4.5 Increasing Global Economic Interdependence


To what extent do contemporary factors contribute to expanding globalization?

Perspectives on Global Trade



The expanding global economy has created changes in peoples lives, as large transnational corporations try to take advantage of new suppliers in less developed nations. Trade patterns have changed and barriers to trade are being reduced through trade liberalization. New technologies and transportation methods are being used to move goods and ideas around the world and trade agreements are linking nations together.

Trade Agreements



NAFTA logo
Trade agreements between nations also contribute to increased globalization. Nations have always traded with one another, and often nations that are close to each other have special trade relationships designed to increase trade. Made into formal agreements, these relationships are called trade agreements. Trade agreements include terms for how trade, taxes, and tariffs should work between countries. Often, they include some free trade and establish some agency to handle disputes. When nations enter into these agreements, usually a closer bond develops between the countries; their economies become more interconnected and interdependent.

Many trade agreements exist between groups of countries and trading partners. You are not expected to know all these organizations, but you should realize these organizations exist and that they are important forces leading to increased dependence and connection among nations. The world has units of power, not unlike a school. A school has a number of power groups, all working to educate you, but sometimes with differing ideas how that should be done. For example, the music department may want to use some more instructional time to prepare students for a band concert, but the social studies teacher says you cannot afford to miss instructional time; the phys ed staff and coaches want to leave for basketball tournaments at 1:00 p.m. every Thursday—and everyone (except the students) objects!


North American Free Trade Agreement/Canada-United States-Mexico Agreement

Countries band together for mutual support both from the outside world and from each other. If Canada and the United States had to bicker over every item, person, or dollar that crosses their borders, then little or nothing would get done. By having an over-arching agreement such as the Canada-US-Mexico Agreement, citizens can learn to get along and learn to interact in ways that are mutually beneficial.

The North American Free Trade Agreement (NAFTA) began in 1994. Many Canadians were concerned that a free trade agreement would cause Canada to become too integrated into the American economy and politics. Others saw it as an opportunity. Some of the concerns that Canadians had included the following:

  • Cultural: Cultural groups feared that Canadian magazines, books, movies, music, and theatre would not be able to compete with the more powerful American counterparts.

  • Natural Resources: Canadians were also concerned about the American demand for access to Canadian natural resources that was part of the free trade agreement.

  • Employment: Canadian workers were concerned that their jobs would move south. They were afraid that the transnational companies for whom they worked would move their factories to areas in the United States where wages and costs of living were lower than in Canada.

  • Political: Canadians feared a loss of sovereignty to the more powerful United States.

  • Social: Canadians feared that the existence of unique Canadian social programs such as public health care might be threatened.

On the other hand, a large number of Canadians were in favour of the free trade agreement because they believed Canada would benefit such as in the following:

  • Larger Markets: Businesses believed free trade would provide greater access to the larger American market. If they could sell their products in the United States, they would have ten times more potential customers.

  • Resource Development: Producers of resources such as oil and gas would have greater opportunity for sales.

In 2018, the three countries signed an updated version of NAFTA. The new agreement is called the United States-Mexico-Canada Agreement (USMCA) in the United States, and the Canada-United States-Mexico Agreement (CUSMA) in Canada. (The agreement is the same in both countries. Only the name is different.) It took effect on July 1st, 2020.




European Union

The European Union (EU) is a union of 27 (28 including the United Kingdom, which is in the process of leaving the EU) independent democratic European countries that is the world's largest confederation of independent states. Their agreement goes far beyond the terms of a simple trade agreement. These countries have not only opened their borders to trade like that between Canada, the United States, and Mexico, but they also common policies for agriculture and fisheries, and a common foreign and security policy. Many of them also share a common currency and allow for free movement over their shared borders.

Movement toward a free trade agreement began with six countries forming the European Economic Community in 1967. This developed into the larger European Union in 1992 under the Maastricht Treaty.

One of the reasons for creating the European Union was as a counterbalance against the huge economic power of the United States. The Euro and the US dollar were valued about the same in July 2002. That is, you could trade one US dollar for one Euro. That has changed. At its peak, in July 2008, one Euro cost $1.59 US. In June 2020, one Euro cost $1.12 US.