Trade Between the United States, Mexico and Canada
...d food rank highest due to Canada’s abundance in arable land (Table 1.2). Table 1.2 CANADA Rank Revealed Comparative Advantage Fresh food 7 2.13 Processed food 17 3.79 Clothing 112 0.82 Textiles 38 0.33 Minerals 44 0.75 Electronic components 53 0.67 Basic manufactures 57 1.02 Chemicals 60 0.29 Miscellaneous manufacturing 62 1.36 Non-electronic machinery 84 0.36 IT & Consumer electronics 104 0.24 Wood products 105 0.74 Transport equipment 20 1 The United States on the other hand is a capital intensive nation its Comparative Advantage comes in the form of Non-electronic machinery, miscellaneous manufacturing, Electronic components, Transport equipment, Chemicals, and Fresh food (Table 1.3). Table 1.3 United States Rank Revealed Comparative Advantage Non-electronic machinery 8 1.46 Miscellaneous manufacturing 14 1.32 Electronic components 16 1.32 Transport equipment 18 1.28 Chemicals 22 1.15 IT & Consumer electronics 22 0.93 Wood products 60 0.93 Textiles 61 0.61 Minerals 77 0.65 Processed food 111 0.77 Clothing 102 0.26 Fresh food 110 1.38 Basic manufactures 101 0.30 Comparative Advantage Between Nations . In the case of US and Canada, both nations are capital intensive, with the US predominantly more so than Canada. Although both nations contain labor, the US is skewed more towards skilled labor, while Canada lays in between skilled and semi-skilled labor. As seen in the tables above The US ranks higher than Canada in the production of Non-electronic machinery (8) relative to Canada (84). This implays that the capital needed to produce these items is more prevalent in the US than in Canada. Furthermore, US Miscellaneous manufacturing (14) relative to Canada’s (62) also implays that the predominance of skilled labor to produce these items is found in the US. The table below demonstrated the comparative ranks between the US and Canada. Table 2.2 Product Cluster Rank U.S. Rank Canada Non-electronic machinery 8 84 Miscellaneous manufacturing 14 62 Electronic components 16 53 Transport equipment 18 20 Chemicals 22 60 IT & Consumer electronics 22 104 Wood products 60 105 Textiles 61 38 Minerals 77 44 Processed food 111 17 Clothing 102 112 Fresh food 110 7 Basic manufactures 101 57 *Highlighted portions indicate advantage to the respective nation. As Table 2.2 demonstrates the US holds the advantage in the product clusters that require skilled labor, while Canada holds the advantage in the product clusters that require semi-skilled labor. In regards to Mexico, Mexico relays heavily on labor (unskilled to semi-skilled) while the U.S. again is capital intensive. As the table below indicates the U.S. holds and advantage in the production of capital intensive goods when compared to Mexico, as well as the skilled labor to manufacture goods, Mexico on the other hand, has the advantage over the U.S. in the manufacturing of goods that require intensive unskilled labor. Table 2.3 Product Cluster Rank U.S. Rank Mexico Non-electronic machinery 8 19 Miscellaneous manufacturing 14 22 Electronic components 16 13 Transport equipment 18 14 Chemicals 22 79 IT & Consumer electronics 22 14 Wood products 60 103 Textiles 61 70 Minerals 77 88 Processed food 111 111 Clothing 102 59 Fresh food 110 131 Basic manufactures 101 71 *Highlighted portions indicate advantage to the respective nation. Technology in the U.S. differs greatly between Canada and Mexico, but this is overcome by the trade of such factor. For example, the U.S. can manufacture no-electronic materials due to the technological advancement with in the industry facilitating the production of such goods through efficiency and therefore bringing the sector to economies of scale. But, to reach this level of efficiency, the labor intensive parts associated with the industry must be made where the wage to labor ratio is lower, where the U.S. Capital/Labor equals $10,260 and Mexico is $1,684.8 (American Economic Review, 77). Due to Mexico’s labor intensive advantage over the U.S. the technology of production is transferred in such a way that both nations benefit from the trade. This is evidenced when the U.S. commodity of capital is offset by the commodity intensity of labor in Mexico. The w/r is lower in Mexico but is more abundant so total labor cost will increase. The K/L is higher in the U.S. but it is transferred to Mexico and their products are imported in. Therefore trade between the U.S. and Mexico is equalized relative to the commodity prices and the relative factor prices equalize as well. Import/Export Patterns United States The U.S. is one of the largest importers in the world; it maintains a negative trade balance due to its capital intensity and low unskilled labor force. Its Export-Import ratios per sector are as follows: Technology intensive products Services Standardized products Labor intensive products Primary products 1.52 1.47 0.39 0.38 0.55 * An export-import ratio higher than 1.0 means that the cou...