International Trade Concepts

• Business involves manufacturing and/or selling goods and services to meet consumer needs and wants.
• A transaction is an exchange of value.
• Domestic business refers to transactions within a company's home country.
• International business involves transactions between multiple countries.
• Domestic market: a business's customers who live in the company's origin country.
• Foreign market: a business's customers who live outside the company's home country.

Ways for a Business to Be Considered International

• Owning a retail or distribution outlet in another country.
• Owning a manufacturing plant in another country.
• Exporting to businesses in another country.
• Importing from businesses in another country.
• Investing in businesses in another country.
• Trading partners are countries that have a trading relationship with each other.

Trade Examples

• Trade with Japan began after WW2; Japan quickly became known for high-quality electronics and automobiles.
• China has recently become a major trading partner with Canada.
• NAFTA (North American Free Trade Agreement) in 1993 led to trade development with Mexico, and goods made in the USA and Mexico entered Canada duty-free.
• Since 2000, Mexico has remained one of the top 5 trading partners for Canada.
• The Middle East is known for crude oil, but trade is difficult due to political instability, corruption, and lack of industrialization.
• UAE, Israel, and Egypt have established trade partnerships that do not depend on oil.
• India has a generally young, well-educated workforce and is a major outsourcing center for Canada but trading is risky due to infrastructure issues; Indian markets are expanding internationally.
• Africa sees low imports from Canada; business opportunities are limited due to unstable governments, lack of infrastructure, and rural economies; Morocco and South Africa are emerging as trading partners.
• Imports are products or services coming into a country.
• Exports are products or services going out of a country.

Canada’s Top Exports

• Crude oil.
• Motor vehicles and parts.
• Metals, minerals, and related products.
• Forestry products.
• Consumer goods.
• Industrial machinery.
• Balance of trade: The difference between a country’s exports and imports.
• Trade surplus: Exports > Imports.
• Trade deficit: Exports < Imports.

Trade with Europe

• The EU is one of the largest economies in the world and Canada's 2nd largest trading partner after the USA.
• In 2017, Canada signed CETA (Comprehensive and Economic Trade Agreement).
• CETA removed 98% of duties/taxes on goods exported and imported between the EU and Canada.

Trade with Japan

• Japan is the 2nd largest trading partner in Asia, after China.
• Japan is known for high-quality electronics, automobiles, and tech equipment.
• They have highly skilled workers, excellent infrastructure, and low corruption.
• Canada exports mineral fuels and oils, minerals, agricultural products, and forest products to Japan.
• Canada imports vehicles, machinery and equipment, and scientific and precision equipment from Japan.

Trade with China

• China is the largest trading partner in Asia.
• China has cheap and abundant labor.
• Two-thirds of China’s exports are from factories owned by foreign investors.
• (CNOOC) China National Offshore Oil Corporation purchased Calgary-based Nexen in 2012 for $15.1B.

Trade with South Korea

• South Korea has recently become a more significant trading partner to Canada.
• The Canada-South Korea Free Trade Agreement (CKFTA) is the first trade agreement in Asia.
• They have a skilled workforce.
• Canada exports mineral oils, pulp and paper, and meat products to South Korea.
• Canada imports motor vehicles and parts, equipment, and iron and steel products from South Korea.
• Hyundai's past attempt to come to Canada failed due to communication difficulties (South Koreans not speaking French) and expensive parts due to a weak Canadian dollar.

Trade with India

• India is a hub for outsourcing and manufacturing.
• They have a lucrative domestic market and a young, well-educated workforce.
• A trade agreement has been in discussion since 2010 but never finalized: Comprehensive Economic Partnership Agreement (CEPA).
• India lacks a strong rule of law, and working with the government can be challenging.

Trade with Mexico

• Mexico is one of the top 5 trading partners due to the CUSMA Canada-U.S.-Mexico Agreement, previously known as NAFTA.
• A duty is a tax most countries place on goods going into a country to make the price of domestic goods competitive; duties increase the price of foreign imports.
• Increasing trade deficit with Mexico.

Trade with Brazil

• Brazil is the most important South American economy for Canadian companies.
• Top export market in the continent for Canadian businesses.
• Since 2018, Canada has been in negotiations for a free trade agreement with the Mercosur trading bloc (Argentina, Brazil, Paraguay, and Uruguay).

Trade with Venezuela

• Canadian companies ceased operations due to the Venezuelan economy.
• Venezuela has the world's largest oil reserves.
• Because Venezuela is in a recession and its economy shattered it is hard to trade with them.
• Low oil prices in 2015-2017, high inflation.
• When political and economic stability return to Venezuela, business operations will most likely resume.

Trade with Chile

• The Canadian Chile Free Trade Agreement (CCFTA) has been in place since 1997.
• Chile is the largest exporter of copper.
• Canada exports mineral fuels, cereals, machinery and equipment, and fats/oils to Chile.
• Canada imports copper, fruits/nuts, seafood, beverages, and precious stones/metals from Chile.

Trade with Columbia

• (CCoFTA) Canada-Columbia free trade agreement since 2011.
• Although Columbia went through a civil world, its economy is on the rise.
• Canada exports wheat cereals, fertilizers, vegetables, machinery, and paper products.
• Canada imports energy products and coffee.

Trade with the Middle East

• Emerging products and countries for trade.
• Restrictions include desert environment, lack of industrialization, political instability, and volatile oil markets.
• Organization of the Petroleum Exporting Countries (OPEC): Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
• OPEC lost primary control of all oil supply due to competition from outside of OPEC countries such as Canada’s oil sands and the USA shale industry.

Trade with Saudi Arabia

• In 2015, Saudi allowed foreign investments by large international companies for the 1st time.

Trade with UAE

• In the 21st century, real estate, tourism, and finance are emerging.
• Stable political economy, strong relationship with Canada.
• Canadian companies have been successful in many sectors: oil and gas, infrastructure, and information technology.

Trade with Israel

• (CIFTA) The Canada-Israel Free Trade Agreement, in 1997, modernized in 2019.
• Canada exports nuclear reactors, boilers, machinery and mechanical appliances, and electrical or electronic machinery and equipment to Israel.
• Canada imports medicine, diamonds, engines, and shoes from Israel.

Trade with Africa

• Abundance of resources.
• Unstable or corrupt governments, social, health, economic issues, infrastructure problems, and scarce industries.
• Natural resources curse: a country prioritizes one industry over all the other ones, neglecting all the others.
• Paradox of plenty: uneven distribution of wealth from natural resource income due to mismanagement.
• South Africa and Morocco are the 2 countries beginning to emerge into significant international relations.

Trade with South Africa

• A resource-rich country with opportunities.
• Mining, power, infrastructure, rail, aerospace, agriculture, and light manufacturing.
• A gateway for Canada to enter other countries in Africa.

Advantages of International Trade

• Variety of products: An assortment of products, styles, prices, etc.
• Lower prices: Lower labor and production costs in some countries.
• New Markets: Entering markets with greater populations.
• Cultural developments: Fosters the exchange of cultural ideas between countries and promotes diversity.
• More Jobs: Expanding into foreign markets creates more jobs.
• Foreign investments: Non-Canadians can invest in Canadian businesses.
• Foreign Direct Investments (FDI): To control some or all of business operations.
• Portfolio Investments: purchasing stocks, bonds, and other financial instruments issued by Canadian firms.
• The Investment Canada Act: Created in the 1980s to review significant investments in Canada by non-Canadians.
• Encourages investment, economic growth, and employment opportunities in Canada.
• New processes & technologies: Canadian businesses can research other firms around the world.
• Domestic companies partnering with international companies create new clientele, suppliers, creditors, and distributors.
• The ability to process transactions around the world made the whole world into one market, encouraging corporations to expand into remote parts of the world.

Canada and the Auto Industry

• In the 1900s, the 1st large-scale Canadian production of automobiles occurred in the Walkerville Wagon Works factory, growing to be one of the largest in the world.
• In 1970, the global auto industry altered rapidly.
• The global oil crisis.
• Rise of Japan as a major automotive producer.
• Remains the largest sector in Canada’s economy.

Disadvantages of International Trade

• Loss of culture and identity: Influence of particularly American culture changes the cultural landscape, such as American movies/TV shows.
• The (CRTC) Canadian Radio Telecommunications Commission regulates the amount of Canadian program content on broadcasting systems in Canada.
• 35% of all music aired on Canadian radio must have Canadian content.
• To qualify for the rules they must comply with 2/4 MAPL rules (adopted in 1971). Increased foreign ownership of Companies in Canada
• FDI is 30x greater than it was in 1950.
• Only less than 1 % of the 1.3 million corporations in Canada are foreign-owned 1% equates to 30 % of Canada business revenue, 12% of all employment, 15% of GDP.
• Job loss can occur when branch plants close.
• Revenue leaves Canada to pay head office staff based in their home country.
• Research and development (R&D) challenges: R&D is essential to the growth of the manufacturing firm.
• Efficientcy and increased profitability of a service business. Ex.Automotive innovation fund AIF
• Reduced exports: Canadian foreign-owned businesses do not benefit from exporting.
• Exports are the mandate of the parent firm located outside of Canada.
• Economic destabilization: Canadians rely on foreign businesses.
• Major changes in the global markets severely affect the Canadian economy.