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Impact of a trade war on Canada’s economy

My conclusion:  trade war will have very little if any impact on Canada’s trade position.  First, the Bank of Canada is one of the few central banks that has no real issue with the direction of its currency.  In fact, the BoC has made a point of not taking the direction of the currency in its analysis of the strength of the economy.  With this in mind, the idea that Canada is manipulating its currency is considered moot. 

Canada is part of one of the world’s greatest trilateral trade alliance, the NAFTA (North American Free Trade Association), which includes Canada, U.S. and Mexico, but already America has made some inroad in this alliance when in 2008, its infrastructure program made “Buy America” a precondition to any federally funded projects.  Although the impact on trade was limited, it was not inconsequential, and in reality Canada and the U.S. are the two largest trading partners (with each other) in the world.

What is interesting is the nature of Canada’s merchandise export/imports:

Merchandise Trade
Exports
34,804
USA
74%
Europe
9%
ROW
17%


Imports
      35,535
USA
65%
Europe
9%
ROW
26%

Obviously from these figures, Canada has a trade deficit at the merchandise level, which is a new issue for Canada (over the past 2 years), Service trade is approximately the same size as merchandise trade.  However, generally, it is merchandise trade that is more affected by trade sanctions.

Breakdown the type of merchandise trade:

Breakdown by Types
Exports
Imports

Resources & Agriculture
34%
16%

Material & Industrial
20%
20%

Manufactured
31%
45%

It is rather evident, and not surprising, that Canada exports raw goods and imports manufactured items (automobile is a very large (1/4) of the manufactured trade).  What I intend to show here is that more than half of Canada’s exports are for raw material, where there is often little or no domestic competition – when China or Russia buys wheat they are not affecting their domestic supply, they are meeting a shortfall.  So the cores of Canada’s exports are unlikely to be subject to import tariffs.  

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