THE CHANGING DYNAMICS OF NORTH AMERICAN FEDERALISM AND THE CANADA-U.S. ECONOMIC RELATIONSHIP Earl H. Fry Prof. of Political Science and Endowed Prof. of Canadian Studies Brigham Young University September 2010

CHALLENGES FACING LARGEST BILATERAL ECONOMIC RELATIONSHIP IN WORLD  Trade—33% drop in value of Canadian exports to U.S. in 2009, valued in U.S. dollars  Direct Investment—Canadian FDI in U.S. is only slightly smaller that U.S. FDI in Canada, using historical-cost basis  Tourism—U.S. trips to Canada recently fell to 1972 levels, even though U.S. population up 100 million since 1972  Currency fluctuations—2002 and 2007

resources environment energy conflict weapons proliferation crime economics cyberspace immigration religion and ideology culture INTERNATIONAL EVENTS ARE TRANSFORMING LIFE IN NORTH AMERICA INTERNATIONAL SECTOR NORTH AMERICAN CITIES & NEIGHBORHOODS terrorism sports and entertainment disease

FOR THE FIRST TIME EVER IN 2008, THE UNITED STATES EXPORTED MORE GOODS TO THE EU ($275 BILLION) THAN TO CANADA ($261 BILLION) 34 MILLION PEOPLE VS. 500 MILLION PEOPLE

FEDERALISM—STRENGTHS AND CHALLENGES  State and local governments in U.S. account for $2 trillion in expenditures and 30 million direct and indirect jobs  Protectionist concerns—Buy American, ban on outsourcing some state services, softwood lumber, etc.  Often much fury and little action—key role played by condition of economy and imminent elections

U.S. STATES ARE STILL PROMINENT ECONOMIC ACTORS  2008—1 among top 10 nation-states in world, measured by GDP  11 among top 25  26 among top 50  45 among top 75  50 among top 86  8 of 10 principal trading partners of Canada U.S. states; 9 of 10 provinces trade more with U.S. than each other  NAFTA brings together the world’s 1st, 11 th, and 13 th largest economies (2008) and 3 rd, 11 th, and 36 th most populous nations—it is the LARGEST FTA in the world

San Marino Hong Kong Argentina 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 Labrador75% Prince Edward Island64% Nova Scotia78% New Brunswick82% Quebec72% Ontario83% Manitoba69% Saskatchewan63% Alberta87% British Columbia53% Source: Statistics Canada, 2009.

INTERNATIONAL ACTIVITIES OF STATE AND LOCAL GOVERNMENTS  41 states with 224 foreign offices in 30 countries, up from 4 in 1980 but down from 243 in 2002  Roughly 1,000 state employees work in international sector  Half of governors lead international trade missions every year  Almost all states have international trade and investment divisions  About $200 million being spent annually on international programs, exclusive of investment incentives  Overall spending is still quite modest—Quebec comparison; Alberta has very active  Hidden wire linkages between state and provincial govts

CANADA-U.S. ECONOMIC INTEGRATION  5,500 mile common border, with roughly 200 million 2-way border crossings each year. 121 road access routes funneled into 77 ports-of-entry (86% auto traffic through 17 POEs)  20% of total U.S. exports of goods to Canada in 2008 (and 12% to Mexico)  16% of total U.S. imports from Canada  U.S. and Canada largest bilateral trading relationship in world (in 2007 China surpassed Canada as #1 exporter to U.S.)

 About $1.5 billion in daily 2-way trade in goods  U.S. exports almost 4 times more to Canada than to Japan and China  In 2009, 35 of lower 48 states had Canada as their principal export market, and for all the rest, except NM, Fla, and La, Canada #2  $260 billion in U.S. FDI in Canada 2009 and provided 1.1 million Canadian jobs in 2008

CANADA-U.S. ECONOMIC INTEGRATION (Cont.)  Canadian FDI in U.S. $226 billion in 2009 and provided 543,000 U.S. jobs in 2007  Affiliates of U.S. companies accounted for 9% of Canada’s GDP and 8% of private- sector jobs in 2006  Roughly a third of U.S. merchandise trade with Canada is intrafirm—role of MNCs and supply chains

 Canada #1 source of foreign tourists for U.S., and U.S. #1 source of foreign tourists for Canada  Canada #1 energy supplier to the U.S.—Alberta’s key role—1.5 million barrels a day of oil to U.S., of which 1.0 million from the oil sands

(1)Rise of competitor nations and groups of nations (2)Ability to cope with combination of globalization, unprecedented technology change, and creative destruction (3)15 major “fault lines” within U.S., ranging from dysfunctional decision-making on Capitol Hill to K-12 education flaws to Wall Street’s debacle (4)Implications for Canada-U.S. economic relations

THE UNITED STATES AT MID-CENTURY  Almost 440 million people with over 80% of growth attributable to immigration  Perhaps a “majority minority” country by 2042  85% or more will be urbanized, with most growth concentrated in largely self-contained suburbs  U.S. will remain a military superpower  In many other dimensions, U.S. will be a declining superpower in relative terms  What will be the quality of life for the average American?  How steep will be America’s relative decline?

PROVINCIAL GOVT ECONOMIC STRATEGIES  Maintain strong economic ties with U.S., the world’s largest domestic economy, and work to thin the “thick border” and end “Buy American” provisions  Prioritize in terms of geographical and sectoral targets within the United States—state and municipal linkages  Diversify the domestic economy—still very commodity dependent  Foster a national economic union—economy-of-scale benefits  Promote brain power and smart immigration, including from the U.S.  Dynamic federalism and internal development—Alberta key energy partner of U.S.  Expect a roller-coaster ride in the North American economic arena over next several years—cyclical vs. structural challenges