Suppose, in what is promoted as a cost-cutting move designed to save hundreds of
ID: 1168008 • Letter: S
Question
Suppose, in what is promoted as a cost-cutting move designed to save hundreds of billions of dollars in overhead, that Canada and the United States merge.
As a preliminary step toward making this merger a reality, a committee has appointed another committee to study trade between the two nations. With this in mind:
Identify five major exports/imports between the two nations, and identify which nation has the comparative advantage in the production of each good on your list (and explain how you decided who had the comparative advantage).
Identify three trade barriers that exist between the two nations despite the existence of NAFTA.
Identify two advantages and two disadvantages of this merger.
Explanation / Answer
US exports to Canada amounted to $251.5 billion or 54.3% of its overall imports.
1. Vehicles: $47 billion 2. Machines, engines, pumps: $34.3 billion 3. Oil: $32 billion 4. Electronic equipment: $14.4 billion 5. Plastics: $12.3 billion 6. Iron or steel products: $6.3 billion 7. Medical, technical equipment: $6.2 billion 8. Iron and steel: $5.5 billion 9. Aircraft, spacecraft: $4.9 billion 10. Paper: $4.6 billion
Top 10 US Imports from Canada
Canada's exports to America amounted to $353.2 billion or 14.7% of its overall imports.
1. Oil: $119.8 billion 2. Vehicles: $56.3 billion 3. Machines, engines, pumps: $21.1 billion 4. Plastics: $11.4 billion 5. Wood: $8.8 billion 6. Electronic equipment: $8 billion 7. Aircraft, spacecraft: $8 billion 8. Aluminum: $7.4 billion 9. Paper: $7 billion 10. Gems, precious metals, coins: $6.6 billion
In the U.S. market, our comparative advantage lies primarily in the automotive, wood and paper, and energy sectors.
Canada has comparative advantage in crude oil production and USA has comparative advantage in manufacturing cars. This is because of these countries having differing opportunity costs of producing specific goods.
Canada's increasing exports and balance of trade in crude petroleum indicate is continuing comparative advantage in crude oil production..Canadian exporst of automotive products have fallen while its importa have increased.
he North American Free Trade Agreement (NAFTA), signed by the United States, Canada, and Mexico ("the Parties"), entered into force on January 1, 1994. At the same time, the United States suspended the United States-Canada Free Trade Agreement, which had entered into force in 1989. Under the NAFTA, the Parties progressively eliminated tariffs and nontariff barriers to trade in goods among them, provided improved access for services, established strong rules on investment, and strengthened protection of intellectual property rights. After signing the NAFTA, the Parties concluded supplemental agreements on labor and the environment, under which the Parties are obligated to effectively enforce their environmental and labor laws, among other things. The agreements also provide frameworks for cooperation on a wide variety of labor and environmental issues.
Canada maintains a 46.7 percent limit on foreign ownership of certain suppliers of facilities-based telecommunications services, except for submarine cable operations. This is one of the most restrictive regimes among developed countries. Canada also requires that at least 80 percent of the members of the board of directors of facilities-based telecommunications service suppliers be Canadian citizens. As a consequence of these restrictions on foreign ownership, U.S. firms' presence in the Canadian market as wholly U.S.-owned operators is limited to that of a reseller, dependent on Canadian facilities-based operators for critical services and component parts. These restrictions deny foreign providers certain regulatory advantages only available to facilities-based-carriers (e.g., access to unbundled network elements and certain bottleneck facilities). This limits those U.S. companies' options for providing high quality end-to-end telecommunications services, since they cannot own or operate their own telecommunications transmission facilities.
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