Foreign trade has always been a huge part of Canada's economy. It contributes to 40 or 50% of the country's total employment and income. Weather it be directly through trade goods or indirectly through transport and packaging companies. With these trade lines free of barriers. One of Canada's major trading partners is the United States of America. The U.S.A. receives close to 75% of all goods and services exported. On the other side of the coin, 70% of all of Canada's imports come from the U.S. If something was to happen to this trade route Canada, economically, would suffer immensely. Free trade was a concept set by the French physiocrats to outline principals in international trades, they assured that nations should specialize in producing and exporting goods that they were most efficient at manufacturing and import goods that they were less efficient in producing. This economic law would let all nations benefit if there were no barriers to the exchange of goods. Free trade established an agreement on general tariffs and trade between the two countries. The use of free trade between the United States and Canada has benefitted the Canadian economy.
Canada almost depends on the U.S. market for its trade. "Without the U.S. market, Canada would, as a trading nation, be in serious trouble." With 75% of all exports being sent their, Canada was at the mercy of U.S. tariff policies. When a new tariff was placed on an export, Canadians had little choice but to pay the new tax. If they refused to pay and try and sell their products elsewhere, they would have a difficult time. New transport costs would have to be added onto the already expensive goods and that would make it very uncompetitive on the foreign market. Early on Canada had a trade surplus with the U.S.. So to get back for the trade deficit the government would put heavy taxes on many imports. These tariffs increased until a 35% tax hike forced Canada to negotiate. On
January 1 1989 an agreement was made and free trade was finally set in place. This allowed Canadians to trade freely without the fear of tax hikes on their exports and imports.
As a result of free trade some people felt the economy was hurt. People feared that U.S. controlled firms operating in Canada escaping tariffs, would move back to the U.S.. This would allow the firm to produce their product cheaper and also give them the ability to export back to Canada duty free. This did eventually happen, but not to the degree everyone was expecting. But, the fact of the matter is, this another positive bonus for the Canadian economy. People tend to forget how much money is exchanged between the two countries. "When the U.S. is doing well economically then Canada will also do well.". If consumption is up in the U.S. because of the good economic times then Canada will step up and produce more to meet the needs of the Americans. That is why free trade has helped again. When the U.S. firms started up again it boosted their countries economy. By strengthening the U.S. market it has helped the Canadian one as well.
Also, according to Mark Carmel, a U.S. Immigration Lawyer, free trade has significantly expanded the list of acceptable business visitor activities for Canadians. He states that because of free trade, people employed in certain areas of the work force are able to conduct their business free of taxes. Such areas include people working in research and design, marketing, sales, distribution, after sales services, and growth/ manufacture and production. With a free trade system set up people like transportation operator delivering to the U.S. or loading and transporting back to Canada are able to function without operation taxes. "This dramatically helps the flow of trade goods cross from border to border.". Other business activities like sales are helped by allowing their representatives and agents taking orders or negotiating contracts for goods or services to run tax free. This makes buying and selling between the two countries easier. This shows how free trade has helped the flow of services directly as well as goods indirectly.
Canada's trade, income, and employment have all been helped by the introduction of free trade between the United States and Canada. By lifting the tariff barriers trade is free to function around the law of supply and demand. Whereas before trade could only happen if a firm could afford the tariffs. National income has been increased with the boosted U.S. economy. As they demand more to meet their needs we are their supply it, witch adds money to the circular flow. Finally, free trade allows business firms to venture out into the United States to conduct business without facing penalties. Thus, making their business more profitable, allowing them to invest in more and increase production. This increase in production requires more factors of production, such as labour. Free trade truly has contributed positively to the Canadian economy.