Economy of Canada

Economy of Canada
Currency	Canadian dollar (CAD)
Fiscal year	1 April - 31 March
Trade organisations	NAFTA, OECD, WTO and others
Statistics [1]
GDP ranking	13th (2004) [2]
GDP	$1.023 trillion(2004)
GDP growth	2.4% (2004)
GDP per capita	$31,500 (2004)
GDP by sector	agriculture (2.3%), industry (26.4%), services (71.3%) (2004)
Inflation	1.9% (2004)
Pop below poverty line	N/A (2004)
Labour force	17.37 million (2004)
Labour force by occupation	agriculture (3%), manufacturing (15%), construction (5%), services (74%), other (3%)(2000)
Unemployment	6.4% (February 2006)
Main industries	transportation equipment, chemicals, processed and unprocessed minerals, food products, wood and paper products, fish products, petroleum and natural gas
Trading Partners [3]
Exports	$315.6 billion (2004)
Export - Commodities	motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment, chemicals, plastics, fertilizers, wood pulp, timber, crude petroleum, natural gas, electricity, aluminum
Main partners	U.S. 85.2%, Japan 2.1%, UK 1.6% (2004)
Imports	$256.1 billion (2004)
Imports - Commodities	machinery and equipment, motor vehicles and parts, crude oil, chemicals, electricity, durable consumer goods
Main Partners	U.S. 58.9%, China 6.8%, Mexico 3.8% (2004)
Public finances [4]
Public debt	$501,493 (millions of dollars 2004)
Revenues	$151 billion (2004)
Expenses	$144 billion (2004)
Economic aid	$2 billion (donor) (2004)

Canada is one of the world's wealthiest nations, a member of the OECD and G8. As with other first world nations, the Canadian economy is dominated by the service industry, which employs about three quarters of Canadians. Canada is unusual among developed countries in the importance of the primary sector, with the logging and oil industries being two of Canada's most important. In part because of this Canada is highly dependent on international trade, especially trade with the United States. Preserving Canadian independence in the face of the strong pressure from the United States has long been a major political issue. Canada also has a sizeable manufacturing sector, centred in Southern Ontario, with the automobile industry especially important.

Canada is a free market economy with slightly more government intervention than the United States, but much less than most European nations. Canada has traditionally had a lower per capita GDP than its southern neighbour (whereas wealth has been more equally divided), but higher than the large western European economies. For the last decade, after a period of turbulence, the Canadian economy has been growing rapidly with low unemployment and large government surpluses on the federal level.

1 Economic sectors
2 Political issues
- 2.1 Regional imbalances
- 2.2 Relations with the U.S.
3 See also
4 References

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Economic sectors

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Natural resources

Canada's huge land mass, the second largest in the world after Russia, ensures that a wide array of natural resources are present. Different resources are centered in different parts of Canada. In British Columbia the forestry industry is of great importance, while the oil industry is central to Alberta's prosperity. Northern Ontario is home to a wide array of mines, while the fishing industry has long been central to the character of the Atlantic provinces, though it has recently been in steep decline.

However, these industries have increasingly become less and less important to the overall economy. Only some 4% of Canadians are employed in these fields, and they account for less than 6% of GDP. They are still paramount in many parts of the country. Many, if not most, towns in the northern part of the country, where agriculture is difficult, exist because of a nearby mine or source of timber. Canada is a world leader in the production of many natural resources such as gold, nickel, uranium, and lead. Several of Canada's largest companies are based in natural resource industries, such as EnCana, Inco, and Barrick Gold. The vast majority of these products are exported, mainly to the United States. There are also many secondary and service industries that are directly linked to primary ones. For instance one of Canada's largest manufacturing industries is the pulp and paper sector, which is directly linked to the logging industry.

The relatively large reliance on natural resources has several effects on the Canadian economy and Canadian society. While manufacturing and service industries are easy to standardize, natural resources vary greatly by region. This ensures that differing economic structures developed in each region of Canada, contributing to Canada's strong regionalism. At the same time the vast majority of these resources are exported, integrating Canada closely into the international economy. Howlett and Ramesh argue that the inherent instability of such industries also contributes to greater government intervention in the economy, to reduce the social impact of market changes.

Such industries also raise important questions of sustainability. Despite many decades as a leading producer, there is little risk of depletion. Large discoveries continue to be made, such as the massive nickel find at Voisey's Bay. Moreover the far north remain largely undeveloped as producers await higher prices or new technologies as many operations in this region are not yet cost effective. In recent decades Canadians have become less willing to accept the environmental destruction associated with exploiting natural resources. High wages and Native land claims have also curbed expansion. Instead many Canadian companies have focused their exploration and expansion activities overseas where prices are lower and governments more accommodating. Canadian companies are increasingly playing important roles in Latin America, Southeast Asia, and Africa. It is the renewable resources that have raised some of the greatest concerns. After decades of escalating overexploitation the cod fishery all but collapsed in the 1990s, and the Pacific salmon industry also suffered greatly. The logging industry, after many years of activism, have in recent years moved to a more sustainable model.

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Energy

Canada is one of the only developed nations that is a net exporter of energy. Most important are the large oil and gas resources centred in Alberta, but also present in neighbouring British Columbia and Saskatchewan. The vast Athabasca Tar Sands give Canada the world's second largest reserves of oil. In Quebec and British Columbia, as well as Ontario and Manitoba, hydroelectric power is a cheap and relatively environmentally friendly source of abundant energy. In part because of this, Canada is also the world's highest per capita consumer of energy. Cheap energy has enabled the creation of several important industries, such as the large aluminum industry that makes use of cheap Quebec and British Columbia hydroelectricity.

Historically an important issue in Canadian politics is that while Western Canada is one of the world's richest sources of energy, the industrial heartland of Southern Ontario and Quebec has fewer native sources of power. It is, however, cheaper for Alberta to ship its oil to the western United States than to eastern Canada. The eastern Canadian ports thus import significant quantities of oil from overseas, and Ontario makes significant use of nuclear power.

In times of high oil prices this means that the majority of Canada's population suffers, while the West grows extremely wealthy. The National Energy Policy of the early 1980s attempted to force Alberta to sell low priced oil to eastern Canada. This policy proved deeply divisive, and quickly lost its importance as oil prices collapsed in the mid-1980s. One of the most controversial sections of the Canada-United States Free Trade Agreement of 1988 was a promise that Canada would never charge the United States more for energy than fellow Canadians.

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Agriculture

Canada is also one of the world's most important suppliers of agricultural products, with the Canadian Prairies one of the most important suppliers of wheat and other grains. As with all other developed nations the proportion of the population and GDP devoted to agriculture fell dramatically over the 20th century. Unlike the agricultural industries of many developed nations, the Canadian prairies are fertile enough to compete internationally without large subsidies. This is less true of the smaller dairy and poultry industries of central Canada, which do receive significant government support. Canada is a major exporter of agricultural products, to the United States but also to Europe and East Asia.

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Manufacturing

The general pattern of development for wealthy nations was a transition from a primary industry based economy to a manufacturing based one, and then to a service based economy. Canada did not follow this pattern, manufacturing has always been secondary, though certainly not unimportant. In part because of this, Canada did not suffer as greatly from the pains of deindustrialization in the 1970s and 1980s. Some important industries, such as the textile industry, did mostly disappear abroad, however.

By a considerable margin the most important Canadian manufacturing industry is the automobile industry of southwest Ontario. This industry is largely seen as the creation of the Autopact of the 1960s. Ontario is home to branch plants to all the major American automobile makers and many parts factories owned by Canadian firms such as Magna International. Ontario today produces more vehicles each year than the neighbouring U.S. state of Michigan, the heart of the American automobile industry. Manufacturers have been attracted to Canada due to the highly educated population with lower labour costs than the United States. Canada's government run healthcare system is also an important attraction, as it exempts companies from the high health insurance costs they must pay in the United States.

Much of the Canadian manufacturing industry consists of branch plants of American firms, though there are some important domestic manufacturers such as Bombardier. This has raised several concerns for Canadians. Branch plants provide mainly blue collar jobs, with research and executive positions confined to the United States.

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Service sector

The service sector in Canada is vast and multifaceted, employing some three quarters of Canadians and accounting for two thirds of GDP. The largest employer is the retail sector, employing almost 12% of Canadians. The retail industry is mainly concentrated in a relatively small number of chain stores clustered together in shopping malls. In recent years the rise of big-box stores such as the American Wal-Mart and the Canadian Future Shop have led to fewer workers in this sector and a migration of retail jobs to the suburbs.

The second largest portion of the service sector is the business services, employing only a slightly smaller percentage of the population. This includes the financial services, real estate, and communications industries. This portion of the economy has been rapidly growing in recent years. It is largely concentrated in the major urban centres, especially Toronto. The Big Five banks, centred on that city, are some of Canada's largest and most important firms.

The education and health sectors are two of Canada's largest, but both are largely under the purview of the government. The health care industry has been rapidly growing, and is the third largest in Canada. Its rapid growth has led to problems for governments who must find money to fund it.

Canada has an important high tech industry, and also an entertainment industry creating content both for local and international consumption. Tourism is of ever increasing importance, with the vast majority of international visitors coming from the United States.

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Political issues

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Regional imbalances

The Canadian economy differs greatly from region to region. Traditionally Ontario has been the economic engine of Canada, home to a third of its population and much of its industry. Recent years have seen rapid growth in the west as trade with Asia has enriched British Columbia and oil wealth provided a major boost to Alberta, and Saskatchewan.

The four Atlantic provinces have traditionally been significantly poorer than the rest of Canada, especially after the recent collapse of the fishing industry. Recent years have seen some significant moves towards diversification, especially as offshore oil and gas wealth have begun to flow into the region. Quebec has also traditionally been poorer than the Canadian average although by a lesser margin than the Atlantic provinces.

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Relations with the U.S.

A significant concern for many Canadians in the first few years of the 21st Century is Canada's relationship with the U.S. Although "brain drain" has slowed as a result of the minor economic downturn in the U.S. between 2001 and 2003 following the September 11, 2001 attacks, Canada's own job market has suffered as well. Disputes over trade tariffs, multi-lateral military action and controversial Canadian legislation such as same-sex marriage, immigration law, and legal medical marijuana have raised tensions and cooled relations between these two countries. The two countries also seem to be heading in different directions where values are concerned, and this could begin to provide problems with relations in the future.

Despite these differences, Canada is by far the United States' largest trading partner, with more than $1.4 billion CAD in trade per day. By comparison, in 1999, this was more than U.S. trade with all the countries of Latin America combined. U.S. exports to Canada exceed those to all members of the European Union combined. Just the two-way trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan. Canada's importance to the United States is not just a border-state phenomenon: Canada is the leading export market for 35 of 50 U.S. states. Canada is also home to a wide variety of U.S. branch plants.

Bilateral trade increased by about 51.78% between 1989, when the U.S.-Canada Free Trade Agreement (FTA) went into effect, and 1994, when the North American Free Trade Agreement (NAFTA) superseded it. Trade has since increased by 40%. NAFTA continues the FTA's moves toward reducing trade barriers and establishing agreed upon trade rules. It also resolves some long-standing bilateral irritants and liberalizes rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. NAFTA forms the largest trading area in the world, embracing the 406 million people of the three North American countries.

The largest component of U.S.-Canada trade is in the automotive sector. Under the 1965 Canada-United States Automotive Agreement (also known as the Auto Pact), which provided for free trade in cars, trucks, and auto parts, two-way trade in automotive products rose from $715 million in 1964 to $104.1 billion in 1999. Auto Pact benefits are incorporated into NAFTA.

The U.S. is Canada's leading agricultural market, taking nearly one-third of all food exports. Conversely, Canada is the second-largest U.S. agricultural market (after Japan), primarily importing fresh fruits and vegetables and livestock products. Nearly two-thirds of Canada's forest products, including pulp and paper, are exported to the United States; 71.66% of Canada's total newsprint production also is exported to the U.S.

At $21 billion in 2000, U.S.-Canada trade in energy is the largest U.S. energy trading relationship in the world. The primary components of U.S. energy trade with Canada are petroleum, natural gas, and electricity. Canada is the United States' largest oil supplier and the fifth-largest energy producing country in the world. Canada provides about 16% of U.S. oil imports and 14% of total U.S. consumption of natural gas. The United States and Canada's national electricity grids are linked and both countries share hydropower facilities on the Western borders.

While 95% of U.S.-Canada trade flows smoothly, there are occasionally bilateral trade disputes over the remaining 5%, particularly in the agricultural and cultural fields. Usually, however, these issues are resolved through bilateral consultative forums or referral to WTO or NAFTA dispute resolution. In May 1999, the U.S. and Canadian Governments negotiated an agreement on magazines that will provide increased access for the U.S. publishing industry to the Canadian market. The United States and Canada also have resolved several major issues involving fisheries. By common agreement, the two countries submitted a Gulf of Maine boundary dispute to the International Court of Justice in 1981; both accepted the Court's 12 October 1984 ruling which demarcated the territorial sea boundary. A current issue between the United States and Canada is the ongoing softwood lumber dispute, as the U.S. alleges that Canada unfairly subsidizes its forestry industry.

In 1990, the United States and Canada signed a bilateral Fisheries Enforcement Agreement, which has served to deter illegal fishing activity and reduce the risk of injury during fisheries enforcement incidents. The U.S. and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty for the next decade.

Canada and the United States signed an aviation agreement during President Clinton's visit to Canada in February 1995, and air traffic between the two countries has increased dramatically as a result. The two countries also share in operation of the St. Lawrence Seaway, connecting the Great Lakes to the Atlantic Ocean.

The U.S. is Canada's largest foreign investor; at the end of 1999, the stock of U.S. direct investment was estimated at $116.7 billion, or about 72% of total foreign direct investment in Canada. U.S. investment is primarily in Canada's mining and smelting industries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance.

Canada is the third-largest foreign investor in the United States. At the end of 1999, the stock of Canadian direct investment in the United States was estimated at $90.4 billion. Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.

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References

Howlett, Michael and M. Ramesh. Political Economy of Canada: An Introduction. Toronto: McClelland and Stewart, 1992.
Wallace, Iain, A Geography of the Canadian Economy. Don Mills: Oxford University Press, 2002.
This article contains material from the CIA World Factbook which, as a US government publication, is in the public domain.

World Trade Organization (WTO)