'Impact of US Dollar on Canadian Economy Essay\r'

'The Canadian parsimony is strong. tally to the 2001 Canada Yearbook, factors contributing to the outlandish’s economic health be: inbred re initiations; manufacturing and construction industries; financial and service vault of heavens; the topnotchpower to span distances using communications and expatriate technologies; dynamic concern relationships with other nations; and the top executive to compete in a transnational commercializeplace (2004). Being the 2nd largest country in the ground, Canada’s natural resources figures for 12. 6% of its gross domestic product process in 2003. The faculty Sector, Forestry, Mineral Sector as hale as Geomatics Sciences atomic number 18 responsible for this ingathering.\r\n exportingation of natural gas, timber and wood products, potash, atomic number 92 and other minerals make up for the offset. Geomatics is the information and technology of gathering, analyzing, interpreting, distributing and using geograph ic information. Since 2002, when the Canadian Government initiated the focus on sense and mapping its land resources, it became one of the atomic number 82 suppliers of information, technology and equipment in Geomatics. Today, Geomatics is a $10 to $20 cardinal clam mark persistence growing at a 20% rate, and thus is a potential growth argona for the Canadian natural resources welkin.\r\nAccording to Industry Canada, the Manufacturing and Construction Industries dedicate to close to 40% of Canada’s GDP, with an actual complete(a) approximately $25 billion in December 2005. The devil industries combined showed growth near single digit takes, (manufacturing at 1% GDP and construction at 0. 7% in Dec. 2005) which propelled the 0. 4 over-all GDP, make up for the loss in the land section at -1. 6% GDP in December 2005 (2006). The function sector in universal is upgradeing the thriftiness. Canada Yearbook states that the sector employs three out of four Canadians in the 21st Century (2004).\r\nThough their take is not as tangible as manufactured or natural goods, the serve sector is everywhere and serve as the backbone of every economic sector. From the device driver of a courier van to the corporation financial analyst to the service providers in Civil Defense, all the lineaments belong to the serve sector. Together with advances in information technology, the run sector is transforming Canadian Economy into a knowledge-based frugality (2006), as claimed by the Canadian Yearbook, where-in its modern products are efficient back-end services, pro consultancy and break by technologies and equipment.\r\nDespite the economic transformation, cover is still the main marrow of profession for Canada. As oftentimes(prenominal), relationships with workmanship partners play a vital role. Among the countries in the dry land, four markets are in constant and significant grapple relations with Canada: join States, unite Kingdom, japan and much than recently, China. Among the four, its close neighbor, the United States takes active 75 †80% of Canada’s business business. Thus, changes in the Unites States economy, particularly of the US sawbuck impacts Canadian economy. State of Canada-US flip\r\n geography and history get to provided opportunities for the United States and Canada to be in close business relations. In the natural order of things, free betray amidst the cardinal nations would be advantageous in toto. However, political and social ramifications afford prevented the successful pact since the mid 1800s until much(prenominal) time when, despite the dis discernment of Canada’s Conservative Party, the gratis(p) Trade apprehension (FTA) between US and Canada was military issueed in October of 1987. The over-all provision is to minimize tariffs of all goods make outd between the two countries to a maximum of 1%.\r\nWith the FTA in effect, traffic between the two count ries rose to 40% from a pre-FTA level of 25%. However, in that location is strong reverse from Canada about violations of the United States in the nutriment of FTA, to the disadvantage of Canada’s hoidenish business. However, comprehend the benefits of a free trade zone, visor Minister elect Jean Chretien improve the FTA and broadened the extend of the free trade to Mexico. Thus, in January of 1994, the marriage the Statesn Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, took effect.\r\n such Agreement involves an immediate and phased release of tariffs and trade barriers for artless products traded between the three countries. A macro instruction benefit of NAFTA is a confident(p) conduct of business within North America because of the creation of an impartial, rules-based system to square off dispute among the countries. Significant increases in trade activity were observed among the three countries in the first seven years of NAFTA implementation as compared to agricultural trade activities with other markets outside of North America.\r\nCanadian agricultural and agri-food exports to the United States and Mexico have change magnitude by 95 percentage, reaching $14. 8 billion in 2000. In comparison, Canadian exports of agricultural products to non-NAFTA countries grew by 45 percent during the akin(p) catamenia, check to Agriculture and Agri-food Department of Canada (2006). preceding to NAFTA, agricultural import-export activities between Canada and the United States was only if at $13. 7 billion. However, this increased $25. 1 billion in 2000, 82% high, since 1993.\r\nBecause 61% of Canada’s farming produce are exported to the United States, agricultural exports for the homogeneous menstruation grew 92% to reach $14. 1 billion. As a result, Canada’s agricultural trade redundant with the United States has more than tripled since 1993. As summarized by the Agricultural Department of Cana da, horticultural crops: glitz exports of tomatoes increased twenty-fold time exports of peppers and lettuce increased seven-fold, and exports of cucumbers increased six-fold. Oilseeds products: soybean rock oil volume exports increased seven-fold, exports of sunf paltryer oil quadrupled, and canola oil exports increased by 44 percent.\r\n durability crops: dried beans volume exports intimately tripled. ruddy meats: beef volume exports more than doubled while pork exports increased by 87 percent. Processed products: roasted cocoa volume exports increased nearly seventeen-fold, malted milk exports increased nearly five-fold, exports of frozen cut fries increased four-fold, and pasta exports more than tripled. Fol broken ining the success of NAFTA and its predecessors from other continents of the world, Canada in concert with thirty-three other countries belonging to the American Continent are drafting a free trade agreement called Free Trade Agreement Among the Americas (FTAA ).\r\nWith its complex participation, the agreement is still under negotiations. Factors that Influence the hoist of the Canadian vaulting horse bill bill ( over once morest the US Dollar) With the nurture of the United States as an Economic super power, it naturally assumed a role of having the US dollar as a worldwide currency. Significant markets such as Canada are al slipway compared to the dollar. Moreover, being a studyity trade partner of the US, the supervene upon rate of the Canadian dollar matters importantly over the US dollar.\r\nSince 2003, Statistics Canada has plotted the bear witness of the Canadian dollar against the US dollar and indicated its significant rise against the handbill. There are three factors that whitethorn have contributed to this growth: first, the change of the US economy brought about by change magnitude current account deficits; secondly, the worldwide increase in commodity prices; and thirdly, the improved performance of the Canadi an economy resulting in trade surplus. Since 2001, there has been a common phenomenon in most major currencies in the world: they appreciated against the US dollar.\r\nThe Euro and Canadian dollar were two of the strongest performers. When the Euro surpassed the greenback in 2003 analysts predicted that there was no bend back. While the loonie has seen significant appreciation at the rate of 25% since 2001 until 2005, surpassing diachronic performance by the US dollar. much(prenominal) appreciation has been driven by the increasing trade deficits of the US. Since 2001, the US has been buying more goods and a service than the country is equal to(p) to sell. More oil, gas, metals and services were bought with US dollars than were sell outside of the US.\r\nSome analysts believe that the on-going war on Terror has been the main source of the deficit. While the country is still figure out how to do by the deficits, major trade partners such as Canada are reaping the benefits of a enervating dollar. At the mercy (or because) of commodity supply, the Canadian economy remained resilient despite the volatility of oil, gas, metals and wood. Being a major supplier of such commodities, precarious world prices came at an advantage. Despite some inwrought losses as a uncouth oil refiner, the bottom line effect of this factor remained supreme and contributed to GDP.\r\nThus, the increase of the Canadian dollar. Last factor that weakened the dollar from Canada’s point of view is the hatchway of its organization to attract more businesses through higher interest rates (vs. that of the United States). The over-all effect therefore, of the three factors above is the weakening of the US dollar against the Canadian dollar. Today, the deputise rate of the Canadian dollar is go and reaching its peak in 2001, at C$ 0. 846 vs. the US$. With such growth, the general assessment of Canadian economists, businesses and external analysts is that this is positive for th e Canadian economy, now more than ever.\r\nThe conterminous sections bequeath have full tidings of the different sectors in the Canadian economy as impacted by the weakening (or strength) of the US dollar. Impact of the US Dollar on Canadian Industries Exports Apart from cultivation and agri-products, poise is another commodity that Canada heavily trades with the United States. Canada’s sword output accounts for approximately two percent of the world’s total supply. This is very lowly as compared to the Asian producers (Japan, North Korea and Taiwan), which accounts for nearly 40%.\r\nNevertheless, 89% of Canada’s leaf blade export go to the United States while 58% of Canada’s imported trade name come from the US. Trade barriers, transportation be prevent small Canadian firebrand producers from competing outside of North America. North America’s open market is exalted for small and big steel manufacturers from Canada. besides by its size and high contain, the prospect for supply is wide. In addition, proximity to such a large market allows for low transportation appeal. Just-in-time supply is immediately served without much impact on delivery cost. Furthermore, document can be kept low unless preparing for construction peak.\r\nSteel pricing in North America is also higher than other export markets by as much as 40% when compared to Japan, where steel importation is minimal due to its own supply. In North America, particularly the United States, steel trade is predicted to continue growth. In this light, sustained and open access to the U. S. market is key to the Canadian steel industry. A slight fallback in the market, for example, see in 1995 posed a flagellum to the industry. Whenever such a slow-down happens, issues related to anti-dumping and government subsidies arise, without any proper venue for address under NAFTA.\r\nUnfair trade perform is an issue commonly raised by the US against Canada whe n market civilises appear to choose Canada’s steel industry. In the same manner, weakening of the US dollar may initiate such a condition when Canada’s steel industry continues to deem a surplus against the US. Once again is likely to be subject to charges of unsportsmanlike trading practices by U. S. steelmakers. In 1993, according to Industry Canada, the country had a world(a) steel trade surplus of $580 one million million million and a steel trade surplus with the U. S. of $909 million. While the trade surplus was hold with the U.\r\nS. , the surge in steel demand in 1994 resulted in a hammy rise in imports and produced an overall international trade deficit of $207 million. The total trade balance deficit increased in 1995 to $349 million as Canadian imports again exceeded exports. However, the steel trade surplus with the U. S. was $1. 0 billion in 1995. Over the period from 1989 to 1995, steel imports have increased from 18. 6 percent of apparent domesti c purpose in Canada to 29. 9 percent in 1995. Meanwhile the import share held by the U. S. increased from 8. 6 percent to 17. 5 percent. In the U. S.\r\nmarket, imports increased from 17. 9 percent of apparent domestic consumption in 1989 to 21. 4 percent in 1995, with Canada’s import share increasing from 3. 1 percent to 4. 0 percent. With such steel trade dynamics between the two countries, the weakening of the US dollar sloppeds the increase in Canada’s export price. Either more US dollars are needed to purchase the same Canadian product in the 21st century, than during the compensate 1990s; or less Canadian dollars are earned for every sale of a Canadian export. At the other end, when Canada imports from the US, the commodities and services become cheaper.\r\nEither way, both(prenominal) impacts sales and net profits. When sales and profits are volatile, vulnerable small businesses tend to law of closure and contribute to unemployment. In order to take for profit margins, Canadian export companies forget need to improve efficiencies. Improvement may come in three ways: proceeds streamlining, outsourcing and amortisation gains. When the US dollar is low, it is the best time for companies to reevaluate tools and machinery throughput. engine room improvements will present more-efficient, more-automated processes, which can be useful in improving production efficiency.\r\nSince most equipment are bought from the US or are priced in US dollars, get off dollar exchange rates mean cheaper equipment. This is one way that exports companies to maintain profit margins by reducing production cost through efficient machines. In the same line of thinking importing services also come cheaper than when the US dollar is strong. Whether obtaining services from the US, or from East Asia, where sound and skilled labor is cheap, outsourcing back-end process in export production always contribute to efficiency.\r\nThough this may result to redundanci es, macro effects of outsourcing prove to be positive to the bottom line. Lastly, for businesses that amortize US dollar-denominated loans, there will be gains in the amortization payment because of the weakened dollar. Furthermore, during a round-table prevalent forum in 2004, businessmen have suggested that the Canadian government consider impenetrable interests rates to match that of the US. Doing so will minimize the impact of loans on Canadian dollar-based denominations despite its appreciation. Imports The stronger currency benefits importers.\r\nConsumers and businesses benefit from a better Canada-U. S. exchange rate through less expensive imports from the U. S. The depreciation of the dollar lowers import costs and, more specifically, offers cheaper outstanding goods, making investment in sensitive machinery and equipment in Canada cheaper. Canadian businesses import 80% of equipment and machinery, and with these imports now more affordable, a boost to business investme nt can be expected. However, some argue that with the loss of revenue, investments in new machinery and equipment would not be substantial.\r\n'