The Trades and the Ways of Trade
Trading Nation is a membership site that provides educational material on how to trade foreign currency. A trading nation is usually a nation where international commerce makes up a big percentage of its gross domestic product. Some countries, like the United States, are quite dependent on foreign trade and have developed a robust and varied foreign exchange market. For this reason, they are able to maintain relatively stable exchange rates against their local currency. But unlike the US, other nations with significant trading ties are sometimes hesitant to lift the lid on their trading possibilities. This reluctance is a result of several factors, but among them is the inability to unlock the economic potential of these nations for international trade.
One of the reasons why a trading nation such as Canada has been reluctant to open its doors to foreign trade and investment is the importance of the dollar in North American fiscal policy. Canada’s currency is also highly correlated with the Canadian stock market. When one currency weakens against another, Canada’s overall economy suffers as a result. The recent plunge in the value of the Canadian dollar against the American dollar was a major shock to Canada’s financial system. Foreign direct investments in Canada have also been reduced due to the high level of protectionist legislation implemented by the government in the past.
Despite the foregoing, Canada is still a strong and prosperous nation that uses a strong dollar to support its exporting sector. Canada’s gross domestic product is currently on par with the United States. Moreover, Canada continues to grow at about two percent per year, while the United States economy rests on the back of an aging and largely disengaged population. By allowing its citizens’ access to cheap international traded goods, Canada is in fact positioning itself as a major player in international trade.
As a result of this formidable trading position, Canada is enjoying phenomenal growth in terms of both tourism and investment. In fact, a tremendous surge of investment in the last twenty years has resulted in a nearly $1 trillion trade surplus. This enormous rise in exports has allowed Canada to enjoy significant increases in both its imports and its foreign direct investment (FDI). However, despite these positive trends, Canada’s trade deficit is only one-third of that of the United States. This deficit has proven too much of a hurdle for many Canadian provinces to overcome given its poor fiscal management over the last several decades.
One of the largest sources of Canada’s trade deficit is its lack of access to the Chinese market. Between 2021, Canada’s bilateral merchandise imports and exports were primarily made up of petroleum products, which are largely consumed by the United States. In the same period, China also became a major exporter of petroleum products. As a result, China is now Canada’s biggest source of petroleum imports and has surpassed Canada as the top exporter of petroleum and other natural gas products. For this reason, Canada’s oil sands, bitumen and other natural resources are no longer a viable alternative to the Chinese market. Consequently, the Canadian government is pursuing trade deals with countries such as Vietnam, Brazil and Indonesia that are far more lucrative when it comes to accessing the Chinese market.
The United States has for several years enjoyed a far greater level of cooperation with China than with any other trading nation. As a result, the United States is Canada’s largest trading partner. Unfortunately, in recent years the United States has limited its cooperation with Canada to just the above-mentioned natural resource-based industries. As a result, Canada is exploring other means to increase its access to the global marketplace. As these other markets open up, Canada will have a far greater opportunity to expand its economy and become a leading nation in the international arena.