One of the most important developments in the world economy since 1945 has been the emergence of strong and rapidly growing economies in Western Europe. This expansion has been accompanied by the formation of two free-trade blocs, with growing prospects for an association between them. Canadian reactions to these changes have ranged from apprehension and pessimism, on the one hand, to considerable optimism on the other and in the course of the discussion a number of suggestions have been advanced for modifying Canada's commercial policy. It has been suggested, for example, that because of these and other developments we should increase protection to domestic industry; another suggestion that has been advanced in several forms is that we should ourselves consider promoting some regional free-trade association.
These reactions and policy suggestions necessarily involve assumptions about the future of Canadian trade, particularly with Western Europe. In most discussions these assumptions remain implicit and unclear. The purpose of this paper is to identify and to assess some of these assumptions, recognizing fully all the hazards, difficulties and qualifications that inevitably attend forecasting exercises in economics. Specifically, I try to shed some light on the following two questions: (1) Given likely increases in Western Europe's national income over the next ten years, by how much is Europe's demand likely to increase for industrial materials that are important Canadian exports? (2) How great a barrier to Canadian exports, and how costly for Canada, are likely to be the tariff arrangements that EEC and EFTA propose to establish over the next decade?