Analyzing International Trade and Multinational Business in Canada

This report provides an in-depth analysis of international trade and multinational business in Canada. It begins with an overview of Canada's economic standing, emphasizing the importance of the service sector and international trade. The report then delves into Canada's trade relationships, highlighting key trading partners such as the United States, China, and Mexico, and identifies major exports and imports. Various trade theories, including comparative advantage, mercantilism, the gravity model, and the Heckscher-Ohlin model, are applied to understand Canada's trade dynamics. The analysis includes an examination of trade data trends, such as import and export values, and how these relate to the balance of payments. The report concludes by summarizing the factors that influence international trade in Canada, emphasizing the roles of specialization, resource abundance, and the exchange of goods with similar economies.

Running head: INTERNATIONAL TRADE AND MULTINATIONAL BUSINESS
INTERNATIONAL TRADE AND MULTINATIONAL BUSINESS
Name of Student:
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Introduction
The goal of the paper is to find the trade data of a country and then apply several trade
theories to understand the position of the economy in terms of international trade. Canada is a
highly developed economy that ranks tenth in terms of nominal GDP. The main source of
income is generated from the service sectors that employs over three quarters of the economy.
These sectors are effective for the growth of the economy which exports over 40 percent of the
total production. Canada has over 36 million people with a per capita GDP (Gross Domestic
Product) over 43,000 dollars. The economy grows by 0.3 percent each year due to a change in
overall production of goods and services. International trade is very important in Canada as it
provides with several benefits in terms of export and imports, which will be studied in the paper.
Thus, the paper will evaluate the trade structure of Canada and evaluate its effectiveness on the
economy with respect to several trade theories that is effective for operation.
Discussion
Canada is well known for its trade affairs and has relations with 224 countries and
territories. The economy trades more than 5,500 types of products and services. United States is
the major trading partner of Canada. Countries like China, Japan, Mexico, Germany and Taiwan
are the major trading partners of Canada. Canada also trades with countries like Italy, France,
India, Switzerland, Mexico, European Union, Hong Kong and Australia. The main export partner
of Canada are China, Japan, United Kingdom and Taiwan (Hufbauer and Globerman 2018). It
imports goods and services mainly from Germany, Mexico and Japan.
As service, manufacturing and mining are the most effective sectors in Canada. The top
ten exports of Canada are vehicles, mineral fuels, gems, precious metals, wood, machinery and

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computers, plastic and plastic articles. Mineral fuels comprise of 22 percent of the total exports
that brings about 98.4 billion dollars as export earnings, which is the most exported good. The
market for gold and precious metals has advanced at a faster rate in the Canadian economy such
that they are able to bring about huge profits to the Canadian economy. An increase of 16.2
percent was seen in the export market for gems and precious metals. The pharmaceutical market
and the market for ores, slag and ash grew by 7.4 percent and 12.7 percent respectively in 2018
due to availability of natural resources.
Table 1: Goods that are imported to Canada
Source: (as source created by author)
The main exports from Canada are petroleum, natural gas, fishery, transportation,
equipment, wood and paper materials. The ability of an economy to produce more of a good by
using similar or less resources than its competing economies then it is known that the economy
has comparative advantage on the production of such goods. When an economy produces a

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particular good at a lower opportunity and marginal cost, then the economy gains a comparative
advantage (Fuchsová and Baume 2017).
Canada has gained a comparative advantage in production of cell phones and telephones
such that price of cellphones and television is comparatively cheaper in the world market as per
quality. This is because Canadian workers are far more efficient and technologically advanced
that enables them to produce goods using less resources at a faster rate, which has effectively
changed the way goods are produced and served in the economy. Canada has ample amount of
resources that gives them an absolute advantage in mining activities and agricultural production
(Rai 2018). The cost of land is comparatively lower that provides them with an absolute
advantage in production along with the availability of excess resources for agricultural
production. This has effectively led to the development of the service and manufacturing sectors
that has enhanced the performance of the economy.
Table 2: Goods that are mostly traded and produced in Canada
Source: (as created by the author)

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Mercantilist approach
The mercantilist system is an economic system to strengthen the trade value of an
economy. Wealth is increased by an economy by minimizing the value of imports and
maximizing the value of exports such that the economy earns potential amount of net export.
This is done by enhancing the value of exports by retaining imports (Junginger, Goh and Faaij
2016). This is because if value of imports exceed the value of export, it means that the economy
prefer more of foreign goods. This lowers the profits of domestic producers and creates a deficit
in the budget surplus that lowers the rate of economic profits. When an economy imports mere
than exports, it has a negative trade balance or trade deficit.
Figure 1: Trend in the value of imports of Canada from 2010
Source: (as created by the author)
From Figure1, it is evident that value of imports has successfully increased from 2010 till
2015 after which it started going down. This value again increased in 2018 such that the value of
imports exceeds the value of exports.

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Figure 2: Change in the value of exports of Canada from 2010 till 2018
Source: (as created by the author)
The value of exports has been fluctuating since the beginning of 2010 when it increased
in 2011. It went down in 2012 and then again it increased for two successive years. This value
increased in 2018, although the value is still lower than the overall imports. This creates a deficit
of 5.8 dollars for Canada with respect to world as a whole with 6.6 billion dollars. However, this
value is balanced from the trade surplus that is earned from United States, which serves as its
biggest trading partner (Nasseri Pourtakalo 2018). Exports increased in 2019 due to rise in oil
exports that reduced the trade deficit to 4.2 billion dollars. As a result, value of imports rose to
32.5 billion, whereas value of exports was 34 billion which effectively maintained the balance of
payments.
New Trade theories

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This trade theory proposes that the basis of international trade is dependent on increasing
returns to scale and network effects. An economy gains economies of scale when it has increased
production capacity due to earlier entry in the market which lowers the production costs due to
specialization in which they have a comparative advantage (Prebisch 2016). This enhances the
network effect such that number of consumers using the god increases significantly that enables
them to gain super normal profits as per the effective strategies and outcomes. Firms undergo
monopolistic competition and makes goods slightly different from one another that strengthens
the level of competition and trade relation among economies. That is why Canada mostly trades
with United States, United Kingdom, Germany, Mexico, Australia and Taiwan.
Gravity model
The trade flow between two economies is explained by using the gravity model that
explains the size of bilateral trade flows between two economies. According to this model,
economies are attracted by the relative change in the size of each economy and greater distance
lowers the attractiveness (Chaney 2018). This has effectively changed the structure of each firm
with respect to effective strategies and outcomes. This explains why US is one of the biggest
trading partners of Canada. US economy has a huge trade market and is closer to Canada, which
makes the trade far more effective as per the gravity model.
Similar responses can be drawn for economies like France, Green Land, United Kingdom
and Mexico, which are near to Canada. This model has effectively enhanced the trade flow and
included two new theories like Heckscher-Ohlin (H-O) model and Richardian model. The
Richardian theory explains that countries undergo international trade when labors and
technology in one economy is comparatively more efficient than the rival firms and provides

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goods at lower opportunity cost and price with the usage of fewer resources (Yotov et al. 2016).
This proposes the theory of comparative advantage.
Heckscher-Ohlin model
The basis of comparative advantage is also explained in HO model which defines that
countries export those goods which they can efficiently produce in bulk amounts due to a again
in relative cost with respect to land, labor and capital endowments as per capital endowment,
labor and land (Ito, Rotunno and Vézina 2017). Canada has abundant petroleum, coal, iron ore
and potash that has effectively led to the development of manufacturing and mining activities in
which Canada has gained a comparative advantage in production as shown in figure3.
Figure 3: Exports and imports of Canada

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Source: (Chaney 2018)
Explanation of intra-industry trade
The trade model explains that when countries exchange similar products among
themselves that belongs to the same industry, economies gain economic profits. It enables firms
and labors to innovate those products and focus on enhancing the value chain that will eventually
lead to super normal profits. This suggests that economies must undergo trade when there is a
huge difference in the opportunity costs of production (Bakari 2016).
Canada imports as well as exports energy products that enables them to gain a
comparative advantage in production. This is because similar economies have similar living
standards, skills, technology, division of labor, innovation and economies of scale in production
that make the sectors more efficient for production (Bakari 2016). United States and Canada
exchange metals, energy products, machinery, equipment, electronic and electrical goods,
vehicles, special transactions trade and consumer goods among themselves as per their efficiency
level and production amounts.
Conclusion
Therefore, it concluded international trade is dependent on factors like specialization and
abundant resources. Countries trade those goods in which they have a comparative advantage in
production. Economies with similar backgrounds exchange goods with each other as it makes
production more effective and enables to gain a scale in production. Mining, manufacturing and
agriculture are the most efficient sectors due to availability of minerals like zinc, gold, sulfur,
nickel, magnesium, and iron. Balance of payment is maintained due to increased exports to
United

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States, although exports exceeds imports in aggregate. Canada enhances its profits by producing
goods in which they have a comparative advantage in production such as cars, vehicle parts,
petroleum, crude petroleum and petroleum gas.

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Reference List
Bakari, S., 2016. Impact of exports and imports on economic growth in Canada: empirical
analysis based on causality.
Bakari, S., 2016. Impact of exports and imports on economic growth in Canada: empirical
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Chaney, T., 2018. The gravity equation in international trade: An explanation. Journal of
Political Economy, 126(1), pp.150-177.
Fuchsová, E. and Baume, P., 2017. Implementation of a sample measure within the concept of
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Hufbauer, G. and Globerman, S., 2018. The United States-Mexico-Canada Agreement: Overview
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Ito, T., Rotunno, L. and Vézina, P.L., 2017. Heckscher–ohlin: Evidence from virtual trade in
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Junginger, M., Goh, C.S. and Faaij, A., 2016. International bioenergy trade. Springer.
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Nasseri Pourtakalo, R., 2018. Development and Characterization of Poly (lactic acid)/Acetylated
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Prebisch, R., 2016. Towards a new trade policy for development. ECLAC Thinking, Selected
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