THE CHANGING DYNAMICS OF THE CHANGING DYNAMICS OF NORTH AMERICAN NORTH AMERICAN

FEDERALISM AND THE FEDERALISM AND THE CANADA-U.S. ECONOMIC CANADA-U.S. ECONOMIC

RELATIONSHIPRELATIONSHIP

Earl H. FryEarl H. FryProf. of Political Science andProf. of Political Science and

Endowed Prof. of Canadian StudiesEndowed Prof. of Canadian StudiesBrigham Young UniversityBrigham Young University

September 2010September 2010

CHALLENGES FACING LARGEST BILATERAL CHALLENGES FACING LARGEST BILATERAL ECONOMIC RELATIONSHIP IN WORLDECONOMIC RELATIONSHIP IN WORLD

Trade—33% drop in value of Canadian Trade—33% drop in value of Canadian exports to U.S. in 2009, valued in U.S. dollarsexports to U.S. in 2009, valued in U.S. dollars

Direct Investment—Canadian FDI in U.S. is Direct Investment—Canadian FDI in U.S. is only slightly smaller that U.S. FDI in Canada, only slightly smaller that U.S. FDI in Canada, using historical-cost basisusing historical-cost basis

Tourism—U.S. trips to Canada recently fell to Tourism—U.S. trips to Canada recently fell to 1972 levels, even though U.S. population up 1972 levels, even though U.S. population up 100 million since 1972100 million since 1972

Currency fluctuations—2002 and 2007 Currency fluctuations—2002 and 2007

resources

environment

energy

conflictweapons proliferation

crime

economics cyberspace

immigration

religion and ideology

culture

INTERNATIONAL EVENTS ARE INTERNATIONAL EVENTS ARE TRANSFORMING LIFE IN NORTH AMERICATRANSFORMING LIFE IN NORTH AMERICA

  

 

INTERNATIONAL SECTOR

NORTH AMERICAN NORTH AMERICAN CITIES & CITIES &

NEIGHBORHOODSNEIGHBORHOODS

terrorism

sports and entertainment

disease

FOR THE FIRST TIME EVER IN FOR THE FIRST TIME EVER IN 2008, THE UNITED STATES 2008, THE UNITED STATES

EXPORTED MORE GOODS TO EXPORTED MORE GOODS TO THE EU ($275 BILLION) THAN TO THE EU ($275 BILLION) THAN TO

CANADA ($261 BILLION) CANADA ($261 BILLION)

34 MILLION PEOPLE VS. 500 34 MILLION PEOPLE VS. 500 MILLION PEOPLEMILLION PEOPLE

FEDERALISM—STRENGTHS AND CHALLENGESFEDERALISM—STRENGTHS AND CHALLENGES

State and local governments in U.S. account State and local governments in U.S. account for $2 trillion in expenditures and 30 million for $2 trillion in expenditures and 30 million direct and indirect jobsdirect and indirect jobs

Protectionist concerns—Buy American, ban Protectionist concerns—Buy American, ban on outsourcing some state services, softwood on outsourcing some state services, softwood lumber, etc.lumber, etc.

Often much fury and little action—key role Often much fury and little action—key role played by condition of economy and imminent played by condition of economy and imminent electionselections

U.S. STATES ARE STILL PROMINENT ECONOMIC U.S. STATES ARE STILL PROMINENT ECONOMIC ACTORSACTORS

2008—1 among top 10 nation-states in world, measured 2008—1 among top 10 nation-states in world, measured by GDPby GDP

11 among top 2511 among top 25 26 among top 5026 among top 50 45 among top 7545 among top 75 50 among top 8650 among top 86 8 of 10 principal trading partners of Canada U.S. states; 8 of 10 principal trading partners of Canada U.S. states;

9 of 10 provinces trade more with U.S. than each other9 of 10 provinces trade more with U.S. than each other NAFTA brings together the world’s 1st, 11NAFTA brings together the world’s 1st, 11thth, and 13, and 13thth

largest economies (2008) and 3largest economies (2008) and 3rdrd, 11, 11thth, and 36, and 36thth most most populous nations—it is the LARGEST FTA in the worldpopulous nations—it is the LARGEST FTA in the world

San Marino

Hong KongArgentina

Croatia

Luxembourg

Turkey

Denmark

Kenya

Moldova

Guatemala Latvia

Cape Verde Guinea

If Canadian Provinces and Territories were Nation-States, Year 2007

ONTARIO IS THE FOURTH LARGEST TRADING PARTNER OF

THE UNITED STATES AFTER CANADA, CHINA, AND MEXICO—ONTARIO-U.S. TRADE ALMOST

C$830 MILLION PER DAY IN 2008 (BUT WAS C$900 MILLION IN 2004)

Provincial Merchandise Exports to the U.S., 2008

Newfoundland and Labrador 75%

Prince Edward Island 64%

Nova Scotia 78%

New Brunswick 82%

Quebec 72%

Ontario 83%

Manitoba 69%

Saskatchewan 63%

Alberta 87%

British Columbia 53%Source: Statistics Canada, 2009.

INTERNATIONAL ACTIVITIES OF STATE AND INTERNATIONAL ACTIVITIES OF STATE AND LOCAL GOVERNMENTSLOCAL GOVERNMENTS

41 states with 224 foreign offices in 30 countries, up 41 states with 224 foreign offices in 30 countries, up from 4 in 1980 but down from 243 in 2002from 4 in 1980 but down from 243 in 2002

Roughly 1,000 state employees work in international Roughly 1,000 state employees work in international sectorsector

Half of governors lead international trade missions every Half of governors lead international trade missions every yearyear

Almost all states have international trade and investment Almost all states have international trade and investment divisionsdivisions

About $200 million being spent annually on international About $200 million being spent annually on international programs, exclusive of investment incentivesprograms, exclusive of investment incentives

Overall spending is still quite modest—Quebec Overall spending is still quite modest—Quebec comparison; Alberta has very activecomparison; Alberta has very active

Hidden wire linkages between state and provincial govtsHidden wire linkages between state and provincial govts

CANADA-U.S. ECONOMIC CANADA-U.S. ECONOMIC INTEGRATIONINTEGRATION

5,500 mile common border, with roughly 200 5,500 mile common border, with roughly 200 million 2-way border crossings each year. million 2-way border crossings each year. 121 road access routes funneled into 77 121 road access routes funneled into 77 ports-of-entry (86% auto traffic through 17 ports-of-entry (86% auto traffic through 17 POEs)POEs)

20% of total U.S. exports of goods to Canada 20% of total U.S. exports of goods to Canada in 2008 (and 12% to Mexico)in 2008 (and 12% to Mexico)

16% of total U.S. imports from Canada16% of total U.S. imports from Canada U.S. and Canada largest bilateral trading U.S. and Canada largest bilateral trading

relationship in world (in 2007 China relationship in world (in 2007 China surpassed Canada as #1 exporter to U.S.)surpassed Canada as #1 exporter to U.S.)

About $1.5 billion in daily 2-way trade in About $1.5 billion in daily 2-way trade in goodsgoods

U.S. exports almost 4 times more to U.S. exports almost 4 times more to Canada than to Japan and ChinaCanada than to Japan and China

In 2009, 35 of lower 48 states had Canada In 2009, 35 of lower 48 states had Canada as their principal export market, and for all as their principal export market, and for all the rest, except NM, Fla, and La, Canada the rest, except NM, Fla, and La, Canada #2#2

$260 billion in U.S. FDI in Canada 2009 $260 billion in U.S. FDI in Canada 2009 and provided 1.1 million Canadian jobs in and provided 1.1 million Canadian jobs in 20082008

CANADA-U.S. ECONOMIC CANADA-U.S. ECONOMIC INTEGRATION (Cont.)INTEGRATION (Cont.)

Canadian FDI in U.S. $226 billion in 2009 Canadian FDI in U.S. $226 billion in 2009 and provided 543,000 U.S. jobs in 2007and provided 543,000 U.S. jobs in 2007

Affiliates of U.S. companies accounted for Affiliates of U.S. companies accounted for 9% of Canada’s GDP and 8% of private-9% of Canada’s GDP and 8% of private-sector jobs in 2006sector jobs in 2006

Roughly a third of U.S. merchandise trade Roughly a third of U.S. merchandise trade with Canada is intrafirm—role of MNCs and with Canada is intrafirm—role of MNCs and supply chainssupply chains

Canada #1 source of foreign tourists Canada #1 source of foreign tourists for U.S., and U.S. #1 source of for U.S., and U.S. #1 source of foreign tourists for Canadaforeign tourists for Canada

Canada #1 energy supplier to the Canada #1 energy supplier to the U.S.—Alberta’s key role—1.5 million U.S.—Alberta’s key role—1.5 million barrels a day of oil to U.S., of which barrels a day of oil to U.S., of which 1.0 million from the oil sands1.0 million from the oil sands

(1)(1) Rise of competitor nations and groups of nationsRise of competitor nations and groups of nations

(2)(2) Ability to cope with combination of globalization, unprecedented Ability to cope with combination of globalization, unprecedented technology change, and creative destructiontechnology change, and creative destruction

(3)(3) 15 major “fault lines” within U.S., ranging from dysfunctional 15 major “fault lines” within U.S., ranging from dysfunctional decision-making on Capitol Hill to K-12 education flaws to Wall decision-making on Capitol Hill to K-12 education flaws to Wall Street’s debacleStreet’s debacle

(4)(4) Implications for Canada-U.S. economic relationsImplications for Canada-U.S. economic relations

THE UNITED STATES AT MID-CENTURYTHE UNITED STATES AT MID-CENTURY

Almost 440 million people with over 80% of growth Almost 440 million people with over 80% of growth attributable to immigrationattributable to immigration

Perhaps a “majority minority” country by 2042Perhaps a “majority minority” country by 2042 85% or more will be urbanized, with most growth 85% or more will be urbanized, with most growth

concentrated in largely self-contained suburbsconcentrated in largely self-contained suburbs U.S. will remain a military superpowerU.S. will remain a military superpower In many other dimensions, U.S. will be a declining In many other dimensions, U.S. will be a declining

superpower in relative termssuperpower in relative terms What will be the quality of life for the average American?What will be the quality of life for the average American? How steep will be America’s relative decline?How steep will be America’s relative decline?

PROVINCIAL GOVT ECONOMIC STRATEGIESPROVINCIAL GOVT ECONOMIC STRATEGIES Maintain strong economic ties with U.S., the world’s Maintain strong economic ties with U.S., the world’s

largest domestic economy, and work to thin the “thick largest domestic economy, and work to thin the “thick border” and end “Buy American” provisionsborder” and end “Buy American” provisions

Prioritize in terms of geographical and sectoral targets Prioritize in terms of geographical and sectoral targets within the United States—state and municipal linkageswithin the United States—state and municipal linkages

Diversify the domestic economy—still very commodity Diversify the domestic economy—still very commodity dependentdependent

Foster a national economic union—economy-of-scale Foster a national economic union—economy-of-scale benefitsbenefits

Promote brain power and smart immigration, including Promote brain power and smart immigration, including from the U.S.from the U.S.

Dynamic federalism and internal development—Alberta Dynamic federalism and internal development—Alberta key energy partner of U.S.key energy partner of U.S.

Expect a roller-coaster ride in the North American Expect a roller-coaster ride in the North American economic arena over next several years—cyclical vs. economic arena over next several years—cyclical vs. structural challengesstructural challenges