Canada needs industry leadership
More guidance can help stabilize economy as the U.S. changes trade policy
With less than six months until the U.S. elections, Canadians are fretting over a potential Trump 2.0 presidency and what it means for trade, given his last tenure and campaign promises to impose a 10 per cent tariff on imports. But viewing November as a “fork-inthe-road” leading in two different directions misses a broader ongoing shift in U.S. trade policy.
A better metaphor for thinking through the road ahead is offered by the “Three Body Problem” popularized by the Netflix series based on the novel by Caixin Liu. It borrows from the mathematical quandary where three large mass bodies orbit around each other in a chaotic manner that eludes an analytical solution. Liu creates a fictional civilization whose planet is in the field of three suns exhibiting the chaos of the three body problem. There are periods, known as “stable eras,” where the planet can safely orbit around one of the suns, but over time one (or both) of the other suns would get close enough to disrupt the pattern ushering in a “chaotic era” with apocalyptic consequences for the tiny planet.
Canada’s international trade relations could be a parallel of the tiny little planet at the mercy of three bigger bodies interacting with each other. From early colonial days our economy orbited around the U.K. But as the U.S. consolidated and grew in economic strength, it exerted a gravitational pull on Canada. This wasn’t a smooth transition either, geopolitical tensions between the two powers or domestic politics would lead to policy shifts that either eroded or granted market access for Canadian exports altering the trajectory of economic development. Canada found itself oscillating between stable and chaotic eras, with concomitant policy responses.
For a long time, Canadians thought there were only two suns, the U.K. and the U.S., and that we had a good grasp of celestial mechanics. We’d make some minor adjustments to our understanding, as when the U.K. entered the European Common Market in 1973. By 1989, Canada believed it had Newtonian certainty with the Canada-U.S. Free Trade Agreement. New trade technologies, in the form of the multilateral World Trade Organization (WTO), allowed Canada to make additional voyages to far flung corners of the known universe.
The rise of China brought new trade patterns with it when it acceded to the WTO in 2001. Today China is Canada’s second-largest trading partner after the U.S., it’s also the largest trading partner of many of the world’s economies. As China began to occupy a more central role in the system, the U.S. has been thrown off its stable course.
China’s economic model combines top-down socialism and market forces challenging the world trading system premised on liberal principles. China’s pervasive use of subsidies has contributed to overcapacity, changing the nature of global competition. To respond, the U.S. has adopted a bipartisan shift that’s slowly moving away from open markets towards greater intervention and protectionism. Jobs and economic competitiveness (not to forget an expanding scope of national security) are the new principles guiding trade and industrial policy.
Even if U.S. President Joe Biden is re-elected, the stable era that ran from the 1990s and which started to crumble around 2016 is over for now. U.S. policies will be driven by its own interests with little thought of its trading partners, including Canada. As other countries respond, the dynamics of the global economy will change.
We’re not necessarily doomed; efforts are underway to keep the Canada-U.S. orbit intact through attempts to introduce policies that align with U.S. concerns. Globally, the Canada-EU Trade Agreement provides a strong, though underutilized, apparatus connecting us to Europe along with the Indo-Pacific Strategy trying to strengthen Asian attachments. However, these will remain empty channels if Canadian businesses are neither alert to the shifts underway nor take action to pursue and maintain markets.
Industry leadership, at home and abroad, is needed for Canada to find a stable orbit amidst the chaotic era we’re now living through.
Even if U.S. President Joe Biden is re-elected, the stable era that ran from the 1990s and which started to crumble around 2016 is over for now. U.S. policies will be driven by its own interests with little thought of its trading partners, including Canada