An Ache in the Economy

Canada is rolling through an era of high prosperity, with a standard of living second only to that of the U.S. But under this surface economic health, Canada has a growing ache in the economy. The pain: the nation's income, until lately greater than outgo, is now less.*

Merchandise imports are greater than exports, and they are growing faster than exports. In particular, Canada's deficit with its biggest trading partner, the U.S., is growing. The huge flow of long-term U.S. investment, which since the war has filled the trade gap, is slackening. At the same time, outgoing dividends are increasing in proportion to the cumulative total of investment.

Canada's estimated foreign 1959 income is $7.4 billion, outgo more than $8 billion (much of the difference is made up by unhealthy short-term "hot money," largely used to finance imports, and responsible for keeping the Canadian dollar at a high $1.05 1/2 in U.S. currency). Both Prime Minister John Diefenbaker and Opposition Leader Lester Pearson, hopeful of more sales to Europe, urge Canada to take the lead in the promotion of a free-trade area among NATO nations.

One alternative is governmental or natural devaluation of the Canadian dollar. Such a step would tend to bolster the trade balance by making exports more attractive and imports more expensive, but would cut the standard of living. Second choice is some form of economic integration with the U.S. That would probably involve the reciprocal reduction or elimination of duties (a reciprocity treaty was approved by Congress in 1911, but the government of Premier Sir Wilfrid Laurier went to the Canadian electorate asking support and was defeated). But that would erode Canada's economic sovereignty, which many Canadians consider already sufficiently imperiled.

*The U.S., for the first peacetime month since he Depression year of 1937, had a trade deficit of $21 million in June.

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