BUDGET REVEALS GROWING GAP BETWEEN CANADA AND THE G20, AS TRUMP EFFECT TAKES HOLD.
Whether Donald Trump is really responsible for Finance Minister Bill Morneau’s 278- page lexicon of budgetary twaddle, institutionalized jargonism and fiscal paralysis doesn’t really matter. What is clear these days is that the Trump agenda, even though much remains uncertain, is having a profound impact in policy developments everywhere, from inside little Ottawa to the great big world of the G20 and beyond.
The United States, as the biggest and richest of nations, has always thrown its weight around. But there was always some sense of continuity, even when the political power structure in Washington shifted from left to right and back again.
In Canada’s case, a change in Washington in the past would never have prompted Ottawa to freeze its fiscal regime and produce a budget based on rigid adherence to the status quo on taxes, spending and deficits.
Freezing the budget looks like just the beginning of federal reaction to Trump’s pending tax reforms and border measures. But more than Ottawa is under Trump alert. At the G20, the question might well be asked: Is this the end of the institution?
Consider, for starters, that Canada is a founding member of the G20 group of nations. Nay, Canada is said to have invented the idea back in 1999. One news analysis, headlined “How Canada made the G20 happen,” reports that former Finance Minister Paul Martin “sat in Lawrence Summers’ spacious office in the Greek- columned U. S. Treasury building in Washington, searching in vain for a piece of paper. With none in sight, the two men grabbed a brown manila envelope, put it on the table between them, and began sketching the framework of a new world order.”
This may be Canadian mythology, but Canada was there at the creation of the Group of 20 nations. It was designed to install international economic coordination to ward off future financial crises and create a global governance framework that was bigger and more inclusive than the G7.
As a founding member, however, Canada is now strangely out of sync with the latest G20 declarations on the two most important issues facing global policy makers: climate change and free trade.
Indeed, Morneau now finds himself touting Canada’s commitments to trade and climate in his budget while at the same time being a voting member of the G20 that has dropped any free trade- related language and climate commitments from its latest communiqués.
The climate change gap is the most glaring. When Morneau was in Baden Baden last week for the G20 finance ministers meeting, he would have presumably voted against a final communiqué that failed to even mention climate change. By comparison, the group’s 2016 communiqué called for climate action. Among other things, the ministers said “We reiterate our call for timely implementation of the Paris Agreement on Climate Change.” No such reiteration appeared in last week’s G20 communiqué. Also gone were commitments to implement the 2030 Agenda for Sustainable Development.
In his budget, Morneau continued to support the 2030 Agenda and the Paris climate targets. If the G20 has abandoned climate policy and Paris under pressure from Trump, where does that leave Canada?
On trade, the G20- budget gap is a little more subtle, but still significant. Said Morneau in his budget: “Canada will continue its commitment to free trade.” In contrast, the G20 finance ministers would only say “We are working to strengthen the contribution of trade to our economies.”
More telling was G20 slippage on the language around trade protectionism. In 2016, high in the communiqué, finance ministers were firm. “We will resist all forms of protectionism.” According to reports, all language to that effect was rejected by U. S. Treasury Secretary Steven Mnuchin. Canada and others failed to work a compromise, and in the end Mnuchin declared a “consensus” had been reached.
The market interpreted the new G20 consensus as a reflection of a new anti- globalization and anti- free trade environment fostered by Trump and his top financial officials. Stocks and the U. S. dollar fell.
Radical free marketers were less concerned. Tho Bishop, a columnist at the Mises Institute, noted accurately that G20 members have never been true free traders. “What the G20 members call ‘ free trade’ is really government managed trade” filled with all manner of rules and regulations to keep out foreign products and services. If these countries truly did resist protectionism in all its forms, as they claimed, Canada would not have supply management, the EU would not be a bastion of trade- distorting regulation and China’s borders would be open.
It probably wasn’t all that hard for Morneau to join the G20 consensus that omitted the anti-protectionism rhetoric from this year’s communiqué. The words would have been inconsistent with his budget’s enthusiastic endorsement of using government procurement to favour Canadian companies. The budget says the new federal- provincial free trade agreement will ensure “broader, more transparent access for Canadian companies to billions of dollars in government- procurement contracts and business opportunities across the country.”
While it is certainly true that G20- supported bilaterial and multilaterial trade deals are not true free trade, they have opened up world markets and dramatically reduced barriers and tariffs. The benefits, measured in the trillions of dollars, have been massive. Such agreements ( including NAFTA) may not be perfect, but the alternative on offer now at the G20 — a multilateral endorsement of protectionism ( or failure to reject protectionism) — is a dangerous step backward. At least there was some serious momentum toward free trade. Now we have reversal.
In backing away from free trade and the Paris climate agreement, the G20 is on a different policy track from Canada. The gap is real, and it seems to be growing.
Where will Canada really stand — on trade and climate — as the G20 prepares for its annual leaders’ meeting in July, with Trump in attendance? Something will have to give.