Canada- United States

Canada- United States

1. THE CHANGING WORLD ECONOMY

   • The future of Canada’s most important bilateral relationship — that with the United States — should be viewed in the long-term context of a changing economic geography and patterns of growth
   • Canada’s response should be to marshal its advantages by building on its strengths both to differentiate itself in bilateral strategies and to use these strengths as bargaining chips. This does not mean engaging in the overt linkage of issues but using negotiations and market forces to diversify markets and commercial relationships beyond the United States
   • Differentiating Canada
     • Between 2000 and 2009 the growth rate of Canadian-US trade peaked in 2004, followed by sharp declines in 2008 and 2009 as US demand evaporated with the implosion of the housing and automotive markets
     • near-doubling of Canada’s FDI stocks in the United States as Canadian financial institutions respond to a mature domestic market, policy restrictions on domestic mergers, and the opportunities afforded by US financial institutions weakened by the crisis
   • Macroeconomic Prudence
     • The federal fiscal strategy is a good example of a generational approach inasmuch as this prudent framework has been adopted by successive governments, both Liberal and Conservative.
   • A Sound and Stable Financial System
     • Canada’s financial system is subject to strong principles-based regulation, with close relationships among regulators and the regulated institutions. Financial products are overseen, those seeking mortgages for more than 80% of the purchase price are required to buy insurance from a public sector agency, and banks are encouraged to hold onto the mortgages they originate

2. Diversified Trade and Investment Relationships

   • While the United States still accounts for nearly three-quarters of Canada’s goods and services exports and two-thirds of its imports, these transactions are growing at less than 5% annual rates
   • the advantage in the US market in automotive, wood and paper, and energy products, elsewhere Canada’s trade advantages reflect its strengths in primary goods and aerospace products and the large appetites of emerging economies for Canada’s raw materials

3. Natural Resources and Energy

   • Natural resources, particularly energy, are a strong card in any diversification strategy, and could be Canada’s strongest card in its relationship with the United States. That country is the world’s largest oil consumer, but most Americans are unaware that Canada is their largest foreign supplier of oil, gas, and electricity through a highly integrated network of pipelines and electricity transmission grids
   • In 2008, Canada supplied 19% of US crude oil imports, representing 13% of total US oil consumption, and fully 90% of US natural gas imports, accounting for 15% of total US consumption. In addition, a particularly attractive feature of Canada’s electricity exports is that roughly 77% come from non-fossil-fuel sources, most of it hydroelectric generation

4. Climate Change

   • Like the United States, Canada is tackling the problem in a bottom-up fashion, resulting in a patchwork of carbon-pricing approaches. Overall, more than twenty US states and seven Canadian provinces are either implementing or proposing climate change strategies locally, or are participating in or observing a regional trading system
   • Any climate regime that Canada chooses would have to be recognized by US regulators as superior or equivalent to US measures for Canadian exporters to be exempt from US border adjustments

5. Deeper Integration Of The North American Economic Space

   • For Canadians, access to the US market has become less assured as the Department of Homeland Security has tightened security and the scrutiny of cross-border transactions and movements of people. Initially, it seemed that the shift in US priorities to homeland security and defence would provide an opportunity both to address US objectives and to create new economic opportunities.