The impact of free trade

International trade grabbed the headlines of many Canadian newspapers in the early 1990s. The focus, of course, was on the liberalization of our trade relations with the United States. Seeking to open up the continent to increased tariff-free trade and investment, Canada and the United States established the North American Free Trade Agreement (NAFTA), which was implemented on January 1, 1994.

NAFTA's signatories are Canada, the United States and Mexico. To encourage trade among them, the agreement contains an ambitious schedule for the elimination of tariffs on goods and services being traded, as well as a reduction of other barriers to trade. The philosophy is simple: by eliminating some of the costs of doing business (namely, tariffs), firms are better able to realize their full potential by operating in a larger, more integrated and efficient North American economy. And as the effects of freer trade trickle through the economy, consumers generally benefit from heightened competition with better products, services and prices.

Though it is difficult to isolate the precise effects of any trade agreement on economic growth, NAFTA's numbers are compelling: by the fifth anniversary of the agreement, Canada's merchandise trade with the United States and Mexico had vaulted 80% and 100%, respectively. By 2002, trade in goods and services between Canada and the United States reached $677.8 billion—an average of $1.9 billion of business crossing our border every single day. The dominance of the United States in our trade statistics is striking. All told, in 2002, the United States bought over four-fifths of our exports and produced just under three-quarters of our imports.

	"À l'abordage!", Port Alfred, Saguenay, Que. Photo: François Lavoie

After stellar trade growth throughout the 1990s the new century has seen somewhat of a muted trade performance. For the first time in years, exports and imports decreased in 2001. Our performance in 2002 was somewhat better. Exports shrank 1% (as compared to −2.6% in 2001) while imports grew 1.6% (as compared to −3.5% in 2001).

Despite the overwhelming influence of the United States on our trade industry, Canadian goods also find their way to other corners of the world. Asia remains an important destination, though exports to some Asian nations declined in 1999. On the other side of the world, sales to the European Union picked up moderately, as growth in the major western European economies firmed.