Quote: Originally Posted by Blackleaf
You'll find that the proportions of Canada's economy which are services and which are manufacturing are very similar to Britain's.
Like the UK, Canada is a services economy with little manufacturing.
Fair enough. But I would never propose that Canada adopt a policy aimed at restricting our imports just to increase our balance of trade surplus as that can only backfire in the end. Look at the UK. If the UK imports more from the EU and exports more elsewhere, then the question becomes, where is the UK getting the Euros from? I presume the EU isn't sending stuff off to the UK for charity's sake, is it? My guess is, keeping things somewhat simple here, other states sell to the EU for Euros, exchange Euros for UK pounds, and then use the UK pounds to buy UK goods and services, which the UK then uses to buy euros which it then uses to buy EU goods and services. So, if the UK raises tariffs against the EU, then suddenly, UK consumers will want more Euros in exchange for their UK pounds to compensate for the tariffs. This would lower the relative value of the Euro to the pound which creates a chain reaction relative to other currencies too. Result? UK products just become too expensive all around. The good news? As people stop buying UK pounds, the UK pound will drop in value until it becomes attractive again, but with UK residents paying the additional tax for any EU import.
Alternatively, the UK can choose to not raise tariffs against the EU. Result? UK consumers won't ask for as many Euros in exchange for their pounds. That in turn keeps the UK pound down and so helps UK exports elsewhere.
Now let's support that the EU raises tariffs against the UK and the UK does not reciprocate. Suddenly, while UK buyers are happy to trade their pounds for fewer Euros, EU buyers want more pounds in exchange for their Euros to make the tariffs worthwhile. This inflates the value of the Euro and reduces the value of the pound.
Suddenly, UK buyers aren't interested in buying EU products anymore because the Euro would be too strong. As a result, The UK starts to buy lower-priced products elsewhere. The more it sells off UK pounds in exchange for foreign currencies to buy other products, the more it lowers the pound which in turn increase exports in exchange for UK pounds. In the end, the EU tariffs against the UK would just backfire on the EU itself.