CANADA NEEDS A GRAND GESTURE ON TRADE
Symbolism of feds interrupting summer break to sign TPP would restore credibility, says Kevin Carmichael.
In 1930, Canadian voters elected a prime minister who promised to put “Canada First.” Richard Bedford Bennett, the Conservative leader, channelled popular rage over abusive United States tariffs into a landslide victory. Bennett promised retaliatory duties as onerous as those faced by Canadian exporters, and said he would strike trade agreements with members of the British Empire to reduce Canada’s dependence on its southern neighbour.
The new prime minister made good on those promises. Bennett took the tit-for-tat game to another level. And after the Imperial Economic Conference of 1930 fell short of his goals, he urged his counterparts to meet again. In 1932, Bennett hosted a second assembly of dominions in Ottawa, securing preferential trade agreements with the U.K. and five other nations. Deals with India and Newfoundland soon followed.
Most of us know how the Bennett’s retaliatory tariffs worked out. His attempt at trade diversification also flopped. David Jacks, an economics professor at Simon Fraser University, looked hard at the historical data and found no evidence that Bennett’s trade agreements changed anything.
“The experience of the years from 1929 to 1932 demonstrated the utter folly of either country attempting to `defy gravity’ and sever the links of capital and trade which had served to not only deepen the division of labor between them but also enhance their joint material well-being,” Jacks writes in a paper that was published by the academic journal Explorations in Economic History in 2014.
Almost nine decades later, Canadian politics is again seized with the idea of showing our American cousins that we can get on without them.
Prime Minister Justin Trudeau, who spent the past year obsessing over U.S. President Donald Trump, used his cabinet shuffle on Wednesday as a rebranding exercise. The trade minister is now the “minister of trade diversification.” The minister of small business and tourism became the “minister of small business and export promotion.” Tourism, an increasingly important economic engine, will be the primary responsibility of a third minister.
The Official Opposition joined in the gimmickry. Andrew Scheer, the Conservative leader, sent a letter to Trudeau on Thursday that calls on the government to reconvene the Commons this summer to pass legislation that would ratify the Trans-Pacific Partnership, the trade agreement that includes Japan, Canada and nine other Pacific nations in Asia and Latin America. “This should be your new cabinet’s top priority,” Scheer wrote.
Jim Carr, the new trade minister, dismissed the request as a stunt, as it probably was. But that doesn’t make it a bad idea. Canada’s leaders have a credibility problem when it comes to trade diversification and a grand gesture could help overcome it.
Scheer, in his letter to Trudeau, claimed Canada’s trade agreement with the European Union as a Conservative initiative, since former prime minister Stephen Harper’s government was responsible for most of the negotiating. Scheer also reminded the prime minister that Harper joined the original TPP, which included the United States. (Trump quit the TPP in one of his first acts as president.)
Yet trade patterns barely changed under Harper, in part because he put too little effort into trade promotion, wrongly assuming that Canada’s riskaverse business leaders would venture into the wider world on their own. And Scheer’s stated preference for trade deals with the U.K., a slow-growing developed economy, and India, which has a long record of intransigence when it comes to freer trade, over China, the world’s second-biggest economy, undermines his seriousness as policymaker.
Trudeau also is guilty of mixed signals. When he was elected, he declared that Canada was back as a player on the international scene; when Trump was elected, Trudeau promptly put his foreign affairs minister in charge of saving the North American Free Trade Agreement and told her to focus her attention on Washington. He promised to get serious about Asia, but has created the impression that Canada’s government is unready to conduct business in the region. Trudeau bungled free-trade talks with China, irritated Japan by playing hard-to-get on the TPP, and took an extended trip to India that resembled a Royal Visit.
We study history so we can change the future. Jacks reckons one of the reasons Bennett’s attempt at trade diversification failed was that Canadian executives doubted his seriousness. By January 1933, the prime minister was talking about a trade agreement with America, damping the incentive to look for customers in places such as India and Rhodesia.
The rules of economic gravity haven’t changed. For the most part, business transactions follow the path of least resistance. Economists have been able to show that variables such as economic mass and distance dictate trade flows more than commercial agreements. Canada shipped abroad almost $11 billion worth of lumber in 2017 despite the imposition of U.S. duties, more than double the value of all merchandise exports to South Korea, a country with which Canada has had a free-trade agreement since 2015.
Carr insists that Canada will be among the first six countries to ratify the TPP, which is the magic number for implementation. Only a couple have approved the agreement, so a special vote wouldn’t automatically trigger preferential access to countries such as Australia and Vietnam. Still, it would send a signal that the federal government’s interest in trade diversification is more than a passing fancy. More would be required, of course. But the symbolism of politicians interrupting their vacations to advance freer trade would make their stated trade goals more credible. History suggests they shouldn’t take that for granted.