International Trade and Finance Speech
In today’s global economy, the United States (U.S.) engages extensively in international trade. Canada is one of the U.S.’s major trading partners with the United States. This paper will present a brief background of Canada’s economy and the main exports and imports between Canada and the U.S. This paper also includes a brief discussion of the exchange rate, such as Canada’s attractiveness as an exporter to the U.S. and a tourist destination to American citizens. Additionally, the paper describes what would happen if the U.S. government were to impose a 40% tariff on Canada’s main export to the U.S.
Background of Canada’s Economy
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energy trade with Canada are oil, petroleum, natural gas, uranium, and electricity. In fact, Canada supplies 22% of U.S. crude oil and 85% of its natural gas imports. Canada and the U.S. operate an integrated electricity grid, with each country providing all of each other's electricity imports. Canada’s exported uranium serves as fuel for U.S. nuclear power plants.
The U.S. imports approximately two-thirds of Canada's forest products, including pulp, paperboard, and paper, and 72% of Canada’s newsprint production (Embassy of the United States, n.d.). The U.S. is also Canada's largest agricultural export market. The U.S. also imports over half of all Canadian food exports. Other major components of Canadian exports to the U.S. include autos and auto parts. Other products that Canada exports to the U.S. are aerospace parts and products, nonferrous metal, and basic chemicals.
Main Exports from the United States
Approximately 51% of Canada’s imports come from the U.S. (Office of the United Stated Trade Representative, n.d.). Autos and auto parts represent the top U.S. exports to Canada. One will notice that autos and auto parts flow in both directions. The U.S. exports auto parts to Canada for assembly, then Canada exports the assembled vehicles back to the U.S. Additionally, the U.S. exports to Canada products such as construction machinery, computer equipment, aerospace products and parts, basic chemicals, pharmaceuticals, iron and steel, electronics, durable consumer goods, and precision instruments. Canada also is the largest importer of U.S. agricultural products.
Currency Exchange Rate
The U.S dollar’s (USD) value is closely aligned to business productivity, technological innovation, and the financial services industry (Economy Watch, n.d.). On the other hand, Canada’s dollar’s (CAD) value is aligned more with its natural resource industries such as oil, forestry, and mining. Historically, the CAD’s value was lower than the USD. However, in February 2013, the CAD reached parity with the USD but since has declined in value during the rest of 2013. The exchange rate of the USD is 1.0926 CAD, down from 1.0152 CAD in 2012 (Best Currency Exchange Rate in Canada, n.d.). The CAD depreciated by 7.6% between January 2013 and January 2014.
Exporter to the U.S.
The declining value of the Canadian dollar has also made the U.S. dollar stronger in exchange. As a Canadian exporter for products to the U.S., this situation makes the Canadian exporter attractive because, since the U.S. importer can exchange a USD for more CAD, Canadian products are less expensive. If the products are less expensive, there will be more demand for the less expensive Canadian products. This is good news for the Canadian exporter and the U.S. importer.
American Tourist Destination
Similarly, with the depreciating CAD due to weakening of the Canadian economy and stronger economic recovery in the...