Is The Canadian Economy Weakened By Its Southern Neighbour?

Like it or not, Canada is still quite dependent on the health of the U.S. economy. They are, after all, the world’s two largest trading partners. In 2009, about 73 per cent of all of Canada’s exports and 63 per cent of its imports came from its neighbor to the south. While China has the U.S. in its sight for largest economy in the world (recently surpassing Japan to rank 2nd), we mustn’t forget that Canada has the tenth largest economy in the world (measured in U.S. dollars at market exchange rates). Americans may think only natural resources and cold fronts come from Canada but the fact is, thanks to being mostly fiscally sound while others on the world stage went off the deep end, Canada is well positioned for growth for years to come.

International trade is a very significant part of Canada’s economy with natural resources playing a major role. Agriculture, energy, forestry and mining exports were almost 60 per cent of total exports in 2009. Machinery, equipment, automotive products and other manufacturers made up most of the rest. In 2009, exports as a whole made up about 30 per cent of Canada’s GDP.

With the United States facing its most difficult economic, political, social and spiritual challenges in its entire history, and the world heading for major trade and currency wars, Canada finds itself in the middle of all this. It needs to be on guard as there’s already talk about excluding it from a potentially new alignment of the Big Three or so nations (U.S., China and Japan). The argument is that the G-20 is too big and the G-7 not efficient. That, at least, is what the International Institute of Finance (whose membership includes Canada’s top banks) said at an emergency meeting of a “core group” of the world’s major economies. The meeting was convened to work out a new global economic agenda for an “unprecedented level of multilateral coordination.” In a letter outlining the banking group’s objectives, its managing director, Charles Dallara, suggested the core group of top nations should meet before the G20 to “broker agreement on a number of sensitive macroeconomic and exchange-rate issues.” In an interview quoted in The Wall Street Journal, Mr. Dallara said, “the G20 is simply too large and unwieldy to practically handle some of these complex and delicate issues…. You need a smaller group as a stepping stone to the G20.” That smaller group (presumably the United States, Japan, China and maybe one other country) would leave Canada and other G7 members out in the cold.

Canada’s Minister of Finance, Mr. Jim Flaherty, recently said: “We are at the stage that we have a recovery that is modest and fragile,” adding now was not the time for China to be manipulating its currency. Canada has openly joined a growing list of countries that are blaming China for manipulating its currency and giving it an unfair advantage in world trade. The IMF said: “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery.”

Despite (and perhaps due) to its weakened condition, the U.S. is attempting to pass trade sanctions against China in Congress that would allow American companies to seek import duties on Chinese exporters using an artificially weak currency. The measure has passed the House of Representatives but still has to get through the Senate.

China has assailed those efforts, calling them protectionist. China, however, is refusing to swiftly free up its currency, and Chinese officials recently in Washington remain insistent that their plans to slowly revalue the yuan is the best approach. “China will move the exchange rate gradually,” Zhou Xiaochuan, head of China’s central bank, said during a panel discussion. “We will do it in a gradual way rather than shock therapy.”

Despite a modest rebound, the world remains in a fragile state thanks to a financial earthquake that still has major aftershocks and no one can safely assume the tremors are over. Thankfully, Canada is in much better shape than most, but due to being still pretty much tied to the hip of its neighbor to the south, it can’t rest on its laurels.

Peter Grandich
About Peter Grandich

Though he never finished high school, Peter Grandich entered Wall Street in the mid-1980s with no formal education or training and within three years was appointed Vice President of Investment Strategy for a leading New York Stock Exchange member firm. Now an internationally-acclaimed financial expert, he has made a 25- year career out of his knack for uncanny, accurate market predictions. Labeled the “Wall Street Whiz Kid” by Good Morning America, Grandich gained national notoriety by being among the very few who not only forecasted the 1987 stock market crash just weeks before it happened, but on the very next day predicted that within two years the market would reach a new all-time high. Proving his ‘87 forecast was no fluke, Mr. Grandich said in January 2000 that the year would go down as the year the great mega bull market of the 80s and 90s came to an end. He also called for the market’s bottom in March 2009, earning him a bevy of national press coverage. Each time, he was right on target. His ability to analyze and forecast financial happenings has resulted in hundreds of media interviews including GMA, Neil Cavuto’s Your World on Fox News, The Kudlow Report on CNBC, Wall Street Journal, Barron’s, Financial Post, Globe and Mail, US News & World Report, New York Times, Business Week, MarketWatch, Business News Network and dozens more. He’s spoken at investment conferences around the globe, edited numerous investment newsletters, and is regarded as one of the world’s foremost market strategists. Grandich is the founder of Grandich.com and Grandich Publications, LLC, and is editor of The Grandich Letter which was first published in 1984. On his internationally-followed blog, he comments daily about the world’s economies and financial markets and posts his views on social and political topics. He also blogs about a variety of timely subjects of general interest and interweaves his unique brand of humor and every-man “Grandichism” expressions with his experience gained from more than 25 years in and around Wall Street. The result is an insightful and intuitive look at business, finances and the world, set in a vernacular that just about anyone can understand. In his first year, Grandich’s wildly-popular blog had more than one million views. He is the also the founder of Trinity Financial Sports & Entertainment Management Co. [www.TrinityFSEM.com], a firm with a Christian perspective which he started in 2001 with former NY Giant and two-time Super Bowl champion Lee Rouson. The firm offers services to celebrities, athletes and average folks. Grandich also provides a variety of services to publicly-held corporations on a compensation basis. Peter Grandich is a member of the National Association of Christian Financial Consultants, and a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts. He resides in New Jersey.

2 Comments to “Is The Canadian Economy Weakened By Its Southern Neighbour?”

  1. Peter Grandich has been one of the biggest America bulls on Canada for several years now. He went so far as to suggest Americans switch all their cash into Canadian dollars when the exchange rate was under 80. His only poor decision in 2011 is to still be betting against the Canucks.

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