20 April 2009

Canada, the last free trader

This article is excerpted from the 18 April 2009 edition of the “Toronto Star”.

For 20 years, Canada has focused on free trade with the United States. It is our special relationship, the fulcrum of our economy, our one and only big idea. But there are indications that this particular big idea is fast becoming passé.

In part, the sheer fact of the global slump is to blame. As the perennial softwood lumber dispute shows, the U.S. has never entirely embraced its obligations under the North American Free Trade Agreement. Any recession merely heightens America's protectionist instincts.

But this is not just any recession. It is shifting the balance in the world economy. The America that emerges from this slump promises to be a significantly different country.

Pre-recession America was the world's glutton…

For Canada, with unique access to this massive and undiscriminating market, prosperity was assured. Did Americans want gas-guzzling pickups? Canadians would build them – and then provide the petroleum to make them run.

Did Americans want lumber to build houses that ultimately they couldn't afford? No problem. We'd sell them that as well.

But thanks to the Great Recession, it seems that those heady days may be gone. Government figures show that Americans are starting to save again, instead of spending beyond their means.

More important, the U.S. government has warned its citizens that the party is over and that one way or another the country will have to start paying its way….

… But the recession has already started to alter the world balance. Until the slump hit, it was Asia (particularly China) that saved and North America (particularly the U.S.) that spent. But as part of the global effort to fight the recession, the Chinese are spending more. Conversely, Americans are buying less.

Right now, the U.S. dollar remains strong as foreigners flee to its perceived safety. But expect this to change over time, …

For Canadians, all of this is more than ironic. In the late '80s, desperation pushed us to latch on to free trade with the U.S. At that time, the world appeared to be breaking up into regional trading blocs – one based in Europe, another in Japan, a third centred in Washington. To stay aloof was to risk isolation. …

Canada's military, security and foreign policies have been predicated – even more than before – on the need to protect this special trade relationship with the U.S.

Put bluntly, we are not in Afghanistan to forestall terrorist attacks on Toronto or help Afghan women. We are in Afghanistan to maintain unrestricted access to export markets in the U.S.

But now the world is moving on. Prime Minister Stephen Harper – a firm believer in free trade orthodoxy – is at the Summit of the Americas conference in Trinidad this weekend to push trade liberalization. It seems he will be in a minority.

"We have to forget about trade liberalization," Chile's ambassador to the United Nations said last month, a sentiment echoed by Obama's special adviser on the summit, Jeffrey Davidow.

Meanwhile, Obama is talking about a very non-free-trade topic: reinvigorating and improving his country's manufacturing sector….

… If Obama is serious about reinvigorating America's industrial economy – and I'm beginning to think he is – he won't be taking aim at just China.

Whether we like it or not, for Americans, Canada, too, is another country.