End cow-tectionism

Despite all the talk of freer trade and ending protectionism, studies suggest Canada’s borders remain too thick

For annoyance value, it’s about a toss-up between being bribed with your own tax dollars (see the increase in the Universal Child Care Benefit) and being lobbied to support a policy boondoggle with the rippedoff profits the boondoggle makes possible. I have in mind, of course, the current “Milkledown” campaign of the Dairy Farmers of Canada, who are protected by tariffs upwards of 250 per cent and — who can blame them? — don’t want such sumptuous policy treatment to end.

“Milkledown,” as Stephen Gordon explained earlier this week and as you may have read on the ad pages, argues that if we reduce dairy tariffs and Canadians start buying their milk and cheese in the US, Australia, New Zealand and other places, this will cause disproportionate harm to the Canadian economy. Dairy farmers buy things from other Canadians, you see, and so there are multiplier effects to be considered. Statistics Canada’s input-output tables suggest that’s true, though I wonder just how true. If a Canadian dairy farmer is in the market for a new milking machine, does he or she really look only at Canadian-produced models and never, ever at Swedish, Dutch, British and other alternatives? And would he or she really be happy with a 250 per cent tariff on such machinery if that were deemed necessary to protect its Canadian manufacturers?

“Milkledown” is, of course, a take-off on “Trickle-down.” What’s missed in the commentary so far is that “trickle-down” was used almost exclusively sarcastically to mock Ronald Reagan’s idea that reducing taxes on Americans who paid taxes would ultimately, by causing economic expansion, benefit even those who didn’t. In fact, trickle-down actually makes sense: Lower taxes tend to have that effect. But Milkleldown is just the ancient protectionist screed — cow-tectionism in this case — that all imports must be bad for an economy. Why? Because money spent on imports is money not spent at home. QED.

It’s an error people of liberal temperament have been battling for the last three centuries. Sad to say, it has recently risen up from the graveyard of defunct ideas in the form of the locavore movement. Human beings have such a fierce predilection for xenophobia you’d think we’d be wary of any and all justifications for hiving ourselves off from “The Other.” What’s especially disturbing is that localism seems strongest among young, otherwise intelligent, supposedly progressive people.

Yes, if we all started buying our milk elsewhere, that would be bad for dairy farmers. Though I doubt they’d all go out of business I also don’t envy them the adjustment. But suppose we did for all our industries what we currently do for dairy. (And if we do it for dairy why not for everyone else?) What would be the outcome?

Tariffs of 250 per cent on imports of everything would just about end imports of everything. As a result, there would be lots and lots of buying from each other. But also as a result, we’d be poorer. We’d have access to many fewer goods: Canada’s 35 million people can’t produce everything the world’s seven billion people can.

And many of the goods we did produce for ourselves would be lower-quality and higher-priced than before. (Canadian bananas, anyone?) Our domestic producers would face less competition and would be less efficient and even more arrogant as a result. And we’d have much less exposure to foreigners, which since experience with The Other is generally enriching, would impoverish our lives. Nor, not being as rich as before, could we make up for that loss by travelling more.

What about the typical Canadian view that without protection there’s nothing we could make well enough to export? That’s the intellectual equivalent of the milk byproduct that piles up outside the barn as winter goes on, getting deeper, richer and steamier. In most industries other than dairy and poultry, which is also supply-managed, tariffs have come tumbling down over the decades and we are still despite that a major exporting country. Foreigners evidently like many of the things we produce. And if it ever happened that suddenly they didn’t, prices would adjust, the dollar would fall, and our exports and imports would be brought back into at least rough balance.

Two new studies, one from the Bank of Canada, the other from Statistics Canada, suggest that despite all the angst these days about foreign competition our borders remain thick (to use the technical economics term) and may even be getting thicker. The Bank study looked at “border effects,” the tendency of trade within a country to be greater than trade with its trading partners, all else equal. It finds that, despite our infamous interprovincial trade barriers, Canadian provinces remain nine times more likely to trade with each other than with American states. For instance, Quebec is contiguous with both Ontario and New York state and trades a lot with both. But it trades much more with Ontario than it “should,” if you believe distance and economic heft (New York being a very hefty place economically) are what determine trade flows.

That figure of nine varies from province to province — Prince Edward Island’s home bias regarding the US is fully 47.5 — and from trading group to trading group: Provinces on average are 46 times more likely to trade with each other than with EU members, though the new agreement with Europe presumably will reduce that at least somewhat.

True, the border effect with the U.S. is down from what it was before the full implementation of NAFTA. But even so, it’s nine. Nine. Nine would seem to a pretty strong local preference. It’s not all from xenophobia, though some may be. Parts are from habit, familiarity, language, better knowledge of home-country laws. And it may actually be rising a bit. The Statistics Canada study looked at the cost of trucking goods to the U.S. and found that administrative changes in the years following 9/11 caused it to jump by as much as $200 per shipment, though there’s been some falling off in such costs since. Still, it found that the “tariff equivalent” of trucking costs is now 0.62 per cent. That’s hardly a gigantic number. But it had been only 0.33 per cent.

Borders remain thick. They may even be getting thicker. Local producers have a substantial advantage already. None of them needs and they certainly don’t deserve, not even those producing a lovely white liquid subliminally associated with motherhood, a 250 per cent tariff.