Prior to World War II, agriculture was the primary driver of the Canadian economy with over 60 percent of the population living in rural towns or farms. Canada had struggled to recover from the Great Depression, with Gross National Product falling by 43 percent and exports dropping by 50 percent between 1929 and 1933. By 1933, unemployment had risen to more than 25%.
World War II marked a major transformation in the Canadian economy. Manufacturing, mining and services grew rapidly to meet the demands of the war and agriculture production became more mechanised and efficient.
As a result, there was an upturn in industrial production and manufacturing in Canada. New jobs were also being created while industries benefitted from a highly trained and diversified labour force that had arisen during the war.
Today, the Canadian economy strongly resembles that of its neighbour to the south, the US. Besides having similar patterns of production and living standards, Canada has also adopted a market oriented economic system.
However unlike the US or most other advanced economies, Canada’s primary sector, namely the logging and oil industries, remains an important element to the economy. Canada’s manufacturing industry is also highly valued by the economy – the automobile industry for example attracts major investments from US and Japanese automobile companies with multiple manufacturing plants set up in Canada.
Canada’s economy also distinguishes itself from the US, whereby it is a net exporter of commodities while the US is a net importer. Furthermore, the Canadian banking industry is considered to be fairly conservative compared to that of the US.
Despite the differences, Canada’s economic progress is closely tied to that of the US. Following the signing of the 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA), trade and economic integration between both countries have increased significantly. The US is Canada’s largest foreign investor with heavy investments in mining, smelting, petroleum, chemicals and machinery. Often, Canadian economic policies have been adjusted in order to adapt to changes in the US economy. Historically, even a minor change in the US interest rates has had economic repercussions in Canada.
Although NAFTA dramatically improved trade between the US and Canada, disputes still remain pertaing to intellectual property rights, softwood lumber, beef, tomatoes and other agricultural products.
The US is Canada’s largest and most important trade partner. In 2009, 75.02 percent of Canadian exports were directed to the US, while 51.1 percent of imports came from the US.
Commodities dominate trade between the US and Canada. In agriculture, both countries are its counterpart’s largest export market – the US imports more than half of Canada’s food products while Canada imports nearly 20 percent of the US’s food product.