Frank Graves

North Amer­ica at the Cross­roads: In­ward or Out­ward?

Policy - - In This Issue - Frank Graves

At­ti­tudes to trade wax and wane as the is­sue fades in and out of po­lit­i­cal dis­course. We have now en­tered a mo­ment where de­bates about trade are oc­cu­py­ing cen­tre stage in the po­lit­i­cal arena.

At­ti­tudes to trade aren’t sim­ply about how to cre­ate a more pros­per­ous econ­omy: they also re­flect broader cul­tural ori­en­ta­tions to the ex­ter­nal world, groups from dif­fer­ent racial ori­gins, and at­ti­tudes to is­sues such as cli­mate change. At no mo­ment in re­cent his­tory has de­bate about trade re­ceived such salience. This promi­nence has pro­duced deep frac­tures in ad­vanced Western so­ci­eties where trade is con­nected to deeper so­cial choices as to whether to pur­sue a more open or more closed so­ci­ety.

The winds of populism have fu­elled shock­ing po­lit­i­cal dis­rup­tions in Brexit and the elec­tion of Don­ald Trump to pres­i­dent in United States. These forces are very much in play in Canada and con­nected to fun­da­men­tal ten­sions which may usher in a new era.

Let’s con­sider the evo­lu­tion of pub­lic opin­ion on trade over the past 30 years in Canada, the United States, and Mex­ico, with a par­tic­u­lar fo­cus on Canada. This can be summarized in three key mo­ments:

1) The first mo­ment is de­fined by a con­sen­sus ap­proach in the ner­vous 90s as the de­bate about FTA and then NAFTA en­sued. In­deed, there was pretty staunch op­po­si­tion to trade in both Canada and the United States. De­spite this, how­ever, FTA and NAFTA were signed.

2) The sec­ond mo­ment re­ally be­comes clear at the con­clu­sion of the 20th cen­tury. At this time, we had pretty well con­sen­sual sup­port for trade lib­er­al­iza­tion, which had been viewed with deep sus­pi­cion at the be­gin­ning of the decade. The world was now `flat’, the end of his­tory had been pro­claimed, and busi­ness cycles would no longer plague our economies which would be floated on an in­fi­nite cloud of pros­per­ity fu­elled by glob­al­iza­tion, trade, and in­for­ma­tion tech­nol­ogy. Cana­di­ans saw them­selves as the new Phoeni­cians. This mo­ment, of course, came un­der pres­sure and we saw fairly sig­nif­i­cant shifts in at­ti­tudes as we en­tered the 21st cen­tury and, in par­tic­u­lar, the af­ter­math of Septem­ber 11th which saw a steep rise in the sense that the world was not merely an oys­ter, but a source of dread and dan­ger. We found that this fright­ened out­look on the world has only be­come more pro­nounced; in our last poll, we found that only three per cent of Cana­di­ans think the world has be­come safer over the past decade when, in fact, that is prob­a­bly the right an­swer.

3) The third mo­ment of pub­lic opin­ion, which has not yet clearly re­vealed it­self, has seen a new age

of un­cer­tainty and per­haps an age of dis­rup­tion which has been fu­elled by a pro­tracted pe­riod of eco­nomic stag­na­tion and ris­ing in­equal­ity. This new pe­riod has left many cit­i­zens of coun­tries such as Bri­tain and United States feel­ing that they have been aban­doned by the bar­gain of glob­al­iza­tion. The white work­ing-class in United States who, in the 80s and 90s, en­joyed mid­dle-class mem­ber­ship on the ba­sis of a strong back and a union card now find them­selves in a sit­u­a­tion where they have ut­ter hope­less­ness about the fu­ture and smoul­der­ing anger about fall­ing out of mid­dle-class.

Al­though Canada, the United States, and, to some ex­tent, Mex­ico have moved in lock­step in terms of at­ti­tudes to trade, there maybe some emerg­ing pat­terns of di­ver­gence. The ris­ing sup­port for trade in the first decade of NAFTA may not be sur­pris­ing in light of the near bril­liant per­for­mance of NAFTA in ac­cel­er­at­ing the stan­dard of liv­ing and eco­nomic per­for­mance of all three mem­ber coun­tries. The sec­ond decade of NAFTA, which oc­curred in the long shadow of Septem­ber 11th, saw a NAFTA “gap” which some es­ti­mate would be in the neigh­bour­hood of $1 tril­lion. In other words, if the economies had con­tin­ued to grow at the same pace as com­pared to the rather tepid pace that they did in the first decade, an­other tril­lion dol­lars would have been in­jected into the North Amer­i­can economies. In this light, it may not be that sur­pris­ing that the ar­dour for trade has di­min­ished, as has eco­nomic per­for­mance, par­tic­u­larly for av­er­age work­ers. The sur­pris­ing and dis­rup­tive im­pacts of both Brexit and the Don­ald Trump have yet to be fully re­vealed, but these are nonethe­less fun­da­men­tal shocks to the sys­tem which we will need to watch closely. It may be that al­though North Amer­i­can coun­tries have worked in lock­step in at­ti­tudes to trade over the past 30 years, this maybe now be di­verg­ing.

Our most re­cent Cana­dian data show that sup­port for trade is at an all-time high. Cana­di­ans flirted with the “Clos­ing of the Cana­dian Mind”, char­ac­ter­ized by di­min­ish­ing sup­port for not only trade but for im­mi­gra­tion and for for­eign di­rect in­vest­ment as well. How­ever, this flir­ta­tion with height­ened al­lergy to trade ap­pears to have been ephe­meral. Cana­di­ans seem to be opt­ing for a more open ap­proach, par­tic­u­larly with re­spect to trade, which has now reached an apex at the very mo­ment where it ap­pears to be in de­cline in United States. Our data showed a de­cline in sup­port for trade in Canada from 2005 to 2013, while a com­pa­ra­ble PEW study shows this slide may be con­tin­u­ing in the United States.

The sur­pris­ing and dis­rup­tive im­pacts of both Brexit and the Don­ald Trump have yet to be fully re­vealed, but these are nonethe­less fun­da­men­tal shocks to the sys­tem which we will need to watch closely.

It re­mains likely that Canada and United States are now mov­ing along dif­fer­ent tra­jec­to­ries on is­sues of trade lib­er­al­iza­tion and on the broader ques­tion of the de­gree to which they want to pur­sue open ver­sus closed so­ci­eties.

It is no­table that even though there has been a de­cline in sup­port for trade, there is still a sub­stan­tial ma­jor­ity in the United States that sup­ports trade lib­er­al­iza­tion. If this is true, we ur­gently need to up­date these (and re­lated) num­bers to pro-

vide a fuller pic­ture of where Amer­i­can so­ci­ety wants to go. It may well be the case that sup­port for trade in United States is much more re­silient than one would imag­ine given the nar­ra­tive of the pres­i­dent or the Lou Dobbs type of com­men­tariat. Nonethe­less, it re­mains likely that Canada and United States are now mov­ing along dif­fer­ent tra­jec­to­ries on is­sues of trade lib­er­al­iza­tion and on the broader ques­tion of the de­gree to which they want to pur­sue open ver­sus closed so­ci­eties.

Some of our most re­cent data now three years old but still rel­e­vant sug­gest that we will be see­ing some fun­da­men­tal con­tra­dic­tions in the way Cana­di­ans and Amer­i­cans want to ap­proach the re­newal of NAFTA. Putting aside pretty vivid dif­fer­ences in terms of the po­si­tions laid out by the re­spec­tive gov­ern­ments, with Canada en­dors­ing a so-called pro­gres­sive vi­sion which in­cludes things like strength­en­ing labour stan­dards, height­ened at­ten­tion to the en­vi­ron­ment, eas­ier move­ment of pro­fes­sion­als through­out North Amer­ica, greater ac­cess to pub­lic mar­kets, and the main­te­nance of both the dis­pute mech­a­nism and com­mit­ment to sup­ply man­age­ment. This ap­proach ap­pears to fly in the face an Amer­i­can de­sire to see greater pro­tec­tion­ism, and lit­tle con­cern for en­vi­ron­men­tal and labour is­sues. The Amer­i­cans have also iden­ti­fied sup­ply man­age­ment and want the NAFTA dis­pute res­o­lu­tion mech­a­nism aban­doned.

We are in a pe­riod where trade has been vaulted to cen­trestage as a con­se­quence of the rise of populism and age of dis­rup­tion. We are see­ing fun­da­men­tal ques­tions about whether we want to pur­sue open or closed so­ci­eties.

The de­gree to which pub­lic opin­ion in the United States sup­ports this ap­proach is un­clear and ur­gently needs up­dat­ing. We could judge from a few years ago us­ing, for ex­am­ple, the en­vi­ron­ment, where Cana­dian and Mex­i­can publics put much stronger em­pha­sis on en­vi­ron­ment be­ing in­cluded in trade agree­ments, whereas the Amer­i­can pub­lic put less em­pha­sis, which was drop­ping even fur­ther. These deep­en­ing di­vi­sions about the en­vi­ron­ment un­der­line the chal­lenge of com­ing up with a com­mon vi­sion about how to re­tool North Amer­ica. An­other is­sue would be the rel­a­tive role of Mex­ico. Some feel that in this new era, a bi­lat­eral U.S.-Canada ap­proach would make more sense and pub­lic opin­ion does sug­gest that Amer­i­cans have more favourable at­ti­tudes to trad­ing with Canada than with Mex­ico. On the other hand, Mex­ico and Canada re­veal great re­cip­ro­cal sym­pa­thies for each other, prob­a­bly a closer align­ment on some of the key pol­icy po­si­tions around en­vi­ron­ment, en­ergy, and se­cu­rity. We should also not ig­nore the fact that some have pegged the Mex­i­can econ­omy as be­ing the fifth largest econ­omy in the world by 2050. It is pos­si­ble that a re­newed in­ter­est in a more mus­cu­lar North Amer­ica might be some­thing which could re-es­tab­lish it­self, but it may also be the case that a strength­ened North Amer­ica falls by the way­side as a byprod­uct of this pe­riod of dis­rup­tion and na­tivism. In con­clu­sion, we are in a pe­riod where trade has been vaulted to cen­tre-stage as a con­se­quence of the rise of populism and age of dis­rup­tion. We are see­ing fun­da­men­tal ques­tions about whether we want to pur­sue open or closed so­ci­eties. This new out­look looks sharply dif­fer­ent from the ex­u­ber­ant sup­port for glob­al­iza­tion and trade which ac­com­pa­nied the con­clu­sion of the 20th cen­tury in up­per North Amer­ica. The winds of change have been fu­elled by populism which, in it­self, most likely linked to a pe­riod of pro­tracted eco­nomic stag­na­tion, the end of progress, and the cri­sis of the mid­dle class, which is op­er­at­ing very much in sim­i­lar terms in Canada and the United States.

It also ap­pears that al­though Canada and the United States have worked in rel­a­tive lock­step on at­ti­tudes to trade, we may now be see­ing the emer­gence of a pe­riod of sharp di­ver­gence. We also note that there may be for­mi­da­ble, per­haps ir­rec­on­cil­able dif­fer­ences in the ba­sic vi­sion of trade and the econ­omy for the fu­ture laid out by the cur­rent NAFTA part­ners.

This de­bate about trade, while crit­i­cally im­por­tant in it­self, is not just about trade. It is fun­da­men­tally linked to some of the more ba­sic ques­tions about what kind of coun­try we want to hand off to fu­ture gen­er­a­tions. Will we live in a so­ci­ety which is more open or closed to the world? This is not just about trade, but also is­sues con­nected to na­tivism, populism, and xeno­pho­bia ver­sus a more open and cos­mopoli­tanism stance. Canada has been buf­feted by pop­ulist forces which we saw play­ing out in Brexit with Pres­i­dent Trump’s vic­tory.

Fi­nally, in a Canada which ap­pears in­creas­ingly to have two fun­da­men­tally ir­rec­on­cil­able vi­sions of the fu­ture (the con­ser­va­tive and pro­gres­sive vi­sions), the area of open trade pro­vides an im­por­tant area of so­ci­etal con­sen­sus in this new age divi­sion. For that rea­son alone, it may be dou­bly im­por­tant for Canada to in­sist on its path for­ward to be pur­su­ing a more staunch com­mit­ment to trade in par­tic­u­lar and, more gen­er­ally, an open—not closed—so­ci­ety.

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