Presentation on theme: "Connected Cousins: The Canada-U.S. Economic Relationship Dr. Paul Storer and Dr. Erick Lee Erickson NCSS Vital Issues Session on Economics, Denver 2010."— Presentation transcript:
Connected Cousins: The Canada-U.S. Economic Relationship Dr. Paul Storer and Dr. Erick Lee Erickson NCSS Vital Issues Session on Economics, Denver 2010 Americas Unhappy Borders The Economist, 8/27/05 Peace Arch Crossing State Department Photo
Outline of Talk The Importance of Canada-U.S. Trade - National and State Rankings - apples for apples trade - U.S. imports of energy from Canada Lessons from Canada: - The recent recession and banking - Health care
Source: Embassy of CanadaEmbassy of Canada
Source: / Canadas Rank for States Exports of Goods
Making Things Together Many products cross the border several times during the production process. Finished products often have significant content from both countries. Trade is often apples for apples More than 40% of Canada-U.S. trade is within-firm trade (eg Ford or GM).
The Modern Canadian Economy: Continental Integration & JIT
SeaTac Airport Shuttle Trains: Source:
SeaTac Airport Shuttle Trains: Made in PA by a Canadian Company Source:
Krugmans Model of Trade: Economies of Scale and Apples for Apples Trade Ford Edge: Oakville, Ontario. Canada cbc.ca
North American Specialization Ford Escape: Kansas City, MO
Trade and Economies of Scale Example: cars in Canada before 1965 Canada in 1964: home-grown car industry Prices were high, wages were low, choice was limited, businesses werent profitable. Solution: a North American auto industry
Car Production and Costs Very high fixed cost Lower cost per additional car Per-unit cost of one car very high Per-unit cost falls as we make more cars
Economies of scale: average cost falling with production
Lowering Total Costs with Trade Canada makes crossovers for North America, U.S.A. makes SUVs for North America We save the fixed costs of two factories Costs are lower so wages and car prices improve We also get a wider variety of car models
Energy Trade Canada: An Important Supplier of Secure Energy
U.S. Petroleum Imports (2006) (Source: U.S. Energy Info. Agency)
Source: The Worlds Largest Trading Relationship, Embassy of Canada.
Oil Sands Reserves Source:
A Tale of Two Recessions Why did Canada do better in the recession? Source: The Economist
A Reversal of Fortunes : Unemployment rates higher in Canada Fortunes are reversed beginning in 2000 Reversal accelerates after 2007 Canada hit harder in 1981 & 1991 United States hit harder in 2001 and 2007
September Canada: 8.0%, United States: 9.6%
What Explain the Differences? The United States suffered through an atypical recession caused by the burst of a property bubble and the end of a financial crisis. The crisis in the United States hit construction jobs Mortgage losses reduced mobility in the United States. Mismatch (2010 Nobel in Economics)
Another Hypothesis: U.S. Economic Policies hindered Adjustment and Flexibility Example: 99 weeks Of Unemployment Insurance
Why Canada Avoided A Financial Crisis Canadian home-price increases were more moderate Loan default rates were lower in Canada Canadian banks remained profitable No public bailout of Canadian banks!
Source: Bank of Canada Web site
(90 days plus delinquent) Source: Federal Reserve Bank of Cleveland
Banks in Canada and Mortgages Six large, diversified, universal banks. All too big to fail Mortgage interest not tax deductible Much less use of mortgage brokers and loan securitization.
Health Care Is the United States following the Canadian path?
June 9, 2009
Source: physmanual/graphics/enhanced_card_security.gif sites/images/membershipCar ds/ghc_med.gif Provincial Health Insurance vs. U.S. HMOs
Health Care Spending, % of GDP, 2003
Health Care as a % of GDP U.S. Canada
The Post-9/11 Reality How do we balance security and integration?
Canada: A Source of Vulnerabilities? Source: Bellingham Herald Source: ABC newsSource: International Border Commission
Alphabet Soup Programs
DHS Secretary Napolitano: Hope and Change? View #1: the myth Im trying to bust is that theres no real border between Canada and the United States View #2: We dont want to damage economic security in the name of homeland security. Source: Globe and Mail