Everything You Need to Know about the Economies of Canada and America

There is no denial of the fact that the world economy has been constantly facing ups and downs. After the end of the Second World War, and the inception of two superpowers, the world has been witnessing drastic change in global economy. This blog compares the economies of America and Canada to provide relevant insights.

Canada is the seventh-largest economy of the world. Most of the businesses of the country are privately-owned. The government plays a major role in the health care system of the country and looks after services that include transportation and utility companies.

There are many things in common between the economy of Canadian and American. The foundation of the Canadian economy is foreign trade and the United States is by far the nation’s largest trade partner. According to studies, 45% of the country’s economy is derived from the Gross Domestic Product (GDP).  Apart from that, there are different small scale businesses that play a major role in the economy of Canada.

The Canadian economy decelerated at the end of 2018. The GDP of the country was immensely affected. In December 2018, the ISM manufacturing index posted its steepest monthly decline in a decade. Growth in Canada was slow due to multiple headwinds, notably fading fiscal stimulus and lower global growth, while additional rate hikes could also weigh on momentum.

According to many Economists, Americans have high level of disposable income. Similarly, Canada also gets most of the revenue from the disposable income and earns a considerable amount of revenue from advertisement and media.

Despite facing challenges at the domestic level after the decline of the Soviet Union, America remained in the hegemonic position throughout these years, getting maximum revenue from the gross domestic product. The U.S economy represents 20% of the world’s economy. According to IMF, The U.S. has the 6^th highest per capita GDP (PPP). The U.S. economy is currently facing multiple issues that include low-income rate, widespread mortgage lending, excessive risk taking in financial sectors, etc. The trade war with China remains a key downside risk, while a large fiscal deficit and high levels of personal and corporate debt present added vulnerabilities.

Thus, it can be said that Canada and America have similar Economic conditions more or less. Read on to know the condition of international trades in both the countries.

International Trade of America and Canada

There are very few places in Canada that illustrate the importance of trade and innovation vividly. Historically, people living on the Prairies were dependent upon the export of grain, potassium, and other oils outside the Canadian border. Furthermore, they also imported a number of products starting from toothpaste to T-shirts. In recent years, the scenario of trade in Canada has witnessed a number of changes. There has been changing trends in the formation of global trade chain. With the emergence of Information and Communication Technologies (ICTs), the condition of the international trade has improved and changed the traditional form. A particularly important trend has been the emergence of global value chains with various ways and stages of productions.

Thus, in the world of GVCs, trade restrictions have become much easier. Furthermore, it has a positive effect on the economy of Canada. Canada’s experience with the 1965 Auto Pact, the 1988 Free Trade Agreement with the United States and the 1994 North American Free Trade Agreement (NAFTA) are good examples of the economic impact of lowering trade barriers. The international trade is the only way to keep the economy of Canada booming.

However, in America, the scenario is a bit different. Due to the massive size of the American economy, the country has a significant impact on global trade. While the American economy is expanding, it can prompt growth in other nations as well. There are other theories related to it. Many of the economists believe that when the U.S. economy contracts, initiating a parallel decline in other countries. The United States keeps the prices low and meet consumer demand because of the development of international trade. According to reports, imports have resulted in a record $447 billion trade deficit, but foreign investment in the country has underwritten this deficit and provided new capital for the economy to expand.

Debt to GDP Ratio of America and Canada

Before analysing the condition of America and Canada, it is essential to know the definition. The ratio of the country’s public debt to its gross domestic product is the exact definition of Debt to GDP. The ‘debt-to-GDP ratio’ is about understanding the ability to pay back the overdue. The ratio is also analysed to find out the number of years the country needs to pay back the amount of debts calculated.

According to reports, the United States had a debt-to-GDP ratio of 104.17% in the year 2015. In 2017 the ratio escalated to 105.4%. The reports of U.S Bureau of Public Debts showed that the U.S. experienced its debt ratio highest in 1946. In Post-World War II there was a drastic change in the debt-to-GDP report. In the recent years, the debt-to-GDP ratio of U.S has decreased to 40%.

According to reports revealed in Reuters.com, the fiscal year 2017/18 Canada recorded a government debt equivalent to 89.60%. It may have adverse effect on the economy. However, the ratio of GDP is high in Canada. Therefore, Canada manages to come out of the debt every year. The fiscal expenditure of the country is also under control.

Population Below Poverty Line in Canada and America

In Canada, the population rate below poverty line is 9.4%, Poverty head count ratio at $1.90 a day. 1 in 7 (or 4.9 million) people in Canada live in poverty. Poverty in Canada remains prevalent in certain section of the society. The percentage remained the same throughout 2008-2018. It shows that the economic growth of Canada remained restricted among the privileged people. The population rate below the poverty line remained the same in Canada.

In USA, the recent estimation reveals 13.5% of the total population lives below poverty line. The recent census data of America shows that half of the population qualifies as poor or low income individuals. According to many reports in 2011, the child poverty of the U.S reached up to 35%. According to a report of 2013 by UNICEF, the USA had the second highest rate of child poverty among the developed nations. Low-income teenagers are often forced to join various illegal gangs for money. Therefore, the crime rate is also high.

Difference between Budget Allocations in America and Canada

According to the government fiscal report of America, the Federal budget will be $4.407 trillion. The U.S government estimates it will receive $3.422 trillion in revenue. The U.S treasury divides all federal spending into three groups: Mandatory spending, discretionary spending and interest on debt. The spending of all three groups is merged to set the federal budget of America. The budget fluctuates from one year to another. The budget allocation depends on the debt-to-GDP ratio. Apart from that, there is another section known as the Tax Code where the U.S. had to spend a considerable amount of its budget.

In Canada, the expenditure is calculated according to the ratio of GDP. Apart from the common areas of expenditure, Canada allocates an amount of $8.48 billion in defense and additional $1.8 billion in provincial and territorial skills training program. Therefore, the budget allocation of Canada and its segregation is different from America.

Impact of Inflation Rate on the Economies of America and Canada

The annual inflation rate of Canada in 2018 was 2.0%. According to the data of recent years, the annual inflation rate of January 2019 is 1.4%. It was 2.6% in October 2018. The inflation rate in Canada keeps fluctuating. Year-on-year, the inflation rate of transportation, cost of gasoline, food, household operations, etc. keep on fluctuating. Therefore, it always has an adverse effect on the economy of Canada. Due to the inflation rate, the country faces issues with the economic development and struggles to attain stability.

In America, the inflation rate responds to each phase of the business cycle. The first phase is known as expansion where the inflation rate remains 1%. However, in the entire fiscal year, the inflation rate in America keeps fluctuating from 1%-3% which is pretty high. Gas, food, and oil have the highest inflation rate in America.

Unemployment Rate in Canada and America

According to the latest data, the unemployment rate in America is 3.8% in 2019. According to the Economists, America witnessed a fall in the unemployment rate. This led to a good impact on the economy. Unemployment rate in the United States averaged 5.76% from 1948 consistently. The sudden decline has significantly benefitted the fiscal year 2019.

In Canada, the unemployment rate is higher than that of America. As per the latest report, the rate is 5.8% in February 2019. However, the rate is lower than the average, which is good for the economy of the country. In Canada, Ontario is the sole province with a notable employment gain. Apart from this, other provinces always witness a fluctuating employment rate.

Industrial Production Growth Rate in Canada and America

In October 2018, the Industrial production in Canada increased by 0.65%. The industrial production measures the output of businesses integrated with the industrial sector of the economy. The sectors include manufacturing, mining and utilities. Canada Industrial Product data revealed that some of the sectors had improved a lot with 2.33 production growth.  Also, many global chains have come up with a considerable amount of production.

America has been facing a booming production growth since 2017. According to the latest reports, the production rate in America has reached 5.7%. From the range of 3.45% in 2015, it has drastically improved in the next years. America has been dominating the World’s economy due to its impressive Industry production growth.

How Tourists and International Tourism Affect Economy

A good amount of revenue from the tourism industry is collected in America. Every year the turnover is about 7.8% of the whole economy. In America, the tourism industry provides a considerable amount of revenue and it makes the overall economic condition a flourishing one.

According to the UNWTO, Canada also has the fastest growing tourism industry. The yearly turnover is increasing day by day, with Canada becoming the Global tourism marketplace.

Here is an insight into Canada's tourism industry in 2013:

• Represented more of Canada’s GDP than agriculture, forestry and fisheries combined
• Generated $88.5 billion in economic activity
• The industry was responsible for more than $17.2 billion in export revenue despite a growing travel deficit
• Generated $9.6 billion in federal government revenue
• Fostered 628 000 jobs across the country, spread across all 308 ridings

Taxes, Revenue and Gross National Income of America and Canada

According to reports, the gross national income of both countries is fluctuating. As there is a difference between the unemployment rate of Canada and America, there is also a difference in the taxes revenue as well as the gross national income.

According to the American Economic Review, the gross national income of America is higher than in Canada. Automatically, the condition of tax and revenue and the percentage is also higher.

According to the information and statistical data provided in the blog, America is the world’s largest economy.

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