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Chapter 1 – Interdependence

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  1. Chapter 1 – Interdependence • Planning ahead – study questions • How has international business activity affected the links between countries? • What are some of the advantages and disadvantages for a nation? • What are the barriers and how can countries lower them? • How has Canada established international business relationships over time?

  2. 1.1 The Evolution of Global Trade • Self-Sufficiency • The ability to provide for all of your basic needs without relying on anyone else • Canadian Aboriginal peoples • characteristic of every developing civilization

  3. 1.1 The Evolution of Global Trade • Developments in transportation and the movement of people brought different cultures into contact with each other • Self-sufficiency was no longer desired • If all worked out well . . . trade relationships developed

  4. 1.1 The Evolution of Global Trade • People then gained more options in all areas of life • Food • Clothing • Earning a living • Some groups, however, refused to give up their self-sufficiency • Amish • Old Order Menonites

  5. 1.1 The Evolution of Global Trade • In the 1960s communes developed as a reaction to cultural norms • These communes rejected interdependence and turned back towards self-sufficiency • Communal property • Shared food production • Education • Child care • Today, they are referred to as intentional communities

  6. 1.1 The Evolution of Global Trade • The First Trade Regulations • Resulted from the development of guilds between 1000 and 1500 C.E. • Guilds were merchant and craftspeople associations formed within towns to control the manufacturing and sale of products made by people within the town • Guilds charged fees or taxes to merchants from outside the town and barred some traders entirely

  7. 1.1 The Evolution of Global Trade • Trade and Exploration • The “discovery” of North and South America largely resulted from the quests of 15C and 16C Europeans to find an alternate route to the Spice Islands • They thought that the entire world extended from England eastward to China • Wars were fought over the rights to trading routes – particularly those which carried spices • Spices were used in food preparation, medicine, and scents

  8. Early European Trade Routes

  9. 1.1 The Evolution of Global Trade • Trade and Exploration • During the 6C the Turkish Empire controlled Egypt, North Africa and parts of Europe effectively blocking Europeans off from the sources of spice • Not to be outdone, Europeans started to look west for alternate trade routes to India and Asia

  10. Ferdinand Magellan’s Voyage Ferdinand de Magellan was the first European to circumnavigate the globe. His expedition set sail in 1519. Magellan was killed in April 1521 at Zebu [in the Phillippines], but they had already reached the eastern edge of the known world, and his men completed the voyage to Spain. The voyage proved that the earth is round (although most educated people knew this already!).

  11. The Goal – The Spice Islands

  12. The Goal – The Spice Islands

  13. 1.2 History of Canadian Trade • The Europeans • In 1497 Giovanni Cabotto lands in Newfoundland. He was looking for spices but found fish instead. • Europeans begin to regularly visit Canadian waters for cod. • They also began to trade with aboriginals for fur (especially beaver skins) while they continued to look for a passage to the east

  14. 1.2 History of Canadian Trade Examples of ‘stylish’ European hats – all made from beaver pelts.

  15. 1.2 History of Canadian Trade • The French send Samuel de Champlain to colonize Acadia and Quebec in the early 1600s . . . realizing the value of the fur trade • On May 2, 1670, two French traders (working for the British!) received a Royal Charter from King Charles II and established the oldest company in Canada: The Governor and Company of Adventurers of England Trading into Hudson’s Bay

  16. 1.2 History of Canadian Trade Depiction of a Trading Ceremony as found in the archives of the Hudson’s Bay Company.

  17. 1.2 History of Canadian Trade • Some of the aboriginal peoples in Canada (the Cree in particular) began to produce a surplus of goods • As a result, the principle of self-sufficiency was replaced by those of trade: • Create a surplus • Trade the surplus for goods that you cannot create • Sell some of these goods to others for their surplus goods • Trade that surplus for goods • Etc., etc., etc.

  18. 1.2 History of Canadian Trade • Settlements were established to support the fur trade and this settlement attracted more immigration • Trade relationships also developed between Canada and Europe to support activities in both locations

  19. Europe  Canada Stylish Clothing Household Furniture Manufactured Goods Precision Tools 1.2 History of Canadian Trade Canada  Europe Fish Fur Metals Wheat Wood

  20. 1.2 History of Canadian Trade • This was the beginning of interdependence between Canada and Europe. • Interdependence: the reliance of two or more groups on the actions of one another to fulfill certain wants or needs

  21. 1.2 History of Canadian Trade • The Americans • While early trade in Canada was dominated by the French and the English, in the U.S. it was the Dutch and the English. • The Dutch West India Company was formed by a group of investors in Amsterdam to profit from trade in the Caribbean. • They also set up a fur trading post in what has now become New York City

  22. 1.2 History of Canadian Trade New Amsterdam as it was depicted in 1661. It was later renamed New York. This was the base of Dutch fur trading in America.

  23. 1.2 History of Canadian Trade • U.S. traders had a much more diversified network of trading partners than their Canadian counterparts – parts of Europe, the Caribbean, South America. • Sugar – called “white gold” – was the primary commodity. • Shipped in from the Caribbean, it was processed in New York and sold in Europe or back in the Caribbean as refined sugar, candy, molasses, or even rum.

  24. 1.2 History of Canadian Trade 17C sugar and slave trade

  25. 1.2 History of Canadian Trade Around 1550, the center of sugar production and of black enslavement shifted to the Americas. By 1600, Brazil had emerged as the leading supplier of sugar to Europe. But the sugar monopoly of the Spanish and Portuguese was broken during the 17th century when the British, French, and Dutch became major powers in the Caribbean.

  26. 1.2 History of Canadian Trade • U.S. trade was much more varied than Canadian trade – it involved raw materials as well as processed goods. • After the American Revolution and the War of 1812 Canadians began to look south to the U.S. as a trading partner. • Both the Hudson’s Bay Company an the newly formed North West Company competed with the American Fur Company in the U.S. market

  27. 1.2 History of Canadian Trade • The problem was . . . these companies competed so well that the American government passed a law in 1816 making it illegal for Canadians to trade furs in the U.S. • In 1821 the two Canadian companies merged and by the 1840s the fur trade in Canada was waning. • European tastes were turning to silk and beaver stocks were depleted

  28. 1.2 History of Canadian Trade • The Pacific Rim • After WWII, Japan lay in ruins and had no choice but to re-industrialize. • American aid helped rebuild factories and provided Japan with a new and modern manufacturing base. • Japan then aggressively engaged in international trade

  29. 1.2 History of Canadian Trade • Japan’s first entries into the N.A. market in the 1950s were novelties, cheap toys and electronics. • “Made in Japan” came to mean “cheap” • The Totsuka Company began changing this image in the mid-1950s • Japan’s reputation today is first class in every field. They have led other Pac Rim nations into international trade and strong relationships with Canada.

  30. 1.2 History of Canadian Trade The Sony (Totsuka) TR-55 introduced in 1955.

  31. 1.2 History of Canadian Trade • Mexico and the Americas • Canada signed the North American Free Trade Agreement (NAFTA) in 1993 • NAFTA is supposed to eliminate all tariff barriers between Mexico, the U.S. and Canada by 2008. • Trade between Canada and Mexico increased significantly after NAFTA

  32. 1.2 History of Canadian Trade • NAFTA According to figures of the International Monetary Fund, total trade among the three NAFTA countries has more than doubled, passing from US$306 billion in 1993 to almost US$621 billion in 2002. That’s US$1.2 million every minute!

  33. 1.2 History of Canadian Trade • NAFTA From 1993 to 2002: • Canada’s exports to its NAFTA partners increased by 87 percent in value. Exports to the United States grew from US$113.6 billion to US$213.9 billion, while exports to Mexico reached US$1.6 billion. • US exports to Canada and Mexico grew from US$147.7 billion (US$51.1 billion to Mexico and US$96.5 billion to Canada) to US$260.2 billion (US$107.2 and US$152.9 billion, respectively). • Mexican exports to the US grew by an outstanding 234 percent, reaching US$136.1 billion. Exports to Canada also grew substantially from US$2.9 to US$8.8 billion, an increase of almost 203 percent.

  34. 1.2 History of Canadian Trade • In 1994, partly due to the success of NAFTA, negotiations to develop the Free Trade Area of the Americas (FTAA) were begun in Miami. • Canada played a key role in the negotiations – the U.S. had too many political issues to get heavily involved. • This involvement may offer new opportunities for Canadian businesses.

  35. 1.3 Canada’s Economic Identity • Changes • Historically, Canada traded its raw materials (also called primary resources) and purchased semi-manufactured or finished goods. • Canada’s economic identity was summed up in the phrase: “hewers of wood, drawers of water”. • Industries based on primary resources are capital intensive and not labour intensive, so when we traded with countries that had an abundance of cheap, skilled labour, this model worked well for us.

  36. 1.3 Canada’s Economic Identity • However, in the past 30 years or so:

  37. 1.3 Canada’s Economic Identity • The extraction of natural resources is no longer an unskilled, low-tech task. • Wages are ever increasing in order to attract skilled and knowledgeable workers. • Canada’s trade in services and knowledge-intensive activities (i.e., mechanics, doctors, engineers, accountants, etc.) is also a growing sector.

  38. 1.3 Canada’s Economic Identity • Canada’s major industries: • Primary Industries • Manufacturing • Services

  39. 1.3 Canada’s Economic Identity • Primary Industries • Also called “extractive industries” • Take raw materials from nature, process them slightly, and re-sell them to other businesses – i.e., wheat farming • The major primary industries in Canada are: agriculture, fishing and trapping, forestry and logging, and energy and mining.

  40. 1.3 Canada’s Economic Identity • Manufacturing • These industries include the processing and fabrication sectors of our economy. • A manufactured good is one which does not require further processing. • Major areas of manufacturing include: processed food, beverages, rubber, plastic, leather, textiles, wood, furniture and fixtures, paper, printing and publishing, primary metals, fabricated metals, machinery, transportation, electrical and electronics, non-metallic minerals, petroleum and coal, chemicals, as well as others.

  41. 1.3 Canada’s Economic Identity • Services • Strictly speaking, by definition, these industries do not sell tangible items. They provide intangibles such as cleaning, accommodation, and entertainment. • Services are also activities performed by experts: doctors, engineers, architects, builders, chefs • Yet another growing area is consulting services – Canadians are strong in communication, construction and energy • Major service industries in Canada include: commercial services, travel, transportation, government

  42. 1.4 Advantages / Disadvantages • Advantages of International Trade • Trade creates jobs, attracts investment, attracts new technology and materials, and offers Canadians a wider choice in products and services. • This in turn creates more competition, encourages competitive pricing, furthers technological advances and improved services

  43. 1.4 Advantages / Disadvantages • Advantages of International Trade • Meeting Our Needs • We trade our surplus for items we need or want • Job Creation • 1 out of every 3 jobs in Canada depends on exports • More than 40% of our National GDP is exported • More than 50% of Ontario’s GDP is exported • $1 Billion in exports = 6000 jobs for Canadians • Attracting Investment • Investment follows trade • This investment also creates further jobs

  44. 1.4 Advantages / Disadvantages • Advantages of International Trade • New Technology and Materials • The development of new technology for powered by the drive for competitiveness • Better, Faster, Cheaper = More Competitive Product • Diversity of Products/Services • Global competition produces more variety, lower prices, better quality, and more functional designs.

  45. 1.4 Advantages / Disadvantages • Disadvantages of International Trade • Support of Non-Democratic Systems • When decision makers do not consider the general well-being of the population, great hardship is ceated • Cultural Identity Issues • Coca-Cola, McDonald’s, Nike, and Microsoft all sell products that symbolize American values and reflect American corporate culture. • Consumers around the world are often overwhelmed by American values and lifestyles as promoted in their products

  46. 1.4 Advantages / Disadvantages • Disadvantages of International Trade • Social Welfare Issues • Safety standards, minimum wages, workers’ compensation, and health benefits are not maintained to the same standards around the world. • Purchasing cheaper products from countries with lower standards simply perpetuates the problem. • Environmental Issues • Pollution controls, recycling laws and emission controls are expensive to businesses. • Some countries may not support such long-term vision and can sell products cheaper

  47. 1.4 Advantages / Disadvantages • Disadvantages of International Trade • Political Issues • Many thousands of people have been killed or put through incredible hardship over the control of natural resources such as oil, minerals (diamonds), and farmlands. • Trade, in these instances, only brings profits to those in control and does nothing to contribute to the welfare of the people in the trading nation.

  48. 1.5 Barriers to Global Trade • Tariffs • Taxes imposed by governments on goods and services coming into the country (imports) • Protect local businesses from low-priced imports • Currency Fluctuations • Investment Regulations • Investment Canada Act (ICA) “provides for the review of significant investments in Canada by non-Canadians in order to ensure such benefit to Canada • Acquisitions or investments by non-Canadian investors will be reviewed of the investor is not a member of the World Trade Organization if the investment is over $5 million

  49. 1.5 Barriers to Global Trade • Investment Regulations • Any direct investment in excess of $223 million is reviewable • If an investment involves the acquisition of a company which produces uranium or owns an interest in a uranium property, or engages in financial services, transportation, or culture and is worth over $5 million, a review must take place. • Environmental Restrictions • Canada protects its environment with a number of regulations. • Products that do not meet Canadian environmental standards are not allowed to enter Canada

  50. 1.5 Barriers to Global Trade • Foreign Relations and Trade Sanctions • Sanctions are used to influence the policies or actions of other nations – human rights abuses, war, revolution, terrorism, smuggling, slavery • The Special Economic Measures Act (SEMA), the Export and Import Permits Act, and the Unites Nations Act are the laws in Canada which can be used to impose trade and economic sanctions • Safety Regulations • The laws and regulations of Canada exist to protect Canadians. • Each Act affects both domestic companies and foreign imports