THE CHANGING DYNAMICS OF
NORTH AMERICAN
FEDERALISM AND THE
CANADA-U.S. ECONOMIC
RELATIONSHIP
Earl H. Fry
Prof. of Political Science and
Endowed Prof. of Canadian Studies
Brigham Young University
September 2010
CHALLENGES FACING LARGEST BILATERAL
ECONOMIC RELATIONSHIP IN WORLD
 Trade—33% drop in value of Canadian
exports to U.S. in 2009, valued in U.S.
dollars
 Direct Investment—Canadian FDI in U.S. is
only slightly smaller that U.S. FDI in
Canada, using historical-cost basis
 Tourism—U.S. trips to Canada recently fell
to 1972 levels, even though U.S. population
up 100 million since 1972
 Currency fluctuations—2002 and 2007
INTERNATIONAL EVENTS ARE
TRANSFORMING LIFE IN NORTH AMERICA
INTERNATIONAL SECTOR
weapons
proliferation
conflict
sports and
entertainment
economics
cyberspace
terrorism
immigration
energy
religion and
ideology
environment
culture
resources
crime
disease
NORTH AMERICAN
CITIES &
NEIGHBORHOODS
FOR THE FIRST TIME EVER IN
2008, THE UNITED STATES
EXPORTED MORE GOODS TO
THE EU ($275 BILLION) THAN TO
CANADA ($261 BILLION)
34 MILLION PEOPLE VS. 500
MILLION PEOPLE
FEDERALISM—STRENGTHS AND CHALLENGES
 State and local governments in U.S. account
for $2 trillion in expenditures and 30 million
direct and indirect jobs
 Protectionist concerns—Buy American, ban
on outsourcing some state services,
softwood lumber, etc.
 Often much fury and little action—key role
played by condition of economy and
imminent elections
U.S. STATES ARE STILL PROMINENT
ECONOMIC ACTORS
 2008—1 among top 10 nation-states in world, measured
by GDP
 11 among top 25
 26 among top 50
 45 among top 75
 50 among top 86
 8 of 10 principal trading partners of Canada U.S. states;
9 of 10 provinces trade more with U.S. than each other
 NAFTA brings together the world’s 1st, 11th, and 13th
largest economies (2008) and 3rd, 11th, and 36th most
populous nations—it is the LARGEST FTA in the world
San Marino
Cape Verde
Guinea
Kenya
Hong Kong
Argentina
Luxembourg
Denmark
Croatia
Moldova
Turkey
Latvia
If Canadian Provinces and Territories
were Nation-States, Year 2007
Guatemala
ONTARIO IS THE FOURTH
LARGEST TRADING PARTNER OF
THE UNITED STATES AFTER
CANADA, CHINA, AND MEXICO—
ONTARIO-U.S. TRADE ALMOST
C$830 MILLION PER DAY IN 2008
(BUT WAS C$900 MILLION IN 2004)
Provincial Merchandise Exports to the U.S., 2008
Newfoundland and Labrador
75%
Prince Edward Island
64%
Nova Scotia
78%
New Brunswick
82%
Quebec
72%
Ontario
83%
Manitoba
69%
Saskatchewan
63%
Alberta
87%
British Columbia
53%
Source: Statistics Canada, 2009.
INTERNATIONAL ACTIVITIES OF STATE AND
LOCAL GOVERNMENTS
 41 states with 224 foreign offices in 30 countries, up
from 4 in 1980 but down from 243 in 2002
 Roughly 1,000 state employees work in international
sector
 Half of governors lead international trade missions every
year
 Almost all states have international trade and investment
divisions
 About $200 million being spent annually on international
programs, exclusive of investment incentives
 Overall spending is still quite modest—Quebec
comparison; Alberta has very active
 Hidden wire linkages between state and provincial govts
CANADA-U.S. ECONOMIC
INTEGRATION
 5,500 mile common border, with roughly 200
million 2-way border crossings each year.
121 road access routes funneled into 77
ports-of-entry (86% auto traffic through 17
POEs)
 20% of total U.S. exports of goods to Canada
in 2008 (and 12% to Mexico)
 16% of total U.S. imports from Canada
 U.S. and Canada largest bilateral trading
relationship in world (in 2007 China
surpassed Canada as #1 exporter to U.S.)
 About $1.5 billion in daily 2-way trade in
goods
 U.S. exports almost 4 times more to
Canada than to Japan and China
 In 2009, 35 of lower 48 states had Canada
as their principal export market, and for all
the rest, except NM, Fla, and La, Canada
#2
 $260 billion in U.S. FDI in Canada 2009
and provided 1.1 million Canadian jobs in
2008
CANADA-U.S. ECONOMIC
INTEGRATION (Cont.)
 Canadian FDI in U.S. $226 billion in 2009
and provided 543,000 U.S. jobs in 2007
 Affiliates of U.S. companies accounted for
9% of Canada’s GDP and 8% of privatesector jobs in 2006
 Roughly a third of U.S. merchandise trade
with Canada is intrafirm—role of MNCs
and supply chains
 Canada #1 source of foreign tourists
for U.S., and U.S. #1 source of
foreign tourists for Canada
 Canada #1 energy supplier to the
U.S.—Alberta’s key role—1.5 million
barrels a day of oil to U.S., of which
1.0 million from the oil sands
(1) Rise of competitor nations and groups of nations
(2) Ability to cope with combination of globalization, unprecedented
technology change, and creative destruction
(3) 15 major “fault lines” within U.S., ranging from dysfunctional
decision-making on Capitol Hill to K-12 education flaws to Wall
Street’s debacle
(4) Implications for Canada-U.S. economic relations
THE UNITED STATES AT MID-CENTURY
 Almost 440 million people with over 80% of growth
attributable to immigration
 Perhaps a “majority minority” country by 2042
 85% or more will be urbanized, with most growth
concentrated in largely self-contained suburbs
 U.S. will remain a military superpower
 In many other dimensions, U.S. will be a declining
superpower in relative terms
 What will be the quality of life for the average American?
 How steep will be America’s relative decline?
PROVINCIAL GOVT ECONOMIC STRATEGIES
 Maintain strong economic ties with U.S., the world’s
largest domestic economy, and work to thin the “thick
border” and end “Buy American” provisions
 Prioritize in terms of geographical and sectoral targets
within the United States—state and municipal linkages
 Diversify the domestic economy—still very commodity
dependent
 Foster a national economic union—economy-of-scale
benefits
 Promote brain power and smart immigration, including
from the U.S.
 Dynamic federalism and internal development—Alberta
key energy partner of U.S.
 Expect a roller-coaster ride in the North American
economic arena over next several years—cyclical vs.
structural challenges