TOPIC 12
TRADE PATTERNS
Learning Goals
We will be able to:
 Understand the importance of trade.
 Use and understand trade terminologies.
 Use the balance of merchandise trade.
 Identify historical and evolving patterns of trade in
both goods and services in capital flow.
 Apply the trade patterns to the global economy.
The Importance of Trade
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No reasonable social being can afford to be totally
self-sufficient.
The primary reason is that it allows industries to
specialize, achieving greater economic efficiency.
This improves market prices and living standards for
people in both importing and exporting nations.
Terminologies of Trade
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Merchandise Trade:
Goods that are grown, extracted, or manufactured
in one country and sold to another. The tangible
nature of goods makes it visible trade.
Eg. Fur, Steel, Wood etc.
Non-merchandise Trade:
Exchange of services, tourism, investment incomes,
and other transfers of funds. (Invisible Trade)
Balance of Merchandise Trade
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On a global scale, volume and value of imports =
volume and value of exports.
For individual nations, it is not necessarily at equilibrium
at every given time. (Imports = Exports)
It is the difference between the value of merchandise
exports and merchandise imports.
If Exports > Imports, a nation is said to have favorable
balance.
If Imports > Exports, a nation is said to have
unfavorable balance.
Trade Patterns in Canada
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Most years, Canada has a favorable balance of
merchandise trade.
However, non-merchandise trade typically posts a
negative balance and has been increasing steadily
in recent years.
From this, we can tell that the Canadian economy is
extremely dependent on foreign capital to support
domestic industrial activity and to carry the large
public/government debt.
Trade Patterns in Canada

Canadians tend to sell the world inexpensive, semiprocessed natural resources then buy back these
resources once they have been processed into final
goods by workers in foreign economies.
Skill Builder on Page 387
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From the data, we can see that from 1975-2000,
as trade is increasing, there are significant increases
in Exports and Imports. However, to most countries,
Canada has an unfavorable balance of
merchandise trade.
In 1990(US), Unfavorable balance of merchandise
trade of $17390.
However this improved in 2000 whereby the
exports > imports of $91877.
Skill Builder on Page 387
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However, when trading with other countries, it has
always been unfavorable towards Canada.
Development of Canadian Trade Policy
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During the past 150 years, trade restrictions have
generally decreased globally, with a few notable
exceptions.
The United States has greatly influenced the
evolution of Canada’s national trade policy.
Timeline of Canadian Trade Policies
1854-Reciprocity Treaty
1879- Canada’s first prime minister, Sir John A.
Macdonald succeeded in passing the National Policy
into law
1930s- Great Depression and World War II
1947- General Agreement on Tarrifs and Trade
(GATT)
1994- North America Free Trade Agreement (NAFTA)
1995- World Trade Organization (WTO) replaced
GATT
Reciprocity Treaty

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In1854, British and US governments signed the
Reciprocity Treaty
Established a qualified free trade relationship
between British North America(Canada included)
and the United States
By 1866, this reciprocal trade agreement had
fallen victim to political and economic pressures.
Thus, it was cancelled and trade tariffs rose sharply.
National Policy into Law
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Canada’s first prime minister, Sir John A. Macdonald
succeeded in passing the National Policy into law
Main components:
Imposition of high tarrifs on imported manufactured
goods.
Building of a transcontinental railroad (Canadian
Pacific)
Promotion of Prairie Settlement (Provision of free land
for settlers)
US manufacturers open branch plants in Canada to
evade high trade tarrifs.
Tarrif rates peaked around 1890, then trend was to
slowly reduce trade tarrifs.
Great Depression and World War II
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1930s, To combat rising domestic unemployment,
protective tariffs were increased.
This however hurt the economies of all industralized
nations.
1939, Great Depression had been addressed,
tariff rates reduced to promote trade.
1939, World War II, world trade adversely
affected, Canadian tariff rates quickly increased in
the early 1940s.
Terminologies
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Multilateral trade negotiations:
Simultaneous agreements among a number of
nations.
Bilateral negotiations:
Agreements between two nations.
Unilateral action:
When a nation acts alone, without negotiation, in
matters that also involve other nations.
General Agreement on Tarrifs and
Trade (GATT)
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In 1947, after the second world war, Canada, US
and 21 other nations signed the GATT.
An international agreement designed to reduce
trade barriers among its member nations.
Through 8 successive rounds of multilateral
negotiations, tariffs in member nations fell from an
average of 40% in 1947 to an average of 5% in
1988 while the volume of international merchandise
trade multiplied 20-fold.
The road to the North America Free
Trade Agreement (NAFTA)
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In 1965, the Canada-US Automotive Products Agreement (Auto Pact)
was signed.
This was to establish free trade in automotive vehicles and parts
between the two nations to combat the problems.
In 1989, the Free Trade Agreement (FTA) was signed as Americans
were unhappy that the Auto Pact were starting to favor Canada.
This increased trade between the 2 countries but there were
repercussions within the Canadian economy as it was during the
period of global recession and also resulted in Canada’s reliance on
the US economy.
In 1994, NAFTA was signed into effect.
This established a free trade area with 360 million people and a
combined economic output of US$6 trillion.
World Trade Organization (WTO)
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In 1995, the GATT was ultimately replaced by the 132-member
World Trade Organization (WTO)
It has 4 essential principles:
Trade must be conducted without discrimination.
Imported products must be treated the same as domestic products.
Protection of industries have to be done through quantifiable
customs tariffs instead of through fees and other charges.
Any country wishing to join must submit a listing of all presently
negotiated tariff levels with member countries and all non-tariff
trade restrictions.
As more members join up with the WTO, average tariffs have
continued to fall.
This increases trade among members and as members grow and
tariffs fall, trade on a global scale is increasing significantly.
Global Trade Patterns
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Major international trade agreements such as the
WTO, NAFTA and the European Union (EU). These
agreements contribute globally and regionally.
The EU is the largest and most powerful common
market. The European Union introduced a common
currency for 11 of its nations in 1999, the euro. This
aids trade among its member nations.
I. INTRODUCTION1
Global Trade Patterns
The global trade landscape has witnessed dramatic shifts over the past several
1.
decades. World trade has grown steadily since World War II, with the expansion
accelerating over the past decade. Despite a post-crisis dip, the current level of world gross
exports is almost three times that prevailing
 The
NAFTA
and
exception
1). With the
1950s (Figure
in theWTO,
in the 1970s and
of commodity-price
the
EU are allbooms
working
more recently in 2004-2008, commodity
totradepromote
share of this
a decliningamong
accounted fortrade
growth, with the share of noncommodity
countries.
trade rising to more than 20 percent of
 Total
exports
in expansion
the world
in
in 2008. The
global GDP
by three
was characterized
global trade
have
increased,
which
important trends: the rise of emerging
means
that there is an
market economies (EMEs) as systemically
increase
in partners;
volume
of
the growing
important trading
importance of regional trade; and the shift of
international
higher technology exports toward dynamic
trade.
EMEs.
2.
Trade expansion was further associated with growing trade interconnectedness.
Globalization

As more nations are joining trade organizations and
signing trade agreements, many nations have
removed, or are now removing, various barriers to
cross-border trade, this results in a huge increase in
the volume of international trade, which is a driving
force of globalization.
Trend of Trade
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As can be seen, trade in Canada has experienced significant
changes from the 1800s to trade at present. The government is
always looking to improve trade with other nations.
Mostly, global and international trade too has experienced a sharp
increase as free trade or trade agreements are signed by nations.
Large organizations such as the WTO facilitate trade significantly
by lowering tax tariffs.
Among certain countries, free trade agreements have already been
put into place such as the NAFTA.
The EU also facilitates trade among its member nations.
All these results in a huge increase in the volume of international
trade.
This is a driving force of globalization.
THANK YOU
Works Cited
Bolotta, Angelo, Charles Hawkes, Rick Mahoney, and John Piper. Economics
Now: Analyzing Current Issues. Canada: Oxford University Press, 2002.
Print.
"Changing Patterns of Global Trade." . Ed. Tamim Bayoumi.
INTERNATIONAL MONETARY FUND, 15 June 2011. Google. Web. 26
May 2013. <http://www.imf.org/external/np/pp/eng/2011/061511.pdf>.