● History
● The Canada-US Free Trade Agreement
● Natural Resources
● Agriculture
● Manufacturing Industries
● Service Industries
● Canada's Place in the World Economy

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Canada is a leading industrial nation with a highly developed economy. The economy is influenced greatly by Canada's physical geography, which is rich in natural resources; but the huge size and small population of the country has made extracting and transporting goods to markets difficult. The second major influence, as a result, is the United States, which has a much more powerful economy and a larger market. Given that most Canadians live close to the border, trade has quite naturally developed north to south, across the Can-Am border, rather than east—west, between provinces and regions. This accounts for a third influence on the economy: federal governments have constantly intervened in the development of the country's resources and infrastructure to try to manage it, rather than allowing market forces to play a role.

Industry in Canada can be divided into three main groups: natural resources (primary industries); manufacturing (secondary industries); and service (tertiary) industries. In 1990, the primary sector, including agriculture, fishing, forestry and mining, accounted for 10 per cent of

Workers at the Dofasco Pier Where Coal and Iron Ore are Stockpiled	Steel Workers At Work

Canada's Gross Domestic Product (GDP). Secondary industries, including manufacturing, construction, transport and communications, made up 36 per cent of GDP; and the tertiary sector of trade, finance, services and public administration, accounted for nearly 54 per cent of GDP.

History

Natural resources were the original source of Canada's wealth and so have played an important role in the country's development. Canada was first and foremost, a producer of staple commodities—furs, fish, forestry and agricultural products—which were developed entirely for export markets. The export of primary resources remains the backbone of the Canadian economy.

Former Prime Minister John A. Macdonald

Aware that in order to develop economically, Canada needed to move away from its reliance on exporting raw resources, Canada's first Prime Minister, John A Macdonald (served from 1867 to 1873; and again, 1878-1891), launched a national economic plan to develop internal markets and a manufacturing industry. In spite of Macdonald's efforts, in this period, Canada remained an exporter of raw or slightly processed goods, and still failed to develop a strong service or manufacturing sector.

This pattern did not really begin to change until the end of World War II, when ties with Great Britain were weakened, and Canada's economy fell more deeply under the influence of the United States. Canada followed the US into a period of comparative wealth and growth. However, this growth remained based on raw materials rather than manufacturing, and many companies were foreign—owned subsidiaries. By the late 1950s, although overall the government felt the prospects for the Canadian economy were very good, there was continuous worry about the extent of foreign ownership.

With its small, far—flung population, the Canadian market for goods like cars was small and difficult to access. Manufacturers had difficulty competing with the much larger production capacity of the US, where economies of scale made per unit prices significantly lower. To help stimulate the development of "value—added" industries, that is, industries in which the processing of raw materials makes them more valuable, Canada engaged in protectionist practices: for example, to protect the Canadian car industry, the government erected heavy tariffs on the import of US cars.

In the 1960s, the Canadian and American governments made a deal on car production. Both sides decided they could benefit if they had freer trade in cars, and so an agreement was drawn—up whereby both sides would benefit. The success of this Auto Pact, signed in 1965, was important, because it would pave the way in the 1980s for the landmark Free Trade Agreement (FTA) between Canada and the US.

After 1966, the American economy began to founder, partly due to escalating costs of the Viet Nam War which led to high borrowing which in turn led to inflation. Such difficulties affected Canada, which did the bulk of its trade with the US. Other changes in the world market, including the oil crisis of the early 1970s and finally the recession of 1974—1975, also affected

Former Prime Minister Pierre Elliott Trudeau

the Canadian economy. Pierre Elliott Trudeau (1968—1979; 1980—1984) had come to power in 1968 with new ideas about what direction the federal government would take the Canadian economy. Canada used the idea of a floating exchange rate effectively, curtailed the worst effects of the OPEC oil shock by imposing export tax on shipments to the US, and began to explore a "Third Option," geared toward developing stronger trading relations with Japan and Europe rather than being over-reliant on the United States. As a result of such policies, Canada weathered the recession quite well, but the government's tendency to intervene in the management of the economy by imposing wage and price controls, earned Canada the reputation of being rather socialist, and for having a very interventionist government.

In 1980, the government brought in the National Energy Policy, a controversial move to seize control of an important sector of the Canadian economy, the energy industry. This move angered western provinces which were rich in energy resources, as provincial governments usually have control over the development of their resources and the wealth they generate.

But the days of such government interventionism were drawing to a close, as Canada began to embrace the principles of free trade and of allowing the market—place to manage the economy, rather than the government.

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