Question

SCENARIO BACKGROUND:
The controversy surrounding the European Union, as well as the recent increase in tension between the U.S. and Canada leaders, prompted many American analysts and politicians to weigh pros and cons and predict likely economic of closer integration in North America.

While most agree a US-Mexico union would have outweighing negative consequences for the US at this stage, primarily because of the great economic, political, societal and cultural differences between the countries, there is no consensus on the likely outcomes of a US-Canada union. Opinions range from “it would be a great economic success” to “it would ruin economies of both countries”.

The President and his administration do not see a US-Canada union as a likely scenario for the nearest future, but the government strategies have to consider and be prepared for any scenario, no matter how unlikely it may seem.

As a person knowledgeable in the area of the effects of government interventions in trade and regional integration, you are one of many experts invited by the Strategy Division of the Presidential Advisory Board to provide your visions on the likely consequences of a US-Canada Union. The scenario is planned for an economic union (common currency, taxes, laws and regulations, economic and foreign trade policies, unrestricted within-union trade and employment, central parliament, etc.) though a possibility of a political union is also considered.

The task is to predict the likely consequences of such a union, the two countries essentially becoming one, on public opinion, prices, internal and external trade, employment, investments, revenues and consumption. It is made very clear that your opinion must be rooted in existing economic theory covered in MGT 301. There are five questions (see template on the next page): If the US and Canada were to become one country, how would that likely affect the following domains of life?

Note: Please keep in mind that even though Canada and the U.S. are currently in a free-trade zone, there are many administrative, monetary, and political barriers to trade. For example, the traders must deal with the uncertainties and costs of currency exchange, the need to do separate certification in each territory, differences in taxes and other issues. So the trade between, for example, Montana and Alberta is still much harder than, for example, between North Carolina and Virginia.

The proposed scenario assumes a political union and removal of all trade barriers.

Note: The questions are about the changes in what today is the U.S. (will it affect the variety of products, prices, wages, unemployment and so far in the U.S. part of the new country).
However, the assumption is that the effect will be the same for both parts of the new country. If you believe that the effect will be different, you can explain it, though such differentiation is not required.

1. Likely public opinion about the U.S.-Canada become one country?

Group of answer choices

Negative in both countries

Positive in Canada but negative in the U.S.

Positive in the U.S. but negative in Canada

Positive in both countries

2. Explain your prediction for the public support:

3. 5%, Trade Volume)

If Canada and the U.S. became one country (one currency, one president, one parliament, one army), how would that affect the trade volume between these territories? If you believe trade volume will change, explain why and list specific factors that will bring out that change.

Group of answer choices

Increase

Remain the same

Decline

4. Please explain the mechanism that will increase/decrease the trade volume

Answer 1

1.Positive in Canada but negative in US.\

2. Since the US is the largest economy in the world with one of the biggest markets and high purchasing power, it is much attractive to Canadian companies whereas Canada does not offer as big of a market like US.Therefore, the incentive is not there for Americans much to invest in the Canadian market as it is for Canadians to invest in American markets.

3. Increase since they will become one market with fewer barriers to trade as before. Having one currency will also reduce the costs of transitions as well as compliance costs.Trade will also increase due to easy access to each other markets.

4. The mechanisms that will increase the trade volumes are removal of entry barriers, single currency, removal of tariffs and trade restriction, access to more resources etc. and the mechanisms which will decrease trade are changes in technology, different market requirements, consumer preferences which are different, Low growth markets etc.