World trade has grown rapidly since the end of World War II, indicating that trade has become ever more important to national economies. Canada has been no exception. Canada signed the Free Trade Agreement with the US in 1989, and this agreement was expanded in 1994 when Mexico was included under the North America Free Trade Agreement (NAFTA). Imports and exports rose dramatically, from approximately one quarter to forty percent of GDP. Canada is now what is termed a very 'open' economy – one where trade forms a large fraction of total production. In early 2017, Canada and the EU signed a trade agreement - the Comprehensive Economic and Trade Agreement (CETA). Under this agreement tariffs will be phased out or reduced in most areas of trade over a several-year period. Canada also signed the Comprehensive and Progressive Agreement on Trans-Pacific Trade in 2018 that has the same objective of reducing trade barriers between 11 Pacific-Rim member states.
Smaller economies are typically more open than large economies—Belgium and the Netherlands depend upon trade more than the United States. This is because large economies tend to have a sufficient variety of resources to supply much of an individual country's needs. The European Union is similar, in population terms, to the United States, but it is composed of many distinct economies. Some European economies are equal in size to individual American states. But trade between California and New York is not international, whereas trade between Italy and the Spain is.
Because our economy is increasingly open to international trade, events in the world economy affect our daily lives much more than in the past. The conditions in international markets for basic commodities and energy affect all nations, both importers and exporters. For example, the prices of primary commodities on world markets increased dramatically in the latter part of the 2000s. Higher prices for grains, oil, and fertilizers on world markets brought enormous benefits to Canada, particularly the Western provinces, which produce these commodities. In contrast, by early 2015, many of these prices dropped dramatically and Canadian producers suffered as a consequence.
The service sector accounts for more of our GDP than the manufacturing sector. As incomes grow, the demand for health, education, leisure, financial services, tourism, etc., dominates the demand for physical products. Technically, the income elasticity demand for the former group exceeds the income elasticity of demand for the latter. Internationally, while trade in services is growing rapidly, it still forms a relatively small part of total world trade. Trade in goods—merchandise trade—remains dominant, partly because many countries import unfinished goods, add some value, and re-export them. Even though the value added from such import-export activity may make just a small contribution to GDP, the gross flows of imports and exports can still be large relative to GDP. The transition from agriculture to manufacturing and then to services has been underway in developed economies for over a century. This transition has been facilitated in recent decades by the communications revolution and globalization. Globalization has seen a rapid shift in merchandise production from the developed to the developing world.
Table 15.1 shows the patterns of Canadian merchandise trade in 2018. The US is Canada's major trading partner, buying almost three quarters of our exports and supplying almost two thirds of imports. Table 15.2 details exports and imports by type. Although exports of resource-based products account for only about 40 percent of total merchandise exports, Canada is still viewed as a resource-based economy. This is in part because manufactures account for almost 80 percent of US and European merchandise exports and about 60 percent of Canadian exports. Nevertheless, Canada has important strength in machinery, equipment, and automotive products.
Table 15.1 Canada's Merchandise Trade Patterns 2018
| Country |
Exports to |
Imports from |
| United States |
73.9 |
64.4 |
| European Union |
7.9 |
10.5 |
| China |
5.0 |
7.6 |
| Mexico |
1.6 |
3.4 |
| Others |
11.6 |
14.1 |
| Total |
100 |
100 |
| Dollar Total |
585,255.7 |
607,205.4 |
Source: Adapted from Statistics Canada Table 12-10-0011-01
Table 15.2 Canadian Trade by Merchandise Type 2017
| Sector |
Exports |
Imports |
| Farm, fishing, and intermediate food products |
6.5 |
3.0 |
| Energy products |
20.5 |
5.5 |
| Metal ores and non-metallic minerals |
3.8 |
2.3 |
| Metal and non-metallic mineral products |
11.9 |
7.6 |
| Basic and industrial chemical, plastic and rubber products |
6.6 |
8.5 |
| Forestry products and building and packaging materials |
8.5 |
4.4 |
| Industrial machinery, equipment and parts |
5.3 |
9.7 |
| Electronic and electrical equipment and parts |
3.5 |
11.8 |
| Motor vehicles and parts |
16.3 |
20.0 |
| Aircraft and other transportation equipment and parts |
3.7 |
3.7 |
| Consumer Goods |
12.3 |
21.9 |
| Special transactions trade |
1.1 |
1.6 |
| Total |
100 |
100 |
| Total dollar value in millions |
500,892.6 |
561,425.9 |
Source: Adapted from Statistics Canada Table 12-10-0002-01
