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Regional effects of Canadian protectionism and its influence on the relative trade positions of British Columbia and Eastern Canada

University of British Columbia

The tariff barrier protecting secondary manufacturing in Eastern Canada depresses the relative trade position of British Columbia. This situation arises, in part, from the industrial character in the latter region. The abundant natural resources and the production level well beyond Canadian demand guides the major portion of British Columbia products into foreign markets. These markets, therefore, are an important source of income for British Columbia. However, the archaic tariff system in Canada, along with the manufacturers' sales tax and various excise taxes, restricts the flow of foreign imports into British Columbia and, in turn, enhances the inflow of high-priced merchandise from Eastern Canada. In this way, the real income position of British Columbia residents is curtailed. By constructing the terms of trade for both regions from 1948-1965, it was possible to elucidate further effects of the tariff on British Columbia. For instance, the Net Barter Terms of Trade (export-import price ratio) was found to be more favorable for Eastern Canada when the Canadian dollar appreciated in the 1950's. This condition resulted from the superior buying power of the Eastern Canadian dollar relative to the British Columbian dollar, since the latter region was compelled by the tariff to continue purchasing secondaries in Eastern Canada where no direct exchange rate benefits could be realized. As a test of the relative buying powers of British Columbia and Eastern Canada, the Income Terms of Trade were constructed. This index, by combining import-export price movements with export volume changes, attempts to measure the regional import capacity. It was found to be more favorable for British Columbia over the 18 year period, but as an indicator of the real relative import capacity it was a poor index indeed. Because of the superior buying power of Eastern Canadian dollars in the 50's and the relatively low tariffs on primary manufacturers, the import quantity indexes turned out almost identical over the test period. On a positive note, the recent Kennedy Round of tariff reductions on machinery promises to lower costs in many British Columbia industries, whether or not this will increase the international competitiveness of her products remains to be seen, since they were selling well pre-Kennedy. Nevertheless, the duty reductions constitute a step in the right direction towards more liberal trade policies in Canada.

Text

2011-06-14

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http://hdl.handle.net/2429/35437

Business Administration

University of British Columbia

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