The idea that we can replace the Canada-U. S. relationship with others neglects the integration of our industries and supply chains along continental lines, writes Sean Speer
By Sean Speer, June 19, 2018
It’s fair to assume that when Justin Trudeau was elected prime minister in 2015 he could not have imagined that the animating issue for him and his government would be renegotiating the North American Free Trade Agreement with Donald Trump.
But, more than two years later, that’s of course what has happened. The complicated and tumultuous negotiations have consumed considerable political oxygen and the attendant policy uncertainty has harmed the economy. It would be understandable if at times the prime minister wonders if it’s all worth it.
The short answer is yes. The Canada-U. S. economic relationship in general and the NAFTA in particular is too critical to our economic interests to do nothing but continue to search for a solution. Failure is simply not an option.
Trade data tell us a powerful story of the interdependence of our two economies. Readers know many of them well. Canadian exports to the U.S. total nearly $475 billion and our imports are nearly as much. This two-way trade amounts to $2.5 billion per day or $1.7 million per minute.
If it sounds like a massive level of mutual exchange, it’s because it is. Canada trades more with Michigan than it does with the entire European Union. We also buy more goods from the United States than China, Japan and the United Kingdom combined.
Millions of jobs on both sides of the border depend on this bilateral trade and investment. Nearly 2 million Canadian jobs are dependent on exports to the U.S. alone — the equivalent of Canada’s second largest city.
Abandoning the NAFTA would put this economic activity and jobs at risk. Estimates on the magnitude of diminished investment and job losses range but there’s little doubt that there would be a heavy financial cost — particularly for trade-sensitive sectors. And these assumptions still likely underestimate the deleterious effects that post-NAFTA uncertainty would have on business investment.
This should hardly be a controversial observation. The broad, negative reaction to the Trump administration’s tariffs on Canadian aluminum and steel imports is telling in this regard. Diverse voices, from Unifor’s Jerry Diaz to Ontario premier-designate Doug Ford, have criticized the protectionist action. It’s a sign that the basic premise of free trade is no longer the subject of divisive political debate in our country. It’s also a reminder of the invariable costs if these sectoral-based tariffs are extended across the economy.
These are the facts. They’re hard-headed, true, and transcend any one president or political moment. Canada and Canadians are better off when we have mostly uninhibited access to the U.S. market and vice versa.
Those who advise in favour of abandoning or repealing the NAFTA choose to ignore these facts. Instead they would subordinate Canada’s interests to old and failed ideas about economic nationalism
Those who advise in favour of abandoning or repealing the NAFTA choose to ignore these facts. Instead they would subordinate Canada’s interests to old and failed ideas about economic nationalism (what the Canadian-born economist Harry Johnson once called “a narrow and garbage-cluttered cul-de-sac”) or legitimate yet tangential arguments about the offensiveness of Donald Trump. No matter the basis of the case, this is romanticism (or anti-Trumpism) disguised as serious analysis. The end result is the same: weakened competitiveness, less investment, and fewer jobs.
And the idea that we can replace the Canada-U. S. relationship with others neglects the integration of our industries and supply chains along continental lines. Politicians and policy observers can speculate about trade diversification, but government strategies cannot counteract the north-south orientation of Canadian commercial activity.
This was the basic insight of the Macdonald Commission in the mid-1980s. As its final report put it, “We must concentrate our efforts on obtaining secure access to the American market … We cannot choose to cut back significantly our trading integration with the United States without risking severe economic dislocation, cessation of economic growth, and a resultant political instability.”
The commission’s assessment, which catalyzed the Canada-U. S. Free Trade Agreement, was right then and remains essentially correct now. Trump’s erratic and often objectionable presidency doesn’t change this equation.
Which brings us back to where we started. No matter how difficult the negotiations with Trump’s administration, or how offensive we may find the president, we cannot afford to walk away from table. Too much is at stake.
This article is part of a two-part debate series published in the Toronto Star. The opposing viewpoint can be found here.
Sean Speer is a Munk Senior Fellow at the Macdonald-Laurier Institute.