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Alberta’s exposure to tariffs, part 1

Alberta’s exposure to tariffs, part 1

Posted on: 6/13/2018 | Author: ATB Financial's Economics + Research Team

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The Owl is taking a deeper look into Alberta's trade relationship with the US. We asked ATB's team that researches and writes Perch ​to help. The following is the first of a three-part series, a petite version of Perch.

What US President Ronald Reagan referred to in a radio address in 1988 as “the siren song of protectionism” has been heeded by the current US Administration. Tariffs on Canadian exports have either been imposed or threatened and a successful renegotiation of the North American Free Trade Agreement is in doubt.

This sounds ominous, and it is. Free trade among countries provides a range of economic benefits as competition and comparative advantage improve products, reduce prices and make businesses stronger. These benefits build over time and are spread across the economy. It's tempting to impede free trade, but doing so makes the economy weaker overall (which means fewer jobs, lower wages, poorer products and higher prices).

The tug of war between protectionist tariffs and open trade is complicated by real and perceived unfairness, regulatory differences, the honest desire to protect local jobs and grow domestic industries and political machinations that may or may not be related to trade itself. These factors lead to the imposition of tariffs and tit-for-tat responses that erode the free movement of goods and services across borders.

Given our dependence on exports, this does not bode well for Canada or Alberta. At 39.3 per cent, Alberta’s exports-to-GDP ratio is the third highest in the country and over 11 percentage points above the OECD average. We benefit greatly from this trade, but it also means that we are highly exposed to protectionist policies.

In tomorrow’s Owl, we examine Alberta’s trade exposure vis-a-vis our largest customer. Spoiler alert: it’s the United States.

Exports-to-GDP Ratio, 2016​​​​

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