Synth

How Economic Power Has Shifted Over Time

The U.S. Rise to Power

During World War I, the United States overtook Britain as the world’s top industrial power. By the end of World War II, it controlled half of the global economy, with Pennsylvania alone producing more steel than Germany and Japan combined. However, this dominance didn’t last forever.

China’s Rise to Manufacturing Superpower

Fast forward to today, and China has become the world’s manufacturing giant. In 2024, China had a record trade surplus of $990 billion—far surpassing Germany, the previous leader. While the U.S. focused on financial markets and outsourcing jobs, China invested heavily in advanced manufacturing, particularly in semiconductors (chips used in electronics). As a result, the U.S. manufacturing sector has struggled to keep up.

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The U.S. and Canada’s Manufacturing Decline

America’s Deindustrialization Problem

Since the late 1990s, the U.S. has lost 5 million manufacturing jobs and seen a 21% decline in manufacturing firms. Three key reasons for this include: 1. Free Trade Without Protections – Agreements like NAFTA and China joining the World Trade Organization (WTO) led to many jobs moving overseas. 2. Neglecting Key Industries – The U.S. used to produce 37% of the world’s semiconductors in 1990 but now makes only 12%. 3. Skills Gap – Many jobs in modern manufacturing require technical skills that the American workforce lacks.

Canada’s Overreliance on Natural Resources

Canada once had a strong manufacturing sector, but today it contributes just 10% to the economy, compared to 28% in 1970. Instead, Canada has focused on exporting oil and natural gas, which now make up 22% of its total trade. While this has helped the economy, it also creates risks: • Energy Dependence – Without oil and gas exports, Canada’s trade deficit would be much larger. • Lack of Innovation – Canada invests less in research and development than other major economies, making it dependent on U.S. technology.

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Trump’s Tariffs: Fixing the Problem or Making It Worse?

The New Tariff Strategy

In his second term, Trump is expected to impose a 25% tariff on $1.2 trillion worth of imports, including goods from China, Mexico, Canada, and the EU. The goal is to shrink the trade deficit with China and bring back manufacturing jobs, but there are risks: • Higher Costs – Tariffs are expected to raise consumer prices and cost the average U.S. household over $1,000 per year. • Job Losses – The plan could result in 223,000 job losses, particularly in industries reliant on global supply chains. • Limited Impact on Manufacturing – While some jobs may return, the U.S. still faces challenges in areas like semiconductor production, energy costs, and wages.

Barriers to Reshoring (Bringing Manufacturing Back)

Even with massive investments in bringing manufacturing back to the U.S., several challenges remain: 1. Semiconductors – Despite government efforts, the U.S. will still lag behind Taiwan in advanced chip production. 2. Energy Policy – Trump’s push for energy exports conflicts with manufacturing needs, which require stable domestic energy supplies. 3. Labour Costs – American wages are far higher than those in Mexico, making nearshoring (moving production to nearby countries) a more likely outcome than full reshoring. 4. Trade Wars – Countries like China are retaliating with tariffs of their own, making trade disputes even more complicated.

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Canada’s Tough Position Between the U.S. and China

Caught in the Middle

Canada trades heavily with both the U.S. ($1 trillion in annual trade) and China ($74 billion in 2024), but tensions between these two superpowers put Canada in a tough spot: • The U.S. is pressuring Canada to cut ties with China, especially in areas like 5G networks and energy. • China, in response, is using economic pressure—such as investigating Canadian tariffs on electric vehicles—to maintain influence.

The Energy Factor

Canada’s vast oil reserves make it important to U.S. energy security, but also a potential target for economic and political integration. The Trump administration’s plan to impose a 25% tariff on Canadian goods (excluding oil and gas) is a strategic move to push Canada further into America’s economic orbit.

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Could Canada Become Part of the U.S.?

Trump’s Annexation Idea

Trump has repeatedly suggested that Canada—or at least parts of it—should become the 51st U.S. state. Legally, this would require: 1. Approval from U.S. Congress – A simple majority in the House of Representatives and a 60% supermajority in the Senate. 2. Consent from Canadian Provinces – Some provinces, like Alberta, may be open to the idea, while others, like Québec, would strongly oppose it.

What Would Happen If Canada (or Alberta) Joined the U.S.?

If Alberta were absorbed into the U.S., it would: • Strengthen U.S. Energy Independence – Alberta’s oil production could reduce U.S. reliance on foreign oil. • Weaken Canada’s Economy – Losing Alberta would strip Canada of 18% of its federal revenue, potentially triggering separatist movements in Québec and British Columbia. • Boost China’s Influence Elsewhere – If the U.S. took Alberta, China might increase its investments in Canada’s Arctic regions, especially in mining and rare earth minerals.

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What’s Next for Canada and the U.S.?

The global economy is changing rapidly, with China’s dominance, America’s struggle to bring back manufacturing, and Canada’s uncertain economic future. Trump’s tariff strategy may reduce America’s trade deficit, but it won’t fully close the gap with China.

For Canada, the choices are becoming increasingly limited: it can deepen its ties with the U.S., build stronger relationships with China, or try to become more independent. Without major investments in technology and new industries, Canada risks being caught between two superpowers—unable to fully control its own future.