External forces have a major impact on economies the world over. In this global environment, trade diversity has not been a hallmark in Canada. The United States is still Canada's largest trading partner. More than $1 billion in goods cross the U.S.Canadian border daily. Public policy in the United States impacts the Canadian economy. This is why Canadians should be interested in the outcome of the U.S. presidential election.
The United States and Canada have the world's largest trade relationship and solidified its status with the Canada-U.S. Free Trade Agreement signed into law by President Bill Clinton. This agreement finally expanded to include Mexico in the North American Free Trade Agreement.
"In 2006, total merchandise trade between the two countries consisted of $303.4 billion in imports and $230.3 billion in exports. The trade relationship between the two countries crosses all industries and is vital to both nations’ success. Each country is the largest trade partner of the other. The trade across Ambassador Bridge between Windsor, Ontario, and Detroit, Michigan, alone is equal to all the trade between the United States and Japan." Wikipedia
Canada's conservative government has put forth an economic action plan, which deals with the deficit, debt and taxes. Despite an outcry by the opposition parties, there has been reform to Canada's "Old Age Security" pension, a change for qualification for mortgage and a favorable capital gains and corporate tax rate.
With interest rates at an all time low, it was relatively easy for Canadian to qualify for a mortgage, requiring only a 5 percent down payment for a 30-year mortgage. The federal government changed these requirements to a maximum of a 25-year mortgage and a 10-percent minimum downpayment in order to qualify for insurance under the Canadian Housing and Mortgage Association (CMHA).
The IMF yesterday said that growth in Canada has been constrained by a sluggish expansion in the U.S. The IMF also noted that there is a danger that large household debt, and the housing market is a broader threat to the economy.
"In Canada, the key priority is to ensure that risks from the housing sector and increases in household debt remain well contained and do not create financial-sector vulnerabilities. Thus far, mortgage credit growth has slightly decelerated in response to the measures taken by the authorities, including tighter mortgage insurance standards. If household leverage continues to rise, additional measures may need to be considered," the IMF said.
On trade the international body said that inn Canada, growth has been constrained by the sluggish expansion in the U.S., a result of the two economies’ deep economic and financial linkages and the ongoing fiscal consolidation."
Fiscal policies in the United States have a direct impact on the Canadian economy and the value of the Canadian dollar compared to the U.S. counterpart.
As an example the Canadian dollar was valued at about 75 cents to the U.S. dollar. It now slightly above par. Part of the reason is the Alberta Oilsands, where revenues are determined by the global price of oil, thus the Canadian dollar has earned the nickname petro dollar. The second issue is the devaluation of the U.S. dollar due to "quantitative easing," which is essentially printing more money to supposedly stimulate the U.S. economy.
While the Canadian economy has slowed to 1.9 percent for this year and 2 percent is forecast for next year, according to the IMF, the U.S. economy growth rate is forecasted at 1.2 percent. The Canadian government has done some rearrangement, negotiating new trade deals with the European Union and Asia, it is still likely very vulnerable to the U.S. economy. Restrictive access at border crossings, protectionism by congressional legislators and anti-free trade voices all contribute to impact the Canadian economy.
Canada also has aligned its environmental regulations with the U.S. and the auto, agriculture and tech industry are all interlinked. The XL Keystone pipeline, which would deliver Alberta crude oil from Hardesty, Alberta to Port Arthur Texas is a prime example. The pipeline would have created thousands of jobs on both sides of the border. The eventual outcome is still up in the air.
While Canada created 52,000 jobs full-time jobs last month in the private sector, the unemployment rate moved from 7.3 percent to 7.4 percent compared to the US's 114,000 jobs, where the unemployment rate dipped to 7.8 percent. With Canada having 10 percent of the population of the U.S., that just doesn't make sense.
In the online survey of representative national samples, most Canadians (63%) rate the current economic conditions in their country as “very good” or “good.”In the United States, only one-in-five respondents 20% feel the country’s economic conditions are positive. In Britain, the level of confidence is in the single digits 9%. Angus Reid-Poll
What happens in the U.S. is of utmost importance to the Canadian economy and as such the outcome of the election is of concern to Canadians. Americans also should be concerned how the election impacts their largest trading partner.
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