Question

SCENARIO BACKGROUND:
The controversy surrounding the European Union, as well as the recent increase in tension between the U.S. and Canada leaders, prompted many American analysts and politicians to weigh pros and cons and predict likely economic of closer integration in North America.

While most agree a US-Mexico union would have outweighing negative consequences for the US at this stage, primarily because of the great economic, political, societal and cultural differences between the countries, there is no consensus on the likely outcomes of a US-Canada union. Opinions range from “it would be a great economic success” to “it would ruin economies of both countries”.

The President and his administration do not see a US-Canada union as a likely scenario for the nearest future, but the government strategies have to consider and be prepared for any scenario, no matter how unlikely it may seem.

As a person knowledgeable in the area of the effects of government interventions in trade and regional integration, you are one of many experts invited by the Strategy Division of the Presidential Advisory Board to provide your visions on the likely consequences of a US-Canada Union. The scenario is planned for an economic union (common currency, taxes, laws and regulations, economic and foreign trade policies, unrestricted within-union trade and employment, central parliament, etc.) though a possibility of a political union is also considered.

The task is to predict the likely consequences of such a union, the two countries essentially becoming one, on public opinion, prices, internal and external trade, employment, investments, revenues and consumption. It is made very clear that your opinion must be rooted in existing economic theory covered in MGT 301. There are five questions (see template on the next page): If the US and Canada were to become one country, how would that likely affect the following domains of life?

Note: Please keep in mind that even though Canada and the U.S. are currently in a free-trade zone, there are many administrative, monetary, and political barriers to trade. For example, the traders must deal with the uncertainties and costs of currency exchange, the need to do separate certification in each territory, differences in taxes and other issues. So the trade between, for example, Montana and Alberta is still much harder than, for example, between North Carolina and Virginia.

The proposed scenario assumes a political union and removal of all trade barriers.

Note: The questions are about the changes in what today is the U.S. (will it affect the variety of products, prices, wages, unemployment and so far in the U.S. part of the new country).
However, the assumption is that the effect will be the same for both parts of the new country. If you believe that the effect will be different, you can explain it, though such differentiation is not required.

1. (Winners, 15%)  

List at least 3 groups (bullet list of specific examples of groups of people, companies, or industries) that are likely to benefit from Canada and the U.S. unification and explain why each of these groups will benefit or what they will gain.

Make sure EXPLAIN WHY you believe each interest group will benefit from the change.

2. (Losers, 15%)

List at least 3 groups (bullet list of specific examples of groups of people, companies, or industries) that are likely to be hurt by the unification and explain why each of these groups will lose or what they will lose.

Make sure EXPLAIN WHY you believe each interest group will be hurt by the change.

Answer 1

ANS 1. THE 3 GROUPS WHO WILL BE BENEFITTED ARE:

1. LABOURERS: LABOURS OF BOTH THE COUNTRIES WILL BE EBENFITTED BECAUSE THEIR SCOPE TO WORK WILL BE WIDENED. MORE EMPLOYMENT OPPORTUNITIES WILL BE THERE FOR THEM.
2. AMERICAN CEO'S: THEY WILL BE BENEFITTED BECAUSE THEY WILL GET TO TRADE-IN CANADA AND MEXICO MORE CONVENIENTLY.
3. CANADIANS: THEY WILL BE BENEFITTED BECAUSE THEY WILL GET A CHANCE TO DEVELOP AND GROW MORE BECAUSE OF MORE COMPETITION IN THE MARKET. THIS WILL ALSO BOOST THEIR ECONOMY.

AMS2. THE 3 GROUPS WHO WILL BE HURT ARE:

1. MEXICO: BECAUSE THE COUNTRY IS IN DEEP RECESSION SO WON'T BE ABLE TO NEGOTIATE PROPERLY AND HAVE TO ABIDE BY THE TERMS OF THE DEAL AS IT IS.
2. CHINA: CHINA WILL BE HURT BECAUSE US WILL NOW BE TRADING MORE WITH CANADA AND CHINA WILL COME UNDER PRESSURE.
3. US CAR BUYERS: AS PER ECONOMISTS, THE AUTOMAKERS WILL GET AFFECTED BECAUSE THE PRICES IN US MAY RISE BUT THE SELECTION LEVEL MAY GO DOWN TO SMALL CARS THAT WERE PRODUCED IN MEXICO.