Renegade: "Actually, you should think about it in another way. Canada is better off exporting more, since we really don't need those resources, or else we obviously wouldn't be exporting them."
Exactly. A great reason to export what you have lots of is to import what you don't have much of. Economics 101.
"On the other hand, the US obviously does need those very same resources, or else they wouldn't be buying them.'
Yup. We export dollars we have lots of and import all sorts of "stuff" we have less of.
"Therefore, in a trade war, Canada has the advantage since there's more 'stuff' that the US needs that Canada has, and less stuff Canada needs that the US has. In other words, the US needs Canada more than Canada needs the US, giving us the advantage in a trade war."
Canada depends on the US to buy 85% (!) of its total exports, which are worth about 36% of GDP. It gets some 59% of its imports from the US. The US gets 17% of its imports from Canada, which absorbs about 23% of US exports; all US exports are worth less than 10% of US GDP. The Canadian economy is 1/12 the size of America's. Everybody in the world wants to sell to the the USA (and Canada). It's less clear that the world, which happily maintains a trade surplus with Canada, would be willing to buy over
six times what it already buys from Canada (Japan, Canada's second largest buyer, currently takes only 2% of Canadian exports). Let's get real here, folks.
"Then again, we shouldn't deceive ourselves into thinking either country would "win" a trade war."
Well of course. The juxtaposition of two world class economies along an extended border is a match made in heaven. The only way it could be better would be if Mexico had an economy as advanced as Canada's, which would make the US and Canada even richer.
BTW, the close integration of the two economies is yet another reason Renegade's initial claim is obviously wrong: the US economy couldn't be "in the crapper" without dragging the smaller Canadian economy down with it--an unfortunate side effect of an otherwise lucrative partnership.
"I'm forced to disagree with you here. It's a very foolish economic policy to borrow endlessly; it'll end up biting you in the rear end."
Renegade misunderstands me here. I don't advocate deficit spending; quite the opposite. I was just pointing out that an economy "in the crapper" can't support US-scale budget deficits, at least not at today's low-by-historical-standards interest rates. Continued deficits may well bring down the US economy in the future, but as we've seen from recent economic statistics, that hasn't happened yet.
"I also disagree that it takes a strong economy to support such huge deficits, since if the economy was truly strong, such borrowing wouldn't be necessary in the first place!"
Renegade is confusing politics with economics. Borrowing isn't "necessary" as he suggests, it's just a choice American politicians have made. They could just as well finance government spending through taxes, as Canada has since 1997, and take the political heat for it. If Canada's government
chose to lower taxes tomorrow and finance 20% of its spending through borrowing, would the Canadian economy suddenly be "in the crapper?"
"It's not so much that the lenders have great confidence in the future economy of the country, it's that there such a huge collateral to secure it!"
The US government's only "collateral" is its promise to repay its bonds; creditors don't get the pink slip to an aircraft carrier or the deed to the White House. The Treasury can only repay those bonds if the economy provides enough revenue to do so. Now creditors can use these bonds to buy "collateral" anywhere in the world, but only if sellers are themselves willing to accept these bonds, i.e. if they're confident of repayment. If Brazil, for example, were to default on its foreign debt, would its creditors suddenly own Rio?
"Also, perceived as being great does not necessarily translate well into reality, as SJ mentioned."
In today's modern financial markets I'm sure there are a number of ways to make money "betting" against the US economy. No doubt SJ and Renegade have already done so. Right?
"However, I do think I'd rather be in charge of the Canadian economy than the American. I think it has better prospects."
I hope to God that
nobody is
ever "in charge" of either economy. It didn't work for the Soviet Union and it wouldn't work for either Canada or the US.