Free trade generally benefits the people of all the countries involved. Sometimes a state can even benefit from having an open economy, even if other countries don’t reciprocate. Access to foreign goods and services benefit American consumers and producers, who import raw materials and parts. Money saved by buying abroad can then be used for more productive purposes — including buying locally or funding tax cuts or government service improvements.
The Trump administration is incorrect in characterizing trade deficits with Canada as “subsidies.” I might have a trade deficit with grocery stores — I buy from them, they don’t buy from me — but I run a trade surplus in the area of legal education and practice. In neither case does that mean a “subsidy” is involved. The legitimate issue for the United States is whether there are unfair or improvable aspects of its trade relationship with Canada.
The threatened Trump tariffs would hurt both the United States and Canada in many ways. But the U.S., with a larger and more productive economy (on a per capita basis), is better able to sustain the immediate pain. The economic pressure on Canada is, therefore, serious and credible.
Canada should first address issues that are of particular importance to the Trump administration. The incoming president tends to emphasize national security, even over economic nationalism. The authority of the president, under the inherent powers of the office and congressional statutes, is greater if the issue relates to national security.
The same holds under international trade agreements. The president can raise issues that Canada can address in a prompt and reasonable manner. These include border security and increasing Canada’s commitment to contributing its fair share to international alliances, which would include increasing military expenditures.
Second, Canada should recognize that external pressures can provide opportunities to do things that are in this country’s own interests, but are otherwise politically difficult. Outside pressures have in the past encouraged Canada to adopt several measures that are good for the country, such as reducing pork-barreling and regional favouritism in government contracting.
Canada’s dairy protectionism provides a good example of a trade concession that would benefit Canada, as it is unfair to lower-income Canadians and, in the long run, hurts the industry itself. An industry more exposed to competitive pressures would be incentivized to be more productive and seek to expand into international markets.
Australia has shown how such marketing boards can be abolished in a manner that gives some time to the industry to adjust and ultimately benefits all concerned. Canada could similarly rid itself of its outdated and counterproductive Freshwater Fish Marketing Corporation, as well. To the extent that the United States pressures us to eliminate such supply management systems, it is actually doing us a favour.
Likewise, given that the U.S. is moving away from suppressing free expression in cyberspace, Canada would benefit from joining such initiatives rather than continuing down the path of having government or big companies effectively engage in censorship under the guise of fighting “disinformation.” The best remedy for any wrongheaded speech is rightheaded speech, not censorship.
Third, these considerations invite Canada to take the opportunity to focus on freer energy trade with the United States. Energy security in partnership with political allies is a national security issue for the United States. It could push ahead with facilitating access to its markets by greenlighting new cross-border pipelines. Canada, for its part, could take the opportunity to end the self-imposed limitations on its own energy development.
Federal policy is currently based on a politicized view of climate science and a failure to engage in rational cost-benefit analysis — including recognizing that foregone energy production by Canada will result in production shifting to tyrannical and corrupt countries that do not, in practice, concern themselves with the environment.
By identifying a positive reform agenda for Canada-U.S. trade, we can shift the discussion away from mutual threats and towards identifying common interests.
Fourth, Canada should be ready to negotiate a distinctive free trade deal with the United States. Mexico can negotiate its own. The three-party dynamic is more complicated in all respects. The existing three-way agreement can be a starting point on which separate bilateral deals can be built .
Fifth, Canada could clearly lay out a plan based on the first four points. Articulating a positive agenda would permit the Trump administration to see that real progress is possible. It would also give Canadians some time to give a mandate to a new government, of whatever stripe, and to co-ordinate co-operation among the federal and provincial governments.
The current government, even under a new leader, might not be willing to rethink some of its longstanding policies. The Conservatives, however, could put forward a vision that enables the United States government to wait for a possible new partner, and then reach a deal that benefits all concerned.
National Post
Bryan Schwartz is the Asper professor of international business of trade law at the University of Manitoba.