foundation of canada asia pacific - Content Tagged with

NORTH AMERICAN INTEGRATION
4
too much
of a good thing?
45
The biggest obstacle to greater Canadian economic involvement in Asia is the lure of the
US market. Huge, rich and relatively open to Canadians, the US is the obvious foreign
market of choice for businesses. The more distant and difficult markets of Asia run a
poor second, no matter how promising their long-term growth prospects. Canada’s
involvement with our giant neighbour is so extensive and apparently inevitable that
thoughtful commentators and economists suggest we should further strengthen our ties
by entering into a customs union with the US or even adopting a common currency. 1
However, it is important to ask how much of the integration in the North American economy
goes beyond our fundamental economic compatibility and is driven by government policy
decisions or businesses’ risk aversion. If we have tied our wagon a little too tightly to the
US because of political fiat rather than economic rationale, we have to be concerned
that the level of integration may ultimately have a detrimental impact on Canada. This
leads to questions about the effect that even greater levels of integration would have on
our relationship with other regions, specifically Asia. Our close economic relationship
with the US is Canada’s overriding exercise in globalization. But the globe extends well
beyond the 49 th parallel.
By most measures, Canada’s economy appears closely integrated with the US — the border
between us is only a limited impediment to trade and commerce, as the figures show.
Some 68% of foreign direct investment in Canada is from the US, while nearly 53% of
Canadian direct investment abroad is in our southern neighbour. About 53% of foreign
portfolio investment in Canada — in both stocks and bonds — is held in the US, including
94% of all Canadian stocks owned by foreigners. Similarly, 58% of overseas portfolio
investment by Canadians is in the US. In recent years, cross-border investment has leveled
off. However, that plateau of cross-ownership is clearly at a high level already.
Our trade ties are even greater than our investment links: fully 85% of Canadian exports
in 1998 went to the US, which in turn provided 68% of our imports. Much of this exchange
is taking place at an intercompany level. It is estimated that nearly 50% of Canada-US
trade is between parts of the same business group, 2 with components or finished goods
from a plant on one side of the border supplied to an associate on the other side. The
interchange of similar products shows up even in our gross trade profile: eight of the
top ten Canadian export categories to the US rank in the top ten US exports to