North America

Upstairs, Downstairs

With the US being a 17 trillion dollar economy, it can sometimes be easy to forget that both of its neighbours, Canada and Mexico, are in the trillion dollar club as well. Canada is the 10th largest economy in the world by nominal GDP and 17th by purchasing power parity (PPP)-adjusted GDP; Mexico is the 15th in the world by nominal GDP and 11th when adjusted for purchasing power parity. Outside of the US or EU, Canada and Mexico are already the two largest economies in the world within the same trade bloc. With continued decent GDP growth—both are expected to grow 2-3 percent in 2017—they may soon overtake more EU economies in size too:

trade bloc pairing comparisons

And yet, as the NAFTA renegotitation begins its second round of formal talks this week, the trade bloc shared by Canada and Mexico may to some extent now be on the chopping block. Not surprisingly, the two countries are now attemtping, diplomaticaly, to stand shoulder to shoulder with one another; to present a unified front to the US. But this can be hard to do, especially when those shoulders are separated by a few thousand km of US territory. It may be,  then, that the US will divide and conquer them (economically speaking) and get the best deal for itself.

Read the full article: Upstairs, Downstairs

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North America

Autonomous Cars, Semi-Autonomous Cars, and Toronto’s Railways to Nowhere

The City of Toronto has two “railways to nowhere”: the Sheppard subway and the Richmond Hill GO train.

The Sheppard Subway 

The Sheppard subway is 5.5 km long, has five stations, and connects to only one other rail line, the Yonge line. By comparison, the Yonge-University subway will soon be 38.8 km long (when the Vaughn extension begins operation), will have 38 stations, and will connect to many other rail lines, including the Bloor-Danforth subway, the Sheppard subway, 7 GO train lines (all at Union), and eventually also the Eglinton Crosstown.

The Bloor-Danforth subway is 26.2 km long, has 31 stations, and has connections with other rail lines at stations like Dundas West (the Union-Pearson Express train and the Kitchener GO train), Main Street (the Stoufville GO train and Lakeshore East GO train) and Kennedy (the Scarborough RT*, Stoufville GO train, Eglinton, and, if the City’s current transit plans are realized, the Scarborough subway tunnel).

TTC ridership.png

The Richmond Hill GO Train

Before the start of this year, the Richmond Hill GO train line was 34 km long and had five stations, three of which were located within the City of Toronto. With an extension to a new station, Gormley Station, having been opened in 2017, the line is now 42 km long, with six stations—but still only three in the City of Toronto. In contrast, the other six GO lines are between 50-103 km long (for an average of 69.6), have between 9-13 stations (for an average of 11.2), and have between 2-6 stations within Toronto (an average of 4).

go train ridership.png

Read more: Toronto Crow’s Advantage   (…apologies for some of the pictures being blurry and links being broken, I’ll try to fix them soon)

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North America

Demographics, Drivers, and Dreams

On The Future of the Canadian Auto Sector 

There is a profound difference between Canadians, Americans, and Chinese, both in their demographics and in their dreams.

In the US, the largest population group is 20-35 year olds. Many of these Americans will, in the years ahead, be looking to pursue the American Dream: to buy a home and start a family. Indeed, just like the Baby Boomers before them, many of these Millennial Americans have been moving to suburbs and buying SUVs. 

In Canada, in contrast, the largest group is 50-60 year olds. In the years ahead, many of these Canadians will be looking to cut back their work hours, or retire, or transition from manual labour to less physically strenuous jobs. Many will also pursue the Canadian Dream: having a cottage to host one’s grandchildren at.

In China, the largest group is 40-55 year olds. Most of this group works in physically demanding industrial or agricultural jobs. Most of them, particularly in China’s rural areas and inland provinces, still earn between 2-10 dollars a day. The Chinese Dream is to let these aging manual labourers transition to less strenuous work, while also bringing the country’s impoverished rural areas and inland provinces out of poverty.

Ontario’s Position

These demographic trends are not alien to the auto sector in Ontario. A city like Windsor is, in a certain sense, situated in a delicate borderland, between the vast American consumer market on the one hand, and the smaller domestic market of Canada but larger global market on the other hand. This is a risky, though often rewarding, position to be in. When successful, it has allowed Ontario to attract investment from global firms seeking a way to access to the American market without investing too much in the US directly. In the wake of the recent Valiant deal, such investment is increasingly expected to come from China.

Obviously, however, global firms cannot rely for certain on continued favourable access to the American market, regardless of whether or not these firms have investments just across the US-Canada border within Ontario. It is up to Ontario to determine to what extent it wants to orient its production around markets in the United States, and to what it extent it wants to focus on Canadian or global consumers instead.

Motor Vehicle Production

A Possible Divergence

This is where trends such as demographics become relevant. As a result of such trends, it may be the case that consumer demand in the United States will diverge sharply from that of countries like Canada and China in the years ahead. While Americans continue to buy cars and SUVs, in Canada and in global markets it may be instead that auto sector demand will become increasingly dominated by busses and by trucks:

1. The Supply of Drivers 

The global Baby Boomer bulge, of 50 and 60 year olds in the West and of 40 and 50 year olds in China, is likely to create the largest labour shift in human history: manual labourers transitioning to less strenuous work. In spite of what some politicians may claim, these labourers will not often be retrained to become software engineers. Nor will they all move into retail jobs at companies like Walmart, as out-of-work labourers have often done during the past generation. Too many of these retail jobs are being automated out of existence. Rather, the single biggest job these labourers are likely to switch to is driving a motor vehicle.

Not only is driving a bus, truck, or taxi something that can be done by a person who has, say, a bad back, it is also becoming far less strenuous than ever before, as a result of technological additions to modern vehicles. Driving large busses and trucks has been somewhat difficult in the past, particularly in tasks such as parking, turning, or driving on country roads during challenging weather conditions or in the dark of night. Modern vehicles, on the other hand, equipped with cameras, sensors, and high-tech safety features, are in the process of making the job of driving relatively comfortable and safe even for 60 or 70 year olds.

If the Baby Boomers create a glut of drivers globally, the costs of using trucks, busses, mini-busses, etc., will fall.

2.  The Night Moves

Of course, there has also been plenty of discussion in the media about the possibility of self-driving vehicles. If such vehicle actually do become commonplace anytime soon, they will have the largest impact on places and at times in which there is today a scarcity of human drivers. Namely, they will the largest impact on late-night driving (when human drivers are mostly asleep) and on areas such as, for example, Canada’s far northern regions, where — particularly during long, cold winter nights, or in snow storms, or on dangerous ice roads that require almost constant maintenence  — there are few human drivers around.

Autonomous capabilities would have a much greater impact on trucks than on cars, then; and in particular, on short trucks, where labour costs per unit of cargo are much higher than for heavy trucks or transporters. They would also have a greater impact on places with challenging geographies, such as Canada. And they would be especially useful for slow-moving overnight vehicles, like plows, de-icers, and pavers.

Trucks, finally, may experience the benefits of autonomous driving earlier or more than other vehicles  will as a result of government regulation. While governments may be hesitant to allow autonomous cars in general at first, they are far more likely to allow a truck driver to turn on an autonomous cruise control system late at night, when relatively few cars are on the road, so that he or she can get some sleep.

3. More Time, Less Money 

These two trends we have discussed thus far — demographics and automation — may also lead to a phenomenon in which Canadians’ free time will increase at a much faster pace than will their income levels. This could occur because of an aging Canadian worker entering into full or partial retirement, or it could occur because of a Canadian worker losing his or her job to a software system or machine. Either way, Canadians are likely to have more time to fill up their schedules with leisure activities — say, spending more time in cottage country — but will also have to economize on costs in order to afford them.

One way to economize on leisure spending would be to forgo car ownership (or at least, to share a car with a spouse instead of owning two cars per couple) and using transit more. Busses, for example, are slower than cars — as they often make stops to pick up and drop off passengers along their routes —  but also cheaper than cars, particularly once you factor in the cost of car ownership. If the cost of bus drivers declines (which, as we have discussed above, we think it will), busses would become cheaper still. As Canadians’ free time increases faster than Canadians’ incomes, busses might therefore see greater use.

4. The Transit Revolution 

Apart from their sometimes being slow compared to cars, another major reason many people do not use transit regularly is because of the “last-mile” problem: how to get from a transit station to one’s destination, without a car. Also problematic is the “first-mile” problem: how to get to the transit station if the station’s parking lot is full, or if you do not own a car.  Yet these “first-mile/last-mile” problems are likely to be solved—or at least, made far less problematic—in the near future, as a result of technological changes.

One technology to overcome the first-mile/last-mile challenge is that of services like UberPool, wherein passengers and drivers easily co-ordinate door-to-door carpools through their smartphones. This same system could be used by busses or mini-busses too, which would make the rides cheaper but also longer—see the More Time, Less Money section above. Systems like UberPool work best in markets that are “liquid”; i.e. big-city markets, where there lots of passengers and drivers around. The US, being highly suburban, may be less suited to this than Canada (where more people live in large cities) or most global markets.

Another way to overcome the “last-mile” challenge is via car-sharing services, such as Car2Go or Zipcar. These allow people to take a car from the transit station to reach their destination. Use of car-sharing services in Canada is growing. It may eventually make it easier for some people to forego car ownership entirely.

As services like car-sharing and ride-sharing advance, then, transit’s “first-mile/last-mile” problems may be overcome.

5. The Canadian Shield 

If transit really does become more common relative to car usage, it will in many places be dominated by rail transit. Similarly, railways will continue to transport more freight than trucks. Trains are, after all, more efficient than trucks and busses. They will remain more efficient even if the cost of hiring a bus or truck driver falls.

Where trucks and busses will be utilized most, then, is in locations where it is difficult for railways to function. We have already mentioned one location where railways are difficult: Canada’s far north, where permafrost impedes rail construction and maintenance, and ice roads are sometimes the only economical option.

Another region where railway construction is expensive is the Canadian Shield, the result of the Shield’s enormous size, exposed rock shelves and over-abundance of lake (the latter being proble  matic given that trains cannot easily make sharp turns to bypass them, as trucks can). If Canadians, armed with more free time than ever before, seek the Canadian Dream in the lakeside cottages of the Shield, they will have to rely on trucks to transport bulk necessities like food (as the Shield is not suitable for agriculture) and fuel.

Canadian Shield .png

Railways networks are also under-built in mountainous areas, as trains cannot handle either sharp turns or steep inclines well. Three of Canada’s four major cities — Vancouver, Montreal, and Calgary — are located a very short distance from mountains, in contrast to US population centres which tend to be located in spatious coastal plains or the even larger Midwestern/Central Plains. It might be expected that, as a result of having more free time to spare, Canadians will spend more time pursuing leisure activities in mountains.

Meanwhile, countries like China are now actively trying to develop their impoverished inland regions, many of which are mountainous and have relatively little access to either railways or to coastal shipping—and will therefore have to rely on trucks and busses for their transportation. Many other developing economies, in South Asia, Latin America, and Africa, are also mountainous and landlocked. The largest city in NAFTA, Mexico City, is the highest-elevation in the world among cities with at least four million residents. Still, it is China which is the king of highlands. China’s Tibetan Plateau and Himalayan region occupies roughly one-fifth of China’s landmass, and is similar to the Arctic in its permafrost risks, sparse population (it has less than one half of one percent of China’s population), low rail access, and resource wealh.

Conclusion — Canada and the World 

Canada typically has one foot in the American market and one foot in the Canadian and global markets. Canadians companies often wonder what trade regulations or barriers the Americans will insist upon, either for Canadian firms or for foreign-owned firms invested in industrial facilities within Canada. But if, also, markets diverge — if Americans continue to use conventional four-seater cars and SUVs and trains, while Canadians and global market players like China increasingly look to buy busses and trucks — then Canada’s auto sector could also have to answer a more basic Canadian question: just how American are we?

As usual, there are no easy answers here, only risks and rewards.

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Robots & Ontario’s Minimum Wage

Economists have long tried to identify “goldilocks wages”: ideal compromises in the tradeoff between higher minimum wages and higher rates of un(der)employment. This is, of course, far more than merely a theoretical pursuit. With an election coming up in Ontario next year, it is also one of the main issues likely to spill over from economics into politics. The province plans on raising its minimum wage, from $11.40 today to $14 in 2018 and $15 in 2019. Inevitably, this has raised questions as to whether or not it will lead to more jobs being outsourced or automated, if employers decide they cannot afford to pay the higher wages.

Thus far, most of the minimum wage studies that have been conducted have tended to ask questions such as:

  • How many jobs within the jurisdiction that is planning on raising its minimum wage are susceptible to outsourcing or automation?
  • How many workers within the jurisdiction that is planning on raising its minimum wage earn less than what the minimum wage will become?
  • How does the planned minimum wage compare to that of other nearby jurisdictions?
  • How migration-elastic are the jurisdiction’s labour markets (in other words, how likely is there to be an exodus of workers to other jurisdictions, if domestic minimum wages are not raised)?

One of the complicating factors these studies generally reveal is that conditions vary from place to place even within the same jurisdiction. In Ontario, for instance, there are obvious differences between Toronto and most of the other smaller cities and towns in the province. A smaller share of Toronto’s labour force earns less than $14 dollars per hour. A smaller share of Toronto’s labour force may have jobs susceptible to automation. Toronto’s labour force might also be more migration-elastic, given that the population of Toronto is relatively young. Young workers may be somewhat more willing to move to faraway markets like Western Canada or foreign markets like the US (or, linguistically, Quebec) if wages at home are too low.

The Night Moves 

There are many other variables that one could analyze as well when attempting to determine whether a given minimum wage is suitable. Due to current technological trends, two in particular may be worth discussing:

— the disparity between an economy’s manual labour costs and energy prices
— the disparity between an economy’s daytime energy prices and overnight energy prices

The former variable will help decide how likely an economy is to employ sophisticated machines—robots—to substitute for human labour. Robots tend to be energy-intensive, so an economy in which energy is cheap but labour is expensive will, generally speaking, be ripe for roboticization. Arguably, an example of such an economy is Quebec. Its manual labour costs are high because its population is older than the Canadian average, and much older than the US or global averages. Yet its electricity prices are among the lowest in North America. Ontario’s other neighbour, Manitoba, also has some of the cheapest electricity in North America.

The latter variable has the same implications. Because robots which replace manual labour generally consume a lot of energy, and because one of the main advantages of robots relative to human workers is that machines do not need to rest or sleep overnight, an economy in which the cost of energy overnight is cheap compared to the cost of daytime energy might be one in which roboticization will be likelier to occur.

Obviously this conversation remains a speculative one at the moment, since widespread roboticization has not yet occured. Still, it may be important to have it anyway, as it appears to have a special relevance for Ontario:

1) Energy/Labour

Ontario’s energy prices are very high by Canadian standards. They are more than double those of Quebec and Manitoba, for example. Yet Ontario’s energy remains roughly middle-of-the-pack when compared to prices in US states, and is even extremely cheap when compared to many wealthy countries in Europe and East Asia. Electricity in Ontario is only about half as expensive as in Europe’s largest economy, Germany. These lower energy costs, when combined with Canada’s relatively high labour costs, is why some have predicted that Canadian firms will experience among the highest savings from roboticization (see graph below).

For Ontario, there is therefore a risk that jobs will be lost not merely to robots working within Ontario, but also to those working within other nearby Canadian markets where energy prices are far lower than in Ontario.

Labour Cost Savings

Source: Boston Consulting Group 

2) Daytime/Overnight

While Canada in general has a high disparity between energy costs (which are relatively cheap) and labour costs (which are relatively expensive), it is Ontario in particular that has a high disparity between daytime energy costs (which are relatively expensive) and overnight energy costs (which are relatively cheap). This is because Ontario is a world leader in nuclear power generation (see graph below). Nuclear power plants, unlike natural gas or hydroelectric plants, cannot be shut off at night without wasting fuel. Ontario has such a large surplus of overnight electricity that it often has to pay its producers to turn off their power plants at night, and often sells overnight power at prices that are well below the cost of production.

Nuclear Generation

Source: US Energy Information Administration 

At the moment, this is not a situation that is unique to Ontario. Like nuclear plants, coal power plants also cannot easily be shut off at night. Economies which rely on coal therefore often have surplus overnight power as well. In recent years, however, there has begun a major shift from coal-based power to gas or renewables. The Dow Jones U.S. Coal Index has lost more than 95 percent of its value since 2011, for example.

As economies rely less on coal and more on gas plants (which can be shut off at night) and solar power (which cannot help but be shut off at night), nuclear economies like Ontario are becoming far more unique in their disparity between daytime and overnight energy prices. This is true also of Ontario’s wider region: in the US, the two largest nuclear producers by far are Pennsylvania and Illinois, both fellow Great Lake states. Ontario’s immediate neighbours, New York and Michigan, are the fourth and tenth largest producers, respectively.

Moreover, because of its geographic size, Ontario is a burgeoning player in the wind-power industry. Yet  because of its geographic location, Ontario does not produce much solar power. Wind turbines cannot be shut off overnight either without wasting “fuel” (i.e. without wasting wind), whereas solar plants only produce power in the daytime. This too is driving Ontario’s disparity between its daytime and overnight costs.

Because humans rest at night, but robots do not have to, the disparity between an economy’s daytime and overnight power costs could become a major determinant in the susceptibility of its labour force to automation.

Conclusion

These inquiries into the question of roboticization, though preliminary (and perhaps still quite premature), suggest that Ontario should be especially careful when carrying out minimum wage increases. Given the disparity between daytime and overnight energy costs in Ontario, as well as the disparity between energy and labour costs within Canada in general, it may be that employment in the region will face a high level of competition from robots. If Ontario wants to improve the standard of living of its minimum wage workers, it might be wiser to pursue alternative policies, such as reducing income taxes on its lowest tax brackets.

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East Asia, North America

The League of the Overshadowed

It is easy to be small and ignored. But to be large and ignored, it helps to hide within the shadow of an even larger entity. In the realms of economics and geopolitics, there are three very large countries which, though not actually ignored, do not always receive the respect their size demands, as they inhabit the shadows thrown by the world’s colossi, the USA and China. These countries are Canada, Mexico, and Japan.

Japan has by far the third largest economy in the world, by far the second largest developed economy in the world, by far the second largest population among developed economies, and the tenth largest population globally.

Canada is the second largest country in the world, the fourth largest possessor of renewable freshwater, the fourth largest producer of renewable energy, the fourth largest exporter of oil, and the tenth largest economy.

And Mexico has the world’s eleventh largest population, thirteenth largest territory, and fifteenth largest economy. (Only five other nations are top-15 in all three categories: the US and the BRICs). Mexico has 2.5 times the population of the next largest Spanish nation (Colombia), plus a diaspora of 35-45 million in the US. It is also the twelfth largest oil producer in the world. The Greater Mexico Region (including Mexico, Texas, California, Venezuela, and US waters in the Gulf) produces more oil than Saudi Arabia or Russia. This region also has an economy larger than any country in the world, apart from the US or China.

The League of the Overshadowed

At the moment, however, trade between Canada, Mexico, and Japan is quite small. Neither Canada nor Mexico are even among Japan’s top fifteen trade partners. And while Mexico and Canada do trade with one another more often — Mexico recently overtook Britain to become Canada’s third biggest trade partner — trade with Mexico still counts for less than three percent of Canada’s total. Their trade with one another is overshadowed by that of the US. Indeed, California alone trades far more with Canada, Mexico, and Japan than those countries do with one another. There is no League of the Overshadowed… yet.

It may be worth noting, though, that US politics have to a certain extent put trade with Canada, Mexico, and Japan into question. President Trump’s first executive order was to withdraw from the Trans-Pacific Trade Partnership, in which Japan would have accounted for over 60 percent of the twelve member-states’ GDP apart from the US. Trump has also signalled his intention to renegotiate NAFTA, tighten the US-Mexico border, raise tariffs on Canadian farm and forestry products, and keep American fossil fuels cheap.

If these policies are followed through on, they could have the effect of driving US trade partners somewhat closer together. Obviously, Canada and Mexico have an interest in showing that they can trade with one another regardless of what Washington intends to say or do about NAFTA. Both also have an interest in exporting more fossil fuels to Asia, where prices remain more expensive than in the shale-rich US. On June 1, in fact, Canadian senator Paul Massicotte wrote an op-ed calling for Canada and Japan to sign a free trade agreement with one another as quickly as possible, given the failure of TPP and risks for NAFTA. Especially as both Canada and Japan have large majority governments right now, such a deal may happen.

An economic relationship between Canada, Mexico, and Japan could turn out to be far more significant, however, than being just a knee-jerk response to Trump’s America-First politics. As we will see, Canada, Mexico, and Japan are in fact complimentary nations, both economically and geographically. Already they have a propensity to trade with one another that is larger than their absolute trade levels suggest (see graph below). So long as Japan’s economic growth remains stagnant, Mexico remains poor, and Canada remains underpopulated, this propensity does not matter much. But if these conditions do not remain, we should expect trade between these three significant, overshadowed countries to grow by a very large amount.

canada propensity to trade

Complimentary Nations

Economists often talk about land, labour, and capital, considering them fundamental inputs of productivity. In the case of Canada, Mexico, and Japan, these inputs are epitomized: Canada has land but not labour, Mexico labour but not capital, and Japan capital but not land. Together, then, they could make a formidable team.

In Canadian politics and business, it has become common in recent years to say that by exporting natural resources to China, Canada can finally reduce the near-monopoly that the US has on buying Canadian exports. This view, however, is based on a false extrapolation of a trend that is now nearing its end: industrial growth in coastal Chinese cities. As China now seeks to rebalance its economy, by investing instead in its service sectors (which are less resource-intensive) and interior cities (which have a lower propensity to engage in trans-Pacific trade), its demand for Canadian resources is unlikely to continue to surge. Most of the resources it does buy will probably continue to come from within its own borders — China only imports 15 percent of the energy it consumes — or from its “One Belt, One Road” partners in Asia.

In Japan, on the other hand, the reverse is true. Japan has few resources of its own, and no Silk Roads to tap. Japan imports 90-plus percent of the energy it consumes, mainly from the Middle East. Its access to the Middle East, however, is imperilled, both from competition with other Asian countries (notably, China and India) as well as from Middle Eastern conflicts. Consider, for example, that Japan accounts for 30-40 percent of LNG imports globally, yet its primary supplier, Qatar, is now in an open feud with Saudi Arabia. Between competition and conflict, Japan could have to rely more on trans-Pacific trade to get resources. It would not be the first time: in the 1930s, eighty percent of the oil Japan consumed was imported from the US.

China-Japan comparisons.png

Even more important may be the impact of labour-saving machinery — robotics — upon Japanese trade. Because Japan has the oldest population in the world by far, it is planning to become a leader in robotics. Even, for example, as soon as the Tokyo Olympics in 2020, Japan is planning to showcase its robotic prowess. Yet robots are highly energy-intensive, and industrial robots resource-intensive. If Japan really does become the leader in robotics, it is likely to start importing lots of energy and other commodities from resource-rich countries like Canada. It may also be likely to start exporting its robotic technologies to countries like Canada, given Canada’s abundance of resources but lack of a large, cheap, human labour force.

Upstairs, Downstairs 

Today, if you exclude the US or Europe, Canada and Mexico have the largest combined economies of any pair of countries which are part of the same trade bloc (see graph 1 below). Yet if you include Europe, Canada and Mexico still rank quite a bit lower than a number of pairings of Europe’s largest economies (graph 2).

trade bloc pairing comparisons

In other ways, however, Canada and Mexico rank ahead of these European pairings. In population they do so (graph 3). In land they do so too (indeed, Mexico alone is larger than any four countries in the EU combined). And in terms of their indirect, second-degree trade (their combined trade with a third country), Canada and Mexico as a pair lead the world (graph 4), a result of their both trading hugely with the US.

canada-mexico indirect trade

 

While Canada’s propensity to trade with Mexico is greater than with any significant country apart from the US, it is still only around half as high as its propensity to trade with the US. The reason for this is simple: Canada and Mexico do not share a border with one another. They are not even very close in proximity to one another. More than 3000 kilometres separate Mexico City from any of the largest cities in Canada.

This separation is also reflected in Canada’s lack of a significant Spanish-speaking diaspora, particularly relative to that of the US. In spite of the fact that 21 percent of Canada’s population is foreign-born, compared to just 14 percent in the US, only 0.3 percent of Canada’s population is Mexican, compared to an estimated 11 percent of the population in the US. Even the state with the smallest share of its population being Mexican or Mexican-American—Maine—has a higher share, 0.4 percent, than Canada does.

But this may be likely to change, for two reasons. First, there is a political faction in the US which is wary of further Hispanic immigration, seeing it as a threat to the singular position held by the English language in America. Second, whereas the population of the US is relatively young, the population of Canada is Boomer-dominated, inching towards old age. This is especially true of the population of Canada’s French-speaking provinces, Quebec and (partially) New Brunswick. These provinces also, because of the far smaller language gap between French and Spanish than between Spanish and English, have a much higher propensity to attract Latin Americans than do other parts of Canada (see graph). Between demographics of this kind and US immigration politics, the next major wave of Latin American emigrants could be to Canada.

canada-quebec comparisons.png

The aging population of Canada’s Baby Boomers, and especially of Quebec’s Baby Boomers, also indicates another area in which Canada-Mexico economic ties—both direct and indirect—are likely to grow: tourism.  Already today, Mexico is the largest destination for Canadian travellers apart from the US, while the areas of the US that Canadians spend the most time in — Florida, the Southwest, and New York — are ones in which Mexican-Americans (or in Florida’s case, Hispanic-Americans in general) inhabit in large numbers. As Canadian Baby Boomers reach old age or retire, they are likely to spend more time in places like Mexico, in order to avoid much of the discomfort (even danger) of dark, icy Canadian winters. This will be most true of Quebec, given its older population, colder winters, and greater ability to learn Spanish.

Travel by Canadians .png

As the chart above implies, the US reconciliation with Cuba may also lead Canadians to spend more time in Mexico. During the past generation, the US rivalry with Cuba has given Canadians a near lock on the Cuban market. Canadians account for an estimated forty percent of all visitors to Cuba, and Cuba accounts for a disproportionately large destination (given Cuba’s relatively small size) for Canadian tourists. As the US allows its own population to go to Cuba, however, Canadian snowbirds will lose the advantage of having such a cheap, warm country all to itself. Many will re-route to other Latin American beaches.

An even more important pull factor for Canadian snowbirds will be “e-commuting”. The ability for young Canadians to spend time in a cheap, warm country in the winter is likely to increase dramatically as a result of the modern Internet. This is also likely to impact the Baby Boomers. If, for example, it becomes easier for a Boomer’s children and grandchildren to come visit them in Florida or Mexico for, say, a whole month over Christmas, rather than for just a week, then Boomers will be likelier to go in the first place.

And the relationship may not even remain one-way only: Mexicans may begin to visit Canada more often too. Today Mexicans do not go to Canada much, because they lack the disposable income to do so. If and as Mexicans become wealthier, however, they may look to Canada as a place to go in the summer; a place where the summer weather is not too hot, the major metropolises are not too crowded, and a cottage by a northern lake may be rented at an affordable rate. Climate change could, sadly, also play a role in this equation. Mexico — and the Southwestern US, in which tens of millions of Mexican-Americans live — is dangerously arid, whereas Canada is in possession of an abundance of renewable, surface-level freshwater.

Conclusion—The New Drivers of Trade 

Today, the main driver of trade is proximity. Countries which share borders with one another tend to trade a lot — though, of course, there are many exceptions to this — whereas far-away countries tend not to. However as (or, admittedly, if) globalization continues, proximity may no longer matter as much. Complimentarity may matter a lot more. We have seen here various ways in which Canada, Mexico, and Japan may be complimentary to one another. Canada has land but not labour, Mexico labour but not capital, Japan capital but not land. Canada has cold, dark winters but warm, water-rich summers, Mexico warm bright winters but hot, arid summers. All three countries have coasts on the North Pacific Ocean; none are part of the Asian (or Eurasian, or Afro-Eurasian) continent. And all three countries are very large, yet are overshadowed by neighbours that are far larger than they are. They may end up, if only informally, a formidable League.

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Talking Trade With Trudeau and Trump

NAFTA stands for the North American Free Trade Act, but President Trump does not. After campaigning on a promise to repeal the Act, then adapting his position to that of merely supporting the Act’s renegotiation, Trump recently announced that he would no longer tolerate the status quo arrangement for American imports of dairy and forestry products originating from Canada.

Proposing, on April 24, to add a 24-percent tariff on US imports of Canadian softwood lumber, Trump kept up the pressure on Canada the following day, tweeting “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!”.

Watch! indeed: the value of the Loonie fell sharply the week of the tweet, as investors worried how Canada will fare when it comes to the broader renegotiation of NAFTA Trump continues to promise.

Trump’s targeting of Canada in this way is not likely to have been random. Nor was it entirely economic in its intention. Rather, Trump brought up the issue in order to prove his anti-NAFTA bona fides to his political base, yet in a way that manages to avoid the hairier subjects associated with NAFTA’s other signatory, Mexico, such as immigration, racism, or The Wall.

Trump has admittedly been careful to direct attention to goods of lesser importance, like dairy products and softwood lumber, rather than to Canada’s key exports of oil (from Alberta) and auto parts (from Ontario). Still, he has been far tougher on Canada—at least in his rhetoric—than has any other recent president. To use a Trumpian phrase: Canada has now been put on notice.

Obviously, this may worry Canada’s Prime Minister, Justin Trudeau. Elected with a rare majority government in 2015, Trudeau’s “political honeymoon” now finally seems to be nearing its end. The NAFTA/Trump issue was just one of four indications of this to occur this spring. The other indications were the election of a new federal opposition leader, Conservative Andrew Scheer, on May 28; the expectation of an NDP-Green minority government forming following an election in British Columbia in May; and the continuing decline in oil prices that has occured thus far in 2017.

Of these, the price of oil is likely the most troubling sign for the Canadian economy, and by extension for the approval ratings of Trudeau. West Texas Intermediate crude oil prices crashed in mid-2015, hitting lows of 26 dollars a barrel in February 2016 but staying mostly within a range of 40-55 dollars since then. They began 2017 at 54 dollars, and remained there until mid-April. However in recent weeks they have fallen again, so that as of this writing (June 21) they are at just 43 dollars a barrel. The Western Canadian Select oil price, which is the price that Canadian oil tends to sell at, is barely over 30 dollars. This does not bode well for the Canadian economy.

The biggest political news in Canada, meanwhile, has been the victory of the new Conservative leader, Andrew Scheer. Scheer narrowly (and quite unexpectedly) defeated Quebec MP Maxime Bernier at the Conservative Party convention, and so will now replace the party’s interim leader Rosa Ambrose as Canada’s leader of the opposition.

The impact of Scheer’s victory is likely to be twofold. First, Trudeau now finally has to face a real political opponent in parliament, rather than a mere interim leader as he has faced until now. This may draw some media attention away from political narratives created by Trudeau, instead giving his Conservative opponents some more air time. Indeed, Trudeau may now no longer be the only golden boy in Ottawa. Scheer is just 38, seven years younger than Trudeau.

The second impact of Scheer’s victory is that, unlike Trudeau, Scheer is not from Quebec. Bernier, who had been expected to beat Scheer, would have been the first Conservative leader from Quebec since Brian Mulroney, who was Prime Minister from 1984 (the year Trudeau’s father left office) until 1993.

In every election since then, the Conservatives have trailed behind the Liberals, NDP, and Bloc Quebecois in Quebec. This is not a trivial fact: Quebec is home to 23 percent of Canada’s population, and tends to vote for home-grown politicians. Given that Quebec has tended to be anti-Conservative, and western Canada pro-Conservative, Scheer’s victory over Bernier could mean that the next national election in Canada will be decided in Ontario. This fact could influence Trudeau and the Liberals during NAFTA negotiations, given that Ontario depends far more on trade with the United States than do any of the other Canadian provinces (apart from New Brunswick).

The month of May also saw a shakeup in Canadian politics at the provincial level. In British Columbia, the third largest of Canada’s ten provinces, the incumbent Liberal government failed by just one seat to hold on to a majority government. The NDP and Green parties have now announced that they plan to form a minority government in BC instead. This announcement has already had consequences for Trudeau, as the new provincial government is not expected to support the planned expansion of Kinder Morgan’s Trans Mountain pipeline from Alberta to BC’s coast.

Indeed the BC election, which was held on May 9, just a few weeks before Kinder Morgan held what it had expected to be the fourth largest IPO in Toronto Stock Exchange history, caused Kinder Morgan’s stock to plunge. If Alberta cannot export its fossil fuels to world markets via BC, then it will probably remain more dependent on sending them to refineries in the United States. Obviously this would be likely to reduce Canada’s leverage in any trade negotiations with the US.

If and when these negotiations do occur, it is difficult to know what the details of any new NAFTA agreement will be. Canada is obviously at a disadvantage relative to the US when it comes to trade negotiations. Not only is the Canadian economy much smaller than that of the US, and more dependent on trade with the US than the US is dependent on trade with Canada, but Canadian politics are also—contrary to popular wisdom—more internally divided than those of the US.

To give only one relevant example of this, there is the division between Canada’s provinces in to the extent to which they depend on US trade. The value of Ontario’s trade with the US is equal to an estimated 49 percent of Ontario’s GDP. In contrast, in Canada’s other major provinces — Quebec, BC, and Alberta — trade with the US accounts for just 23, 16, and 31 percent of GDP.

With these figures varying so widely, it could be difficult for Trudeau to present a unified front during negotiations. On the other hand, the political interests of the US are global in scope, so the US cannot afford to spend as much of its political capital haggling with Canada as Canada can afford to devote to haggling with the US. Thus it is always difficult to know which country holds the more leverage in the Canadian-American relationship.

What is obvious, though, is the importance of the relationship. Canada may appear small when compared to its southern neighbour, but it is the tenth largest economy in the world, and has growth prospects that out-rival most other wealthy economies. The US and Canada have the second largest trading relationship in the world, trailing only (for now) trade between the US and China.

Now that they are both finally settled into office, it will be fascinating to watch how these two countries’ utterly different leaders, Trudeau and Trump, will steward and steer this relationship going forward.

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North America

Robots and NHL Expansion

Winnipeg and Las Vegas, the two newest NHL franchises since Minnesota and Columbus joined the league in 2000, have one thing in common: nobody lives near them. Apart from much larger, regional capitals, like New York City or Phoenix, both Winnipeg and Las Vegas account for a far bigger share of their state or province’s total population than do any of the other cities with NHL teams.

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In other words, both Winnipeg and Las Vegas are located pretty much in the middle of nowhere.

In spite of this, Winnipeg and Vegas represent opposing strategies to adding new teams to the NHL. Returning a team to Winnipeg was an example of what we will call a short-distance strategy. It was (to state the obvious) intended to capitalize on hockey fans, a.k.a. Canadians, who live in Winnipeg. As Winnipeg had been the largest Canadian city without a team, and Manitoba the largest province without a team, bringing the Jets back was an obvious decision for the NHL to make.

The league does not, however, expect many people at Jets games to have come from afar. Even outside of Winnipeg’s metro area, most Manitobans live not far from the city. Winnipeg’s neighbours, moreover, are distant andd sparsely populated. Saskatchewan has just 1.1 million people; its largest city, Saskatoon, is 710 km away from Winnipeg. Calgary and Edmonton are 1200 km from Winnipeg. Fargo is 330 km to Winnipeg’s south, Minneapolis 615 km. And almost nobody lives in northwestern Ontario. Toronto and Ottawa are more than 1700 km away. Manitoba cannot rely much on its neighbours to buy hockey tickets.

Las Vegas is following the opposite strategy: a long-distance strategy. It hopes to attract fans (aka gamblers, tourists) from hundreds or thousands of kilometres away: from Canada, the rest of the United States, and even overseas.

Even the Vegas locals, who the NHL hopes to convert into hockey fans, are dependent on long-distance tourism. Without tourism, Las Vegas’ economy would dry up and force many of the locals to leave (or at least, to spend less money on hockey tickets). This the Las Vegas Golden Knights would not be able to afford. Once the Oakland Raiders move to Las Vegas in 2019, Nevada will have the smallest population per each of its major sports franchises of any state or province—with only one exception: Manitoba.

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Pittsburgh and Nashville  

This year’s Stanley Cup contenders, Pittsburgh and Nashville, are very different than Winnipeg and Vegas. For one thing, neither are the largest cities in their states. The Greater Nashville metro area is home to only an estimated 27 percent of the population of Tennessee; Pittsburgh’s metro area is home to just 13 percent of Pennsylvania’s population. Pittsburgh was fifth from the bottom on both of the blue graphs above.

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The Nashville Predators, and its nearest fellow teams in every direction—plus the Thrashers, which left Atlanta to become the Jets in 2011. 

For Nashville, not only are the Predators the only team in Tennessee, they are also surrounded by five states with no NHL teams: Georgia, Mississippi, Arkansas, Alabama, and Kentucky. Tens of millions of people live within a few hundred km of Nashville, and none of them have their own teams.

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Pittsburgh too is in a region with a large population yet relatively few hockey teams—albeit not nearly to the same extent as Nashville. This region includes Ohio, which has no team north of Columbus, and the Virginias, which have no teams at all. Most importantly, it includes part of southwestern Ontario. Pittsburgh is located closer to the Canadian border than any other American team apart from Buffalo or Detroit.

Pennsylvania is also one of just two states that has exactly two NHL teams. (The other, Florida, relies on tourists and snowbirds, like Las Vegas will). This is a useful arrangement, creating an intrastate rivlary in which western Pennsylvania can cheer for the Penguins and the east for the Flyers.

Golden Knights or Goldilocks? 

Pittsburgh and Nashville are both examples of a medium-distance strategy for NHL expansion. Whereas Vegas will rely on fans jetting in from thousands of km away, and Winnipeg relies on Manitobans keeping the seats full, the Predators and Penguins can both — in theory, at least — attract fans or ticket-buyers who live within tens or hundreds of km of their arenas.

The question is however: which strategy is best?

The reason I bring this up is, as the title of this article indicated, robots. If Sillicon Valley is right, and technologies like autonomous cars really are coming just around the corner, might this make a medium-distance strategy wiser? Would it make the recent expansions to Winnipeg or Las Vegas ill-advised? After all, an autonomous vehicle could make driving tens or even hundreds of km to come home from a game—at night, in the winter, on a rural highway, after having drunk a beer or two earlier—safe and easy. This might increase dramatically the distance that fans are prepared to travel to go to a game.

A medium-distance strategy for future NHL expansion should, in general, prioritize cities that are in Canada or near the Canadian border. Such a team would allow Canadian hockey fans could come to games without having to travel too far a distance. Such cities might include Quebec City, Hamilton, Cleveland, Seattle, Milwaukee, or perhaps even Halifax, Saskatoon, London (in Ontario), Portland, or Toledo.

Most of these cities could not support a team without some new major advance in transportation technology, such as autonomous cars: the number of hockey fans who live in them is simply too small. Some may not be able to support a team even with robot cars. Halifax, for example, has a mere 400,000 inhabitants. It would need to draw in many fans from other Maritime cities to become viable.

While Quebec City and Hamilton are arguably the most sensible additions the NHL could make if following a medium-distance strategy, Seattle is I think the most intriguing one. Seattle is of course a sizeable city in its own right; it accounts for 50 percent (by metro area) and 9 percent (by municipality) of Washington’ population—middle-of-the-pack figures for cities that have NHL teams. Yet Washington as a state has only two major sports franchises (the Seattle Seahawaks and Seattle Mariners) for 7.2 million people. Along with neighbouring Oregon, Idaho, and British Columbia, the Pacific Northwest has only four teams (Seahawks, Mariners, Trailblaizers, and Canucks) for 17.5 million people. It used to have six, but the Supersonics and Grizzlies moved away.

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One reason the Pacific Northwest has so few sports teams per capita is its mountainous terrain. The mountains make land expensive, raising the cost of an arena. They also make driving tricky and limit the number of highways available, creating traffic. This makes it difficult for fans from other cities to drive to and from Seattle, Portland, or Vancouver to take in a game. For a Seattle NHL team this would be an especially important challenge, as the team would want hockey fans to visit from Canada. It is 236 km from Vancouver to Seattle, and 278 from Portland to Seattle. It is just 115 km from Victoria, BC’s capital city (with a population of 368,000), but only as the crow flies.

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Autonomous cars could, perhaps, help the Pacific Northwest overcome these challenges. They might do so by allowing an arena to be built further from Seattle’s expensive downtown core, or by allowing an arena to have much smaller parking lots (and therefore to occupy less expensive real estate) or by making it easier to drive hundreds of km through the region’s rugged and rainy terrain.

On the other hand…

Of course, it is easy for me to just say “autonomous cars” and then try to make up a cool-sounding argument around it. But that does not mean in any way that my argument is a good one.

In this case, it may instead be that a short-distance or long-distance approach, of the Winnipeg or Las Vegas variety, really will be better than a medium-distance one. This is something that the league should, I think, try to determine for itself.

If a short-distance strategy is determined to be best, then the obvious choice for expansion would be to put a second team in Toronto. Even with two teams, the municipality of Toronto would have approximately 1.4 inhabitants per NHL team and 700,000 inhabitants per “Big 4” sports franchise. In contrast, the municipalities of of Hamilton and Quebec City are home to only around 500,000 people each.

The Greater Toronto Area (not even including nearby Hamilton or Kitchener-Waterloo) would have 3.2 million people per NHL team and 1.6 million per Big 4 team were it to add a second NHL franchise. The Greater Montreal Area would have just 2 million people per team were it to do so.

A long-distance strategy, on the other hand, might focus on cities in the south, where hockey-loving snowbirds could flock. This could mean a first NHL team in one of the southern states without any, or a second team in Texas, or a third attempt at a team in Atlanta, or maybe even a fourth team in California.

Indeed, the most recent round of NHL expansion in southern cities was during the 1990s, when, perhaps not incidentally, the cost of travel was cheap and the Canadian dollar was weak, as oil prices were at an all-time low. San Jose, Anaheim, Miami, Tampa Bay, and Dallas all got teams during 1991-1993 (Ottawa also got a team in 1992), while Phoenix, Denver, Raleigh, Nashville, and Atlanta got teams during 1995-1999.

In contrast, the three since then have been northern: Columbus and Minneapolis in 2000, then Winnipeg in 2011. A long-distance approach, however, might be less friendly towards northern cities—particularly far-northern cities, such as Winnipeg, Quebec City, or Saskatoon. It might worry that too many Canadians will flee the cold and dark of winter to seek the bright sun of the south.

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