The limits on world trade
The rise in protectionism is of major importance for virtually every nation — but even more so for Canada. More than 30% of our GDP is dependent on exports. In virtually all of our export markets we are price-takers rather than price-makers.
When it comes to economic muscle, in the Group of 7 or in the various international bodies of which we are members, we are, at best, a middle power. In fact, our GDP is the smallest of the Group of 7, though per capita it is second only to the United States. Though our geographic size is slightly greater than that of America, we have the smallest population of the group.
Put succinctly, in a world becoming ever more protectionist we will have to be clearly focused on identifying both our strengths and, most importantly, our weaknesses in terms of trade. Then we must use rigorous analysis to determine our major domestic investments and international political priorities.
This will not be only a short-term need but will extend over several decades. To be blunt about it, protectionism is a form of economic warfare without guns and bombs. As was the case in the Second World War, it will require unified national policies on a number of fronts and should motivate us to minimize conflicts between the federal and provincial governments. It seems obvious to me that we will need to make some policy choices that will not be universally popular.
First, we need to maximize the efficiency of the domestic economy. Our highest priority should be a total elimination of interprovincial trade barriers in both goods and services. We should also move quickly to eliminate supply management programs in agriculture to make that entire sector as efficient as possible.
Both of these actions will put enormous pressure on provincial governments and the federal government needs to provide economic support to offset the possible adverse impacts.
If we are to enjoy a prosperous future in this more hostile trade environment, we need to work well together rather than in a fractious fashion — in other words we need to work hard at co-operating. That means open and continuous communication and regular sharing of information and analyses.
When it comes to external relations, we need to pay particular attention to our major trade markets and closely monitor what factors are playing a role in these markets. And while there is often an almost sentimental desire to maintain strong relations with nations that have been and may continue to be major sources of immigration, we should carefully monitor just how economically important each is to Canada.
Put simply, nations that are not major importers of Canadian goods and services should not absorb large amounts of expenditures in time and treasure when it comes to foreign relations.
Government expenditures on industrial policy in whatever form, be it via favourable tax treatment or direct investment or grants, need to be closely monitored using cost-benefit analysis and focused based upon obvious comparative advantages.
Undoubtedly such a focus will result in some less-than-satisfactory outcomes for some industries; governments at all levels must be willing to recognize these cases and close them off in order to devote the resources so freed up to more successful sectors. This will be difficult to execute and there is a great need for cooperation and collective action on all such policies, achieved without any one government dominating the required decisions.
Canada can and must rise to this economic challenge if we are to maintain and strengthen our standard of living. It requires a pragmatic view and understanding of the nature of the trade challenges we collectively face.