Sunday, November 1, 2015

NEW YORK, October 21As the son of one of Canada’s longest-serving prime ministers, Pierre Trudeau, who was in office twice in the 1970s and 1980s,  Justin Trudeau brought back Trudeaumania with the Liberal Party’s victory on Monday. What’s more, he will bring Keynesian economics back to Canada after a decade of more conservative policymaking.

Canada remains one of the world’s most stable business climates and an attractive investment destination. International Monetary Fund data indicates that Canada was the top performer among the G-7 industrialized nations during the crisis years of 2008 and 2009, as measured by the trajectory of gross national product. Canada’s recession in the G-7 group was the mildest and shortest.

However, Canada’s economy stumbled into a downturn early in 2015, just as Conservative Prime Minister Stephen Harper began to mount his unsuccessful attempt for a third term in office. The economy recorded negative growth in both of the first two quarters, the only G-7 country to do so, partly attributed to the plunge in crude oil prices. Canada’s most important exports, in decending order, are Crude Petroleum ($80.5B), Cars ($45.9B), Refined Petroleum ($18.6B) and Petroleum Gas ($12.6B), Canada’s excessive reliance on energy exports makes the country very sensitive to oil prices. Combined with China’s economic slowdown and currency devaluation this year, the impact on Canada’s growth was significant as China is Canada’s second most important export market after the United States.

Distinct from Harper who played up cutting budgets and taxes during the campaign, Trudeau argues that the economy needs stimulus and it is time to increase government spending so Canada could invest in its infrastructure and social programs. The state has moral and economic obligation to step in the market when the economy is barely out of recession, he argued. The Liberal leader favors a middle-class tax cut of 2 ½ percent (from 22 percent to 20.5 per cent. "[It's] why we're focused on putting money in the pockets of the families who will spend, save, grow the economy in meaningful ways, because that's how we will get out of this recession that Mr. Harper has created for us," said Trudeau. A rebate for middle-class Canadians is meant to create more demand for goods and services. The hope is that, as the demand, more firms will respond by producing goods and services, thus hiring additional workers.
Meanwhile, the new government is also in favor of raising taxes on the rich and promised a tax hike for Canada’s top 1[MM1]  per cent to pay for a tax cut for the country’s middle class. Trudeau frequently accuses Harper’s government of overemphasizing on balancing budgets when the economy is in the recession, and the young Liberal leader is prepared to run deficits for the next three years to ignite faster growth in Canada.

Despite Trudeau’s cautious attitude towards the massive Trans-Pacific Partnership trade agreement (TPP) before he was elected as Canada’s new Prime Minister, the victorious Liberal Party is likely to ratify TPP, a recently negotiated free-trade pact between 12 Pacific Rim nations, excluding China. The Liberals support free trade and believe TPP will be the economic strategy to lower trade barriers and increase job opportunities for Canadians. Although after the ratification of TPP, there is high possibility that foreign products will flood into Canada’s domestic market and reduces Canadian companies’ competitiveness, overall, most experts believe Canada will benefit more than it loses from the trade deal. The 12-country deal will give Canadian business preferential access to markets in key Asian countries, including Japan, Malaysia and Vietnam. The top export destinations of Canada are the United States ($364.8B), China ($17.5B), the United Kingdom ($13.8B), Japan ($9.8B) and Mexico ($5B), three of which are TPP members. United States takes 76.8% of total Canadian exports and TPP will further promote bilateral trade between the two countries. Justin Trudeau will consider mending economics ties with the United States as the first priority to put Canada’s economy out of recession.

Through trade deals, tax cuts and incremental social spending, Trudeau’s administration hopes to lower trade risks for business investors and encourage the growth of middle class. Nevertheless, these fiscal policies may temporarily resolve the country’s economic tension. In the long run, the lack of diversity among Canada’s manufacturers and its heavy reliance on energy exports potentially leave Dutch disease in Canada’s economythe classic term for a resource-driven expansion that retards the development of other parts of an economy.[MM2] 



 [MM1]Be consistent – either spell it out or use the symbol.
 [MM2]This kind of conflicts with the shallow nature of the recession it’s suffering now. Actually, Canada is very well balanced (typical of a G7 country that has energy exports). Compared with someone like Russia or Nigeria, this isn’t a fatal problem.

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