territorial jurisdiction matters amicably and exclusively.

Socio-Economic Relations between Canada and the USA

In terms of socio-economic differences, Canada and the US have been embracing quite a distinct set of values to which it is primarily believed that the two countries grew out of different economic conditions. Currently, the main concern of investors in the partner countries to the US is the justification of its history about the recessions it has undergone. The increasing economic integration globally and the emergence of large economic players such as China puts the US economy at crossroads as to whether it is growing or weakening. The result of this is the evaluation of relations that countries have had with it, among Canada. The economic growth of Canada has been broadly consistent with the general context of exceptionally strong per capita output. Tracking this performance along historical lines reveals that Canada initially performed well in its economic development in the 1970s. The 1980s period showed a particular lackluster performance that was later on reversed by a rebound in the 1990s. The lag in economic performance by Canada from 1980 through to 1990, the growing gap in output and productivity of the US, as well as the associated deterioration in Canadian fiscal value, has saddled the country with a reputation of a lower economic rate that is hard to fathom.

The USA has further impacted the economic development of Canada through the enhancement of technological production means that have since helped boost the resources acquisition rate of the country. With adequate information technology, Canada has now been able to address the key issues that have required technological interventions in various industries. Through this, the Canadian citizens’ lives have been improved thus, addressing the productivity challenge. In line with this economic role, the US has been sending its expatriates to assist in the implementation of the projects by the Canadian government.

In seeking to realize these economic developments in Canada, the US government has all along outlined broad dimensions for the addressing of the various challenges that have faced Canada. Essentially, the main challenge has been the productivity challenge in which promoting output and productivity have emerged as crucial aspects to take into consideration in Canada. In addition to these, at the moments when Canada is experiencing financial challenges, the US government through its Federal Reserve Bank has always lent a hand and ensured that the benefits of the financial advancements are used in the development of the economy. When one compares Canada to the US in terms of demographics, it shall be found that the US is larger than Canada by a factor of ten in the population and the total GDP. The reason for this is that the factors that determine economic growth and development in a country and its partner countries are always in a constant dynamic interaction where they feedback and forth to each other.

The other issue that has been realized by the US while helping Canada to industrialize and become economically stable is that of highlighting innovation and investment as the core principles for sustained economic growth. With both terms being economically interdependent, a country must identify correctly the incentives and high leverage factors of economic development. The US in support of the growth of Canada has established various firms that produce various products. With a state of optimal competition among the companies, there have been potentially large incentives’ payoffs in terms of productivity and correspondingly large economic growth (Engerman, Stanley & Sokoloff 75).

With the combined efforts from the US government, Canada has faced a complete turnaround in economic matters such as controlled inflation rates, thus, erasing the risk premium in the interest rates of Canada relative to that of the USA. At the moment, the economic growth and productivity of Canada have surpassed the level that was put as its target or expectation. The various historical journeys of success and failures that it has undergone with the help of the US have so far proved fruitful. At the moment, Canada boasts of high productivity levels and rates nearly close to the world market producers such as the US, China, etc.

Conclusion

From the 1970s to this moment, it is quite hard to fault the impeccable roles that the US government has played in the shaping of Canada’s economic destiny. Considering Canada as a close neighbor, partner, and ally, the USA has provided assistance in various forms to aid in the establishment of Canada as an economically flourishing country. Several strategies have had to be employed, and in most of the scenarios, the two countries have had to sign treaties that have all seen them benefiting from bilateral trades. A good example of such a treaty is the Free Trade Agreement that removed trade barriers between the two countries. Ideally, it was the concern of the US to encourage exportation and importation activities between them and so the agreement granted this.

In addition to this, the US government has provided financial aid to the country through its Federal Reserve Bank that has been adequately used in the expansion of development projects and the attainment of economic objectives. Thereafter, the Canadian government has been able to boast of a flourishing economy. To this end, all through this period of over three decades, the economic impact of the US has been so profound in Canada. At some point, opposition from Canada has resented against the involvement of the US in their internal affairs with the fear that probably the US was infringing on their sovereignty. While this may be true, to some extent, as the US has had its agenda to accomplish, it has resulted in the greater achievement of higher economic standards by the country. Therefore, now, it is capable of realizing subjective and sustained growth and development (Davis, Lance, & Robert 125).