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Chapter 12.docx

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Indra Hardeen

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Chapter 12 – Resources and Manufacturing General Determinants of Manufacturing Growth • Two broad types of activities • First, involves the further processing of agricultural and natural resource products • Sawmilling and planing, pulp and paper production, flour milling, cheese production, and smelting and refining are examples • Often referred to as primary manufacturing activities • The other broad type of manufacturing activity features the production of more finished goods, such as iron and steel, leather, transportation equipment, clothing, textiles, printing and publishing, chemicals, tobacco, miscellaneous industries, rubber, chemicals, and electrical products • Sometimes referred to as secondary manufacturing • Occasionally, output is exported, in which case demand depends on Canada’s international competitiveness • In general, the ability of domestic firms to compete depended on the terms of access to intermediate inputs, the supply of capital, the skills and prices of labour services, the presence of entrepreneurial talents, the transport costs incurred in assembling inputs and distributing outputs, the size of the domestic market relative to that required for minimum economies of scale, and foreign and domestic policy initiatives • Canada retained this relatively liberal policy for the first years of Confederation for a number of reasons • The maritime provinces opposed tariffs, and duties were kept low and even lowered in some cases to placate them • Sentiment toward tariffs changed over the 1870s • Canada followed the rising tide of protectionism worldwide, and in part the motivation was more local • Demand for manufactured goods grew more slowly in the 1870s, then it had in the first few post Confederation years, and certainly more slowly than had been anticipated • The tariff increases put in place by the Macdonald government in 1879 were avowedly protectionist • Even in the midst of imposing these new and higher duties, the government did not give up hopes of securing some type of reciprocal free trade arrangement with the U.S. • The election of a Liberal government headed by Wilfred Laurier in 1896 did not spell the end of industrial protectionism, whatever campaign rhetoric have led voters to believe • Liberals extended the use of bounties and of drawbacks on duty paid on imported components and, in 1904, introduced what has been called the first anti-dumping clause in tariff history • One of the more notable moves of the Laurier government was the re- establishment of a broad British preferential system in 1897 • Products from Britain and British colonies faced duties 25% lower than those on imports from all other nations • Most natural products were to trade freely between the two countries • Duties on processed agricultural products and farm machinery were lowered, and there was special provisions to cover a range of other products • With the rejection of reciprocity, a Canada-U.S. preferential trade agreement left eh agenda for over 20 years Overview of Manufacturing Development • Manufacturing accounted for 22.5% of the GDP in 1870 • Wood products, are at the top, accounting for over 1/5 of total manufacturing value added • Next in the hierarchy is a products and foods and beverages • Transportation equipment and clothing make up a third tier, with their shares of 7% being ½ the level of those activities in the second tier and 1/3 that of wood products • A fourth tier comprises textiles, non-metallic minerals, and printing and publishing, with about 3% each • With the exception of food and beverages and clothing, the fastest growing manufacturing activities in the period 1870-1900 were ones that were relatively unimportant in 1870 • Tariff protection prompted the growth of several manufacturing activities between 1870 and 1900 Shipbuilding • The golden age of Maritime wooden shipbuilding was over, a casualty of the shift to steam and iron ships elsewhere in the world that had been underway for decades • This fall in shipbuilding was accompanied in the 1860s and 1870s by a surge in ship owning • Investment in shipping was not an unpropitious gamble, but rather a finely judged attempt to seize expanding opportunities, and then to maintain rates of return as demand for sailing ship service fells • The mystery of the failure of Maritime shipbuilding to adjust to new technologies is not solved, but one prime candidate is apparently banished Forestry Products • The wood products industry was in a state of flux at the time of Confederation • Exports of squared timber were still growing absolutely, but were falling in relative importance to those of most processed products which represented 70% of exports in 1867 • Exports to GB were substantially higher in absolute terms in 1867 than they had been in 1850, yet they represented about 50% of total exports, whereas in the former they had been more than 80% • Exports of forest products were exceptionally strong in the first half-dozen years after • Wood exports were especially hard hit by the downturn, most notably those going to the U.S • The British market remained reasonably firm, falling only in the late 1870s, and then only for a brief time • There was a general decline of demand for wood products in Britain as construction slowed and as shipbuilding in wood would down • Urbanization and industrial growth in Canada took an increasing share of the output • The gradual shift of the trade to the upper Great Lakes region made it cheap to cut logs in Canada and float them across the lakes to sawmill in the U.S. • Logs entered freely, whereas processed lumber products face duties • American policy became more protectionist in 1897, when the Dingley Tariff Act imposed a duty on sawn lumber but left the import on unprocessed logs free • With the export tax rendered useless as a countermeasure, Canadian lumber companies turned their attention to the provincial governments • The restriction to timber from crown lands skirted the constitutional issue nicely, since the policy came under the power of the province to manage its natural resources • The contribution to the economic growth of Canada’s vast forest reserves was renewed in the new ce
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