Introduction
Ferguson (2008) views “Chimerica” as the trade partnership that the People’s Republic of China and the United States of America has established. The rise of China had its impact on the world economy, especially its relationship with the US; this has played a significant role in the current global crisis. Chimerica facilitated the integration of China into the world economy resulting in the doubling of global labor which has increased returns on capital and corporate profitability. One of the consequences of “Chimerica” on the global economy is excess liquidity resulting in a stubbornly booming market. It has also resulted in a global asset shortage. Caballero et al. (2007) have studied that such global assets shortages could result to the limited ability of emerging markets to generate financial assets to match the rate at which their economies grow.
The consequences of Chimerica had effects on major world economies and particularly Americas trading partners, and Canada is no exception. For a long time, Canada has built a powerful economic relationship with China whereby China focused on exploitation of the vast raw materials while building symbiotic relationship with the United States, through a security alliance. In 2003, goods from China represented 5.5% of Canada’s imports. But capital goods have constituted a majority of Chinese imports, resulting in an increased investment by firms. Capital goods represented 44.8% of all imports from China early in 2004, up from 19.5% in 1993 (Roy, 2004). Early in 2004, for the first time, China imported more capital goods than consumer goods although the prices for most capital goods had decreased with electronic equipment and mechanical machinery being the most imported. The challenge that Canada faces is that both China and United States of America will be different countries in their relationship. With respect to China, Canada will have to appreciate the substantial Chinese investment, and the vast need for raw materials by China. On the other hand, since America is the largest consumer and China is the largest manufacturer, this implies the bilateral relationship between china and United States of America will be of great importance to Canada since their exports to China in terms of raw materials will be boosted significantly. A large number of Canadian exporters are small and medium sized enterprises; therefore, increased trade means additional income, their level of productivity increases and offers them a greater access to technology and investment. The liberalized trade makes them more efficient and competitive and helps in opening up the rapidly expanding global market and this presents opportunities for Canada.
Canada has a good trading relationship with United States of America. In 2009, Canada was the largest US trading partner: 73% of Canada’s exports went to the US and 63% of Canada’s imports were from the United States of America. However, the bilateral relationship between China and US had its effects on the US economy; during this period, American savings decreased from 5 per cent to almost zero by 2005, possibly because they were spenders while Chinese savings on the contrary increased tremendously from below 30 percent to almost 45 percent. This shift in savings resulted in a tremendous increase of debt in the United States of American (Ferguson, 2008). This resulted in Chinese economy experiencing a major boost while the United States experienced a deficit, which of course impaired the trade between the United States and Canada, which in turn affected Canada’s exports and imports.
Conclusion
A significant part of the China-Canada trade can be attributed to globalization of production. The integration of china into the world economy has resulted in benefits of trade; its increasing exports have raised its income. China supplies low priced goods to firms in Canada, thus surpassing Japan and Mexico as a source of imports for Canada and unites states of America. Chinas increased demand for raw materials has opened up new markets for a variety of goods and Canada has taken advantage by diversifying their exports to China. The increase in Canada’s imports from china is significantly higher than china’s exports to Canada; as a result, Canada’s trade deficit with china has increased. In relation of Canada’s business with the United States, the US plays the dominant trade partner for Canada, automobiles and auto parts have become integrated due to free trade and form the largest sector of traded products. Canada is also the largest exporter to the US, therefore just like the US, Canada has been affected by China’s transformation into an economic superpower.
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References
Caballero, Ricardo, Emamnuel Farhi and Pierre-Oliver Gourinchas,(2007) ‘An Equili-
brium Model of ‘Global Imbalances’, Draft, Massachusetts Institute of Technology.
Roy, F. (2004). Insights on the Canadian economy: Canada’s Trade with China. Ottawa: Minister of Industry. Retrieved from
http://dsp-psd.pwgsc.gc.ca/Collection/Statcan/11-624-M/11-624-MIE2004007.pdf
Ferguson, N. (2008). The Ascent of Money: A Financial History of the World.
The penguin Press
Ferguson, N. (2008).The End of Chimerica’ Home is Where The Heart Dwells. Retrieved
from http://blogs.law.harvard.edu/guorui/2008/09/29/the-end-of-chimerica/
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