NEW YORK,
October 21—As 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
economy—the 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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