The Trump II administration has threatened a Trade War with Canada and the imposition of tariffs has been delayed while negotiations proceed (here). Canada, Mexico, China and the EU are the US's largest trading partners. I have presented the MXL20 (Mexico Late 20th Century) model here with eight future growth forecasts. In this post, I will do the same for Canada.
The Canadian forecasts are a little different in that they group clearly into two classes: Growth and Steady State (presented above) or Collapse (presented below) when compared against a the Random Walk (RW)--I give more detail about the classes of models with the MXL20 model here--the best two forecasts are the TECHE (Technical Efficiency) forecast and the Business as Usual (BAU) forecast. The forecasts do not predict growth forever (the Techno-Optimist forecast) but rather a steady-state after 2100 (the type of forecast one would get with a Classical Economic model).
The forecast for Geopolitical Alignment with the United States is very interesting and, I would argue, speaks directly to the threatened Trade War. The forecast with the USL20 model driving inputs to the CAL20 model suggests a Growth-and-Collapse scenario with a peak around 2025 at the start of the Trump II administration. In other words, the benefits of Canada's alignment with US have reached their peak and are not forecast to continue into the future--and my forecasts start in 2010!
Both the IMF (here) and the OECD (here) argue (as of 2024) that Canada needs to focus on internal structural issues and Technology, the BAU and the TECHE (Technical Efficiency) forecasts above. Reorienting the Canadian Economy will be difficult during a Trade War with the US, to say the least.
It would be reasonable to argue that some other Geopolitical Alignment might serve Canada better than alignment with the US, which appears to be ending. I have estimated three other alignment models: World System (W), North America (NA) and China (CN). All of these models (presented above) predict collapse, some collapses being severe (NA and CN, respectively). Even focusing on Technical Productivity (TECHP) is worse than a Random Walk (RW, tomorrow being like today except for random shocks).
In summary, the CAL20 model suggests that Canada should concentrate on getting it's structural house in order and implementing efficiency-producing technologies, two steps that the IMF and the OCED have been emphasizing for the last twenty years. Let the Trade War with the US play it's way out. Geopolitical Alignment with the US has run it's course.
The IMF (here) and the OECD (here) economic reports about Canada bring up many other macro-economic issues. I'll look at those issues in the future. Setting the big picture for the Canadian Economy will help put detailed policy issues in a better perspective. I want to emphasize again that the future is unknowable. All I am doing is creating scenarios based on state space models. We will have to wait for the future to understand how useful such models might be.
NOTES
The Measurement Matrix for the CAL20 model is:
The first six indicators in standard scores are taken from the World Development Indicators (WDI). KOF = KOF Index of Globalization, EF = Ecological Footprint, HDI = Human Development Index. The second two components: CA2=(0.721 LU - 0.675 EF) and CA3 = (0.586 LU + 0.680 EF - 0.249 CO2 - 0.263 Q - 0.2076 N) describe Environmental and Unemployment Error Correction Controllers (ECCs). I will present the behavior of the Canadian ECCs in a future post.
You can convert the model into a Techno-Optimist model by setting F[1,1] = 1.0 in the System Matrix, but that would be an improbable value although it is close to the Upper Confidence Interval (UCI) of 0.990595.
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