Post on 27-Mar-2015
transcript
Connected Cousins: The Canada-U.S. Economic Relationship
Dr. Paul Storer and Dr. Erick Lee EricksonNCSS Vital Issues Session on Economics, Denver 2010
“America’s Unhappy Borders”
The Economist, 8/27/05
Peace Arch Crossing
State Department Photo
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
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Country Share of U.S. Total Trade in 2009
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Country Shares of U.S Exports in 2009
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Country Share of U.S. Imports in 2009
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Source: http://www.canadainternational.gc.ca/washington/
Canada’s Rank for States’ Exports of Goods
“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).
The Modern Canadian Economy:
ContinentalIntegration
&“JIT”
SeaTac Airport Shuttle Trains:
•Source: http://www.visitingdc.com/images/seatac-train.jpg
SeaTac Airport Shuttle Trains:Made in PA by a Canadian Company
•Source: http://farm4.static.flickr.com/3379/3198460812_79dd9093c2.jpg
Krugman’s Model of Trade:Economies of Scale and
“Apples for Apples” Trade
Ford Edge:Oakville, Ontario. Canada cbc.ca
North American Specialization
Ford Escape:Kansas City, MO
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 weren’t profitable.
• Solution: a North American auto industry
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
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Average Cost (Cost per unit)
Economies of scale: average cost falling with production
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
Energy Trade
Canada: An Important Supplier
of Secure Energy
U.S. Petroleum Imports (2006)(Source: U.S. Energy Info. Agency)
U.S. Petroleum Imports (2006)(Source: U.S. Energy Info. Agency)
Source: http://www.pse.com/energyEnvironment/EnergySupply_NaturalGasProfile.aspx
Source: “The World’s Largest Trading Relationship”,
Embassy of Canada.
Oil Sands
Reserves
Source:
www.ubc.ca
Source: www.guardian.com
A Tale of Two Recessions
Why did Canada do better in the recession?
Source: The Economist
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
Unemployment Rates
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Unemployment Rates
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Canada
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September 2010 - Canada: 8.0%, United States: 9.6%
Total Employment(January 2007 = 100)
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Canada
United States
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)
Another Hypothesis:
U.S. Economic Policies hindered Adjustment andFlexibility
Example: 99 weeksOf UnemploymentInsurance
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!
Source: Bank of Canada Web site
(90 days plus delinquent)
Source: Federal Reserve Bank of Cleveland
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.
Health Care
Is the United States following the
Canadian path?
June 9, 2009
Source: http://www.health.gov.on.ca/English/providers/pub/ohip/physmanual/graphics/enhanced_card_security.gif
http://www.ghc.org/all-sites/images/membershipCards/ghc_med.gif
Provincial Health Insurance vs. U.S. HMOs
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Switzerland
Germany
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Health Care Spending, % of GDP, 2003
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Health Care as a % of GDP
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The Post-9/11 Reality
How do we balance security
and integration?
Canada: A Source of
“Vulnerabilities?”
Source: Bellingham Herald
Source: ABC news Source: International Border Commission
“Alphabet Soup” Programs
DHS Secretary Napolitano: Hope and Change?
View #1: “the myth I’m trying to bust is that there’s no real border between Canada and the United States”
View #2: “We don’t want to damage economic security in the name of homeland security.”
Source: Globe and Mail