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Chapter 9: Problem 7

The following data summarize the trade between Canada and the United States in 2015 and 2016 . In both years, the value of Canada's exports to the United States exceeded the value of U.S. exports to Canada. Can we conclude that foreign trade between the two countries benefited Canada more than it benefited the United States? Briefly explain.

Short Answer

Expert verified
No, we cannot conclude that the foreign trade between Canada and the United States benefited Canada more simply because it had a trade surplus. Benefits from foreign trade are not only about value but also about increased efficiency, economic growth, diversification of goods and services, among other factors.

Step by step solution

01

Understanding Trade Balance

The value of exports exceeding imports would usually mean a trade surplus for a country. In this case, Canada has a trade surplus as the value of its exports to the United States is greater than the value of its imports.
02

Understanding Trade Benefits

However, having a trade surplus, like Canada, or a trade deficit, like the U.S., does not directly correlate with 'benefit'. Trade allows countries to specialize in producing the goods they are most efficient at, to sell abroad, and use the income to import goods that it is less efficient at producing domestically. Both countries can benefit from this increased efficiency, regardless of whether they run a trade surplus or deficit.
03

Concluding the Analysis

Thus, merely looking at trade bars (in terms of exported and imported values) is not enough to conclude which country benefited more in a trade. Ideally, the country that is more efficient in producing and can compete in the global market is the one that benefits more from foreign trade.

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Most popular questions from this chapter

Hal Varian, chief economist at Google, made the following two observations about international trade: 1\. Trade allows a country "to produce more with less." 2\. "There is little doubt who wins [from trade] in the long run: consumers." Briefly explain whether you agree with either or both of these observations.

An article in the New York Times discussed the number of innovative food companies, particularly those selling natural foods, that have become established in Boulder, Colorado, in recent years. According to the article, Boulder has a large number of people with experience in managing food companies, lenders who know the industry, food distributors, and food processing plants. The article quoted one entrepreneur as asserting: "There's an ecosystem here that supports food entrepreneurs that you just don't find in other places. Everything you need, including a lot of experience and expertise, is right here." What advantages does being located in Boulder give to startup natural food firms? In what circumstances can natural food firms located elsewhere overcome these advantages? Are Boulder's advantages likely to persist over time?

Former President Barack Obama once described a trade agreement reached with the government of Colombia as a "win-win' for both our countries." Is everyone in both countries likely to win from the agreement? Briefly explain.

Briefly explain whether you agree with the following statement: "International trade is more important to the U.S. economy than it is to most other economies."

Why might a smaller country, such as the Netherlands, be more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States?
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